莫霍克工業集團 (MHK) 2004 Q1 法說會逐字稿

Good morning. My name is Cassidy and I will be your conference facilitator. At this time, I would like to welcome everyone to the Mohawk Industries first quarter 2004 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like it ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star then the number two on your telephone keypad. Thank you. I will now turn the conference over to Mr.Lorberbaum, CEO of Mohawk Industries. Go ahead sir.

Thank you. Good morning. With me I have John Swift, our CFO, he is going to give our Safe Harbor Statement.

Thanks Jeff. Certain of the statements made during this conference call, particularly those anticipating future performance, business prospects, operating strategies, acquisitions, new products, the impact of military conflict and similar matters, constitute forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933, as amended. Forward-looking statements involve a number of risks and uncertainties. These and other assumptions could prove inaccurate and therefore cannot -- there can be no assurance that the forward-looking statements will be accurate. For those statements, Mohawk claims the protection of the Safe Harbor for forward-looking statements as contained in the Private Securities Litigation Reform Act of 1995.

Thank you, John. The flooring industry is continuing its improvement along with the balance of the economy. We see improvement in both the residential remodeling and commercial areas, which have lagged behind the residential new construction category. We anticipate both the economy and our industry strengthening throughout the year. Our net sales for the first quarter were about $1.4b an increase of 28%. Our net earnings grew significantly to $66.3m a 59% increase. And earnings per share increased to $0.98 per share a 58% increase. Our first quarter sales were higher than we expected offset with cost increases more pronounced and anticipated in raw materials, source products, and energy costs. John, would you please give our financial report

Yes sir. If we look at the net sales, the Mohawk segment came in at a $1.33b versus $800m last year up 28%. Dal-Tile $359m compared to $277m the year before up 30%. Overall $1.391b for the quarter, up 28% compared to $1.84b the year before in the first quarter, 7% of the increase has to do with the additional days, we had four more days in the first quarter of 2004 than we did in 2003. This will be reversed in the fourth quarter where we have four days left, that had a 7% impact, as I indicated. In addition, the acquisition we made during the fourth quarter had about 6% impact. If we look at gross profits, $355m up from $274m in the year before, 25.6% of sales. SG&A reduced 10% to 17% to $236m. Operating earnings $119m, 8.6% this compares to 7.2% the first quarter of 2003. Interest at $15m versus $13m the year before, part of that was unfavorable exchange rate part of it had to do with the increased debt with the Lees acquisition. Pre-tax came in $104m, our tax rate at 36% versus 36.5 % the year before primarily due to some credits we got which were favorable, and net income at $66m compared to $41m up 59% versus the previous quarter. Our earnings per share $0.