馬斯科 (MAS) 2002 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Masco Corporation 2002 second quarter earnings conference call. The press release and additional information this morning is available on Masco Corporation's website at www.masco.com. As a reminder today's conference is being recorded and simultaneously webcast. After a discussion by management, the call will be open for analyst's questions. If we are unable to get to your question during this call, please call Masco Corporation's Investor Relations office at 313-792-6646.

The following discussion may include several forward-looking statements related to Masco's future sales and earn growth potential. Actual results may vary because of various factors including external factors over which Masco Corporation has no control. Additional information about Masco's products, markets, and expectations which could affect future performance is contained in the company's annual report and form 10K report filed with the SEC. Now I'll turn the call over to the Chairman and Chief Executive Officer Mr. Richard Manoogian. Go ahead.

Thank you, Eric. We are pleased to report that the positive business trends that we experienced in the first quarter of 2002 have continued with our sales and earnings for the second quarter coming in better than originally expected. And by acquisitions, second quarter 2002 net sales increased 12% to a record $2.3 billion compared to $2.1 billion in the second quarter of 2001. Net sales from our North American operations were up 11% and international sales increased 18%. Excluding acquisitions and divestitures, world wide net sales from internal growth increased 8% for the quarter, significantly higher than most other companies in our industry. Largely as a result of continued market share gains.

North American internal sales increased 9% and international sales, aided by a weaker dollar, increased 5%. International sales in local currencies for the quarter were comparable to the second quarter of last year. Masco's net income for the second quarter increased 35% to a record $214 million compared with $158 million last year excluding good will amortization. Earnings for common share increased to 43 cents compared with 34 cents per common share or 30 cents as reported including good will amortization last year.

As I mentioned earlier, our second quarter sales and earnings results exceeded our expectations. In June we gave guidance that we expected our second quarter to be between 40 and 42 cents per common share. We updated that guidance two weeks ago and said it would be the higher end or slightly above that range. The 43 cents that we earned in the second quarter exceeded by 2 cents the analyst's consensus estimate prior to our updated guidance two weeks ago. I should point out that 2002 second quarter had one additional shipping day compared with last year. We estimate that this resulted in 2002 second quarter earnings per common share being approximately 1cent more than would have been achieved with a comparable number of shipping days. This was more than offset, however, by unusual items including a loss of approximately 2 cents per common share from the disposition of certain operating assets, primarily marketable securities.

Gross margins were 33% in the second quarter of 2002 compared with 30.5% in 2001. Operating margins before good will amortization and general corporate expense increased to a strong 18.1% compared with 15.5% in the second quarter of 2001. Margins were aided by relatively high incremental margins on internal growth, profit improvement programs and product mix. While we expect second half margins to be modestly lower than the second quarter due to seasonal factors and product mix, we now believe based on present trends that operating margins for the full year should increase by at least 150 basis points over last year.

SG&A expense as a percent of sales was 6% compared to 16.2% last year and general corporate expense decreased to 1% of sales from 1.2% in 2001. Our segment sales for the quarter were [prints] and related product sales were up 10% year over year to $682 million and also up 10% excluding acquisitions and divestitures. Plumbing product sales were $509 million up 14% from the comparable 2001 quarter and up 13% excluding acquisitions. Installation and other services sales were $398 million including the effect of a divestiture, sales were down 11% excluding the divestiture, sales were up 2%. Installation material costs were significantly lower during the second quarter. Most of the benefits of which were passed on to customers in lower selling prices. Excluding this impact, sales would have increased in the high single digits. Segment sales of noninstallation services and products increased at a double digit rate.

Decorative arts architectural sales increased 6% to $440 million and other specialty product sales increased 118% to $285 million, excluding acquisition divestitures, sales in this group were comparable to 2001. Particularly strong product groups during the quarter included faucets, assembled cabinets and paint. Combined sales of these three groups grew at a double digit rate during the period. Key retailer sales for the second quarter continued positive with combined sales to Home Depot, Lowes and Wal-Mart increasing by approximately 11% in the quarter. We strengthened our balance sheets during the second quarter. We raised approximately $600 million from an equity offering resulting in debt as a percent of total capitalization being reduced from 48% at the end of 2001 to approximately 43%.

We ended the quarter with over $600 million of cash. If you applied $500 million of excess cash not needed to run our businesses to reduce debt, our net debt as a percent of total capitalization would have been lowered to 39% at the end of the quarter. Masco has had a tradition of financing when the capital markets are attractive. As a result during the quarter we issued $500 million of ten-year notes enabling us to eliminate virtually all of our outstanding bank debt. We may also issue additional long-term debt during the second half of 2002 to prefund debt requirements coming due in the next few years. At the end of the quarter, we had unused bank lines in excess of $2 billion.

On July 22nd, holders of zero coupon notes issued a year ago had the option to put the notes back to Masco and receive their accreted value in cash. Substantially all holders of these notes elected not to exercise the right to require the company to repurchase their notes. During the quarter we repurchased approximately 300,000 shares of our common stock for employee stock incentive programs. In July as a result of the sharp market decline, we reactivated our share repurchase program and purchased approximately 1 million shares of our common stock, a portion of which will be used for employee incentive programs.

While we consider the current price of shares to be attractive for repurchase, we are committed to continuing to improve our balance sheet and have as a goal to achieve a credit rating upgrade within the next two years. This goal will strain our share buyback program from what otherwise might have been done. Working capital defined as accounts receivables and inventories less accounts payable approximated 22.8% of annualized sales of June 30th, a significant improvement over the 25.5% of a year ago. Accounts receivable at the end of the second quarter were 59 days compared with 54 days a year ago primarily as a result of extended terms with a major retail customer.

Inventories improved to 77 days compared with 91 days a year ago and accounts payable were extended to 27 days from 23 days a year ago. Internal growth, margin improvement, and working capital management all contributed to significant improvement in return on assets. Annualized operating profit compared to net assets defined as accounts receivables and equipment and good will less accounts payable improved to 19.2% at June 30th compared with 17% a year ago. Excluding good will, return on assets improved to 34.5% from 28%. We are very pleased with the continued progress in this important area of focus.

We extensively reviewed our asset management and acquisition strategies in our June investor meeting. One reason for the recent acceleration in our earnings growth is the contribution being made by acquisitions completed several years ago. We have often stated that the real benefit of acquisitions we make comes several years after a company joins Masco when their internal growth can make a significant contribution to our bottom line. I believe that our acquisition program over the last few years is beginning to make a more positive contribution to our current earnings and will add significantly to our earnings growth over the next several years.

We webcast much of our June investor's meeting, but if you would like a printed transcript of that meeting, please call our investor relations department. In accordance with the previous statements, we reported a noncash impairment charge of $117 million pretax or $92 million after tax, 19 cents per common share for the write down of good will related primarily to certain European acquisitions. As we have discussed, economic-related business conditions for certain European operations have been difficult in recent years. The good will write down with a January of 02 effective date was due to the adoption of new good will evaluation accounting rules issued by the financial accounting standards boards.

While this accounting rule requires us to reduce the amount of good will related to past acquisitions if the value of those businesses has declined, it does not allow an off setting increase in the value of acquisitions that have appreciated in value. We believe that if you aggregated all our purchase acquisitions in recent years, the value of those companies today based on their current earnings is greater than the total purchase price paid for those companies. We also previously stated that the liquidation of the assets of Lifestyle Furnishings International is expected to result in a gain for Masco Corporation. While that gain has been reduced by the recent decline in the value of Furniture Brands International shares, one of the major assets we are receiving in the liquidation of LFI, we have determined we can achieve additional tax benefits related to the liquidation of LFI which requires us to defer gain recognition until the underlying assets are actually sold; thus, any gains will be deferred into future periods until such assets are sold.

The company's 34% effective tax rate for 2002 first quarter continued in the second quarter. This compares with 35% in last year's second quarter and 34% for all of last year. We expect the 34% rate to continue for the balance of the year. An issue that's been widely discussed by investors and others is the accounting treatment of stock option shares. As many of you know, Masco has been relatively conservative and has a relatively low percentage of options outstanding as a percentage of total shares. Today I believe that the average S&P 500 company has stock options well over 10% of their outstanding shares. Our peer group of companies has stock options equal to 10%.

In the case of Masco at year end, our stock options were less than 5% of our outstanding shares. In the footnotes to our financial statements, we indicated that if we had expense stock options, the total impact on our earnings last year would only have been 4 cents per common share. We plan to review the question of expensing stock options later this year after the accounting industry has better resolved the treatment of this issue, any change should have a relatively minimal impact on Masco's earnings per common share. If we adopted the approach Coca-Cola has communicated this year, as an example, our earnings would only be reduced by approximately 1cent per share increasing to 4-5 cents annually in five year's time.

Historically, we have also issued restricted stock awards to retain and motivate key people within our organization. We purchased these shares in the open market so there is no shareholder delusion and we expense the value of these shares through our income statements as they vest so they have been fully reflected in our earnings results.

I am also pleased to report that Tim Wadhams, our Chief Financial Officer, and I, as Chief Executive Officer have satisfied the recent FCC order by certifying to our knowledge that Masco's SEC filings covered by the order do not contain untrue statements of a material fact or admit to state a material fact necessary to make the filings not misleading. Our sworn statements have been filed with the FCC.

We are pleased with the performance we achieved in the second quarter and the second quarter positive trends in sales and incoming orders have continued in July. Based on results to date, we expect July sales will again show double digit increases over the year ago month with internal growth again achieving a high single digit increase. Recently implemented profit improvement programs are continuing to enhance margins and as I mentioned earlier, we expect profit margins to improve by 150 basis points by 2002. We have also implemented a number of programs aimed at improving our return on assets and cash flow and we are achieving significant improvement this year in both of those areas.

If present positive sales and economic trends continue, we believe that third quarter earnings should approximate 41-44 cents per common share. Full year 2002 earnings excluding the first six months noncash accounting change charge of 19 cents per common share related to good will impairment should approximate $1.50 to $1.55 per common share. I might add that this guidance takes into account the 2 cents delusion in the second half of 2002 resulting from the recent equity offering that I mentioned earlier.

Now, operator, I'd be happy to throw the meeting open to any questions.

Thank you, sir. The question and answer session will be conducted electronically. Any participant wishing to ask a question, press star one on your touch-tone telephone. We'll take the question as in the order they signal. Our first question from Jason Putman of Credit Suisse First Boston.

Good morning, guys and congratulations on the quarter.

Thank you.

A couple of questions. First of which looking at the income statement first, I noticed in your release that key retailer sales were only up 11% for the quarter and had been tracking around 18, 17-18% for the past quarters. Is there a slow down or a result of inventory adjustment, can you just give us some more detail there please.

We have not seen a slow down in retailer sales of any significance when you take our products in aggregate. The reason for the disparity mentioned, our big three sales were up 18% in the first and up 11% in the second is due to two factors. First of all, a year ago the first quarter was particularly weak so the comparisons were a little easier to make. Secondly in the second quarter of last year, Home Depot ran a very strong promotion on Bear for Memorial Day and resulted in substantial sales a year ago in that quarter. They did not run the same extent of promotion this year so that distorts the comparisons a little bit year over year. If you took that promotion out of last year's results, you would've seen a comparable increase in our quarter sales for the big three this year as compared to the first quarter.

And looking to your guidance for the remainder of the year, seems like you are being conservative since the July trends have held up, are you concerned about the economic numbers coming out or do you feel if business conditions held flat with what you are seeing in July, you would exceed that range still?

We have not lowered our guidance for the year. We had not given a third quarter guidance previously and what we are going by are investor's consensus estimates of $1.50 to $1.55 which we think are reasonable given what we see today and if you take the $1.50, $1,55 if you take the low end of that range, we think the 41cents that we talked about in the third quarter would get you to that number given that the fourth quarter is seasonally lower. If we achieve the 44 cents we put in as the high end of the guidance, that number plus the normal fourth quarter would get you to $1.55.

The reason that's not up compared to the fact that the second quarter improved better than expected is that we are absorbing that 2 cents of delusion as a result of the equity offering in May. So, on a comparable basis if you had not had that equity offering, our forecast would have been $1.52-57. We think we're being a little conservative, but given the uncertainty in the economy, it's probably appropriate that we do that. We've heard from other suppliers in the industry in flooring and furniture and other markets that they've seen slow down. I have to tell you with haven't as yet seen that slowdown but it's appropriate to be a little conservative going forward.

Sure, then just a last question relates to the balance sheet. Really the $600 million equity offering along with the bond offering in the quarter, just wanted to maybe go through your priorities in what you plan to use the cash for. Obviously cash was up $400 million, close to it for the quarter and I guess your debt was just up slightly. But still a lot of cash on hand and doesn't seem there's any maturities due throughout the remainder of 02, can you classify your priorities.

You're right no maturities due in '02. We have $200 million of maturities due in 03. Part of our plan is to do additional bond financings, long-term financings if rates are attractive to prefund the notes and bonds coming due in the next couple of years. Having priority on the cash, we are not doing anything different because we have the extra cash or don't have the extra cash, our priorities are to make prudent significant acquisitions in the 5-10% range of sales, to do share buy-back when appropriate and first and foremost to generate a high level of internal growth within the company and fund our expansion to support that growth.

So there's nothing that we should expect in the pipeline now that you're not bulking up for a big acquisition, just taking advantage of interest rates.

We said on a number of occasions that at any given time we have a number of acquisitions in the pipeline but our goal is to make sure have a balance of cash and stock in those acquisitions to maintain the strong balance sheet. We certainly would use some of that cash in acquisitions between now and year end. We are not working on what you would call a major billion dollar type acquisition. That is not part of our strategy. We like buying the smaller companies in the $100-500 million sales range and we are working on some of those situations.

Okay, great. Thank you.

Again, it is star one to be placed in the queue for questions. Joseph Stroko of Merrill Lynch.

Good morning, Richard.

Good morning, Joe

In a statement that the company released, architectural codings were up double digit and the architectural segment was up only 5.5. I know there were other product lines in that segment, was there something else that was particularly weak?

Probably one of the slower growing areas we have in the company are in our builders hardware group both in this country and in Europe and those products are mostly in that segment.

Okay. And can you update us on the divestiture program. We did see that MCo is considering putting themselves up for sale. Is that one of the planned divestures?

What MCo said is they have appointed a special committee to review all strategic alternatives for the company going forward. Complimentary to that we have said on a number of occasions in the past you that we have nonoperating asset that is we hope to liquify over time and clearly MCo is one of those investments, although we would do so only in a way that was beneficial and attractive to all shareholders to MCo in addition to ourselves, so the strategies that MCo are looking at might achieve some of the goals that we have at Masco.

Okay, so that is consistent with whatever the special committee proposes.

And consistent with what we've said in the past.

Excellent.

I would just add that MCo is doing exceptionally well. They reporting record results well ahead of expectations and based on the recent statements expect that trend to continue as far out as they can see based on current trends.

Excellent, Richard. I appreciate the answers today. Thank you.

Next we'll hear from Larry Horn of Parker Hunter.

Somewhat of a detailed question. In our other income and expense line, you mentioned a $16 million loss largely on the disposition of marketable securities. And in looking forward to the current quarter, would you expect similar losses or none, we've had a great weakness in marketable securities as long as we are talking about stocks in July. Could you give any guidance to whether you might have similar size or greater size or lesser size losses on marketable securities in the third quarter?

Those losses, Larry, include other items. Plant dispositions and closings that flowed through there as well. Primarily losses related to marketable securities. It's hard to forecast that going forward. If you tell me what the market will do in the next two quarters, I might be able to come up with an estimate for you. At the moment we don't anticipate additional losses but may be modest ones between now and year end.

You might have some that are underwater on the books right now and assuming, you know, no improvement in the market through the end of the quarter, do you think you would be booking some losses?

We currently if you take our entire marketable securities portfolio, we currently have about a $28 million unrealized pretax loss in that portfolio, but it is a long-term portfolio so we don't sell that much of the shares at any given point in time. Whether we realize part of that loss or recover it will depend on market conditions.

So the chances of another $16 million in the third quarter are small.

I wouldn't want to make that strong a statement but no plans at the present time to have that much of a loss in the quarter.

And in terms of other disposition or nonoperating plant closings or anything like that, anything in the pipeline?

Most of that we should have behind us.

Thanks a lot.

Next we'll hear from Bud Budach from Raymond James.

Good morning, Richard, and congratulations on the quarter. Regarding the cabinets, the cabinet business was up 10% in the quarter year over year and if you would distinguish maybe between the wide channel and the build channel and maybe the shares in both, maybe between Mills Pride and Textwood.

I would say as a general comment I believe our sales to retail were even stronger in the quarter in terms of increases as opposed to builder channels. Even those relatively high ticket item, we've been gaining market share and gaining penetration at retail and had some very substantial increases during the period. You're right, the 10% number was for the group as a hole and included a relatively soft RTA market at retail in some of the Mills Pride products. You could just assume that most of our other brands were up strongly in the quarter.

Okay. We really have seen them do extremely well and continuing.

I will say we are working with our customers on the RTA side and hope they would implement new programs going forward that may result in a pickup in the RTA business in the second half. They were weak in the first half.

Is that include the [Twilling] group as well or is that excluded from that RTA comment.

No, I would exclude [Tavilla] from that comment, they sell to [IKEA] in Europe and other customers that are growing very rapidly and did have a nice increase in the first half of the year.

And the margins in that group were also pretty impressive. What can you tell us about the way you got them. Really through utilization or cost-cutting.

I would say two things. As you know we've mentioned a number of times in the past about major cost reduction programs in our cabinet group including plant consolidations and plant closures that improved our cost base and secondly the significant pickup in internal growth results in the combination in the cost reduction and the incremental margins translating into attractive margins you've seen in the second quarter.

What's a surprise and shouldn't have been is installation pricing. What do you see in the future of that, a deflationary impact on results in the quarter.

We did see a decline in the price of installation material which we passed through to our customers. That did not have any negative effect on us as you can see from our profit margins. If anything our margins went up on that group during the quarter. That resulted in lower sales but doesn't effect our profitability and we continue to see growth in that group and expect to hit our forecast we made for the year for that group which was a $1.7 billion. Adjusting for that installation price reduction if that were to remain for the remainder of the year, you would have to reduce that sales number modestly, but we still see substantial growth in that group and we're beginning to get increasing sales of noninstallation products. So our optimism hasn't changed at all in terms of the growth opportunities for the group.

And what do we characterize as modestly: $50 million? Is that a modest delta?

What was the delta.

Between if you had to reduce that because of the deflation.

I think you could assume that we are talking about price reductions of around 5% on installation so you could knock 5% off the aggregate sales of the group for three quarters if that were to remain for the entire year.

Thank you, Richard. And congratulations.

About $75 million.

Okay, that's helpful. Thank you.

Again, it is star one to be placed in the queue can cue for questions. If you find your question is answered, you can remove yourself by pressing the star 2 key. We'll next hear from Steve Hawkins of Lehman Brothers.

A couple of questions, what is in the other noncurrent assets in the number close to a billion 3 compared to $850 million.

Other noncurrent assets went up by $400 million in the quarter. Several other items in there, first of all the distribution of some of the Lifestyle Furnishing assets went into other noncurrent assets. Some of the liabilities that came into that went into accrued liabilities. We had a disproportion in the amount of assets temporarily flowing into that category. Secondly, we had one acquisition of $80 million that took place late in the quarter and because we didn't have the data yet, those assets have not been allocated to where they belong and that's temporarily in other noncurrent assets. On top of that, seasonally we have a pickup in those assets and we also have a pickup of close to $100 million in our Masco capital, a portion of which would run off by year end. I would say nothing unusual there that has any impact on earnings or net worth going forward.

Thanks very much. And secondly quickly what was the operating cash flow in Cap Ex for the quarter?

I don't have that number for the quarter but I can tell you on an annualized basis we remain on track for $280 million for capital expenditures even with the acquisitions we've recently made and expecting about $220 million of depreciation and amortization against that. Guessing Cap Ex for the quarter was probably around $60 million.

And I'm assuming you're sticking with the full year cashflow guidelines gave in June.

That's right. We expect to generate $1.3 billion in cash flow over the next two years, including this year, before dividend payments.

Okay. Great. And one last question, a little broader term and following up a little on some stuff asked earlier, you guys back in June talked about wanting to monetize equity investments and private equity stuff, I was wondering, it's about $750 million in capital that looks like it's tied up in those items and I know you guys did talk about monetizing them a month ago. Do you have a time frame? I would think it might not be a bad idea to accelerate them, if your own business is doing well and a great way to generate returns on capital is to monetize those and put them in to better effectively drive your core business. Any thoughts on that?

I would break the categories into two groups. One would be equity-related investments we no longer think are strategic to the company going forward that we want to liquify when the opportunity is right and that would include the MCo's and we have some remaining investments in industrial businesses and some other assets.

Secondly, we do have substantial assets in equity funds we talked about at length in our investor meeting, some 3-400 million in assets there which we are using to utilize our tax capital loss carry forward, and because we have a substantial loss carry forward that can only be used against capital gains, it's worth while to use to try to generate some capital gains because they are tax-free.

By the same token, I should mention that some of the equity affiliates we mentioned, the sale of those would also be tax-free, and therefore important we try to maximize the value of those whether in six months or three years because the higher value we can get, the more we can use that tax loss carry forward. I wouldn't want to rush something and do it in a way we are not getting maximum value but our goal is to liquify those assets as fast and as prudently as we can.

Thanks very much. Appreciate it.

Next we'll hear from Yuli Zimmerman of JMG Capital.

Are they going to be regular type of notes or convertibles.

We didn't say we were definitely going to do that but we said we'd take advantage of market trends and still think long-term interest rates are very attractive. If we issue notes, they would be straight debt. That could change depending on market conditions but that is our present thinking.

Next question from Steven East from AG Edwards.

Good morning, Richard. Could you elaborate on operating margins beyond what Bud asked, what drove it in the sustainability of these looking out over the next couple of quarters.

I think we were very pleased with the progress we've been making and I really have to complement the team within the company for achieving those goals. That's something we've been working hard on now for two years and as I said earlier, it's really a combination of extensive cost reduction programs within our operations. A number of plant closures, plant consolidations, we've done a number of cost reduction programs.

We had several operations that were dramatically underperforming that we treated as turnarounds and seen significant progress in those companies in the past six months. So I would just -- and then add to that the internal growth we are now achieving and told the financial community we averaged 37% gross margins on incremental sales up or down and as we generate growth, a significant amount can drop down to the bottom line. All that has been resulting in our margins coming back better than we had expected. The only reason I said the second half margins might be below the second quarter are for seasonal reasons that it's not unusual that in those quarters we'll be below the second quarter but expect substantial margin improvement going forward.

If you had to make an educated guess how much came from that operational leverage versus the cost reduction plant closures, et cetera, how would you characterize?

You can do your own calculations and if our sales were up 8% internal and you made 30% you can calculate what came from that versus what came from cost reductions. The only thing I caution you on that is clearly you can't keep all of the incremental margin because over time some of that goes to product development, customer rebates and merchandising and marketing programs. If you did the math on that, you would probably have a good ballpark.

I should also mention that the acquisitions we've been making also have very good margins and the acquisitions have added a bit to our margins over the past year as well.

Okay. A couple of other quick questions, your key retailer growth, do you all track it without acquisitions and if so, what would that be?

I don't have that number but I would say if you take the past year, we didn't have that many acquisitions that served that market so wouldn't have been a big number.

Okay. And then you talked about your debt level and credit rating over the next couple of years, where do you want to get that to?

Our present rating is triple D plus. Given the uncertain global economic environment we live in , a company like Masco should have at least an A or A minus reading, so my goal would be to see us get to that within the next one to two years.

And a debt to tow from where?

Around the 30-40% range but probably driven as much by cash flow against debt and interest coverage and those are the areas we are making nice improvement.

Okay. Thanks a lot, Richard.

As a final reminder press star one to be placed in the queue for a question. The next is from Frank Denow from Addix Capital.

In the installation in the installation business, when the price drops, do you maintain a constant dollar margin or do you price it where you're gonna maintain a constant percentage margin.

That can vary depending on competitive and other situations. Two things are happening in our installation group. First of all, we've really been achieving a lot of benefits from cost reduction, consolidation that we've done and particularly over the last 12-18 months where we've really put together a dynamic group of companies and been able to integrate them in a way we've reduced costs going forward which helped our margins. On top of that margins are affected by what the products might be, whether we are making manufacturing profits on those products somewhere else in the organization. I can't give you a good answer to that. Basically we price our product to get all the business we can get in the marketplace and the marketplace drives the margins that we achieve. The key is that we are only interested in good margins and you can see from the results we are doing better than people would expect in a service related business.

One other way, if you are passing through the price decline in installation, would that generally tend to hurt or help your margins as you report?

Normally it would probably help your margins if that's all you're passing through.

Right.

Because you have lower sales with the same profitability.

Right.

Typically you pass more than the price reduction when that happens but as you can see from the margins, that doesn't appear to be the case.

Thanks.

And with no further questions, Mr. Manoogian, I turn it back over to you.

As I mentioned earlier we are pleased with the results. Our business continues to be strong. We are optimistic with business as far out as we can see. The only caveat is that others have raised concerns about the economy. We are continuing with growing customers, we're gaining market share, spending significant amounts in investing in our brands and strengthening our position in the marketplace, developing new products and all that should continue to enable us to achieve significant growth going forward. So we thank you for your time and listening to our presentation. Thank you.

And that will conclude this Masco Corporation second quarter earnings conference call. We thank everyone for their participation.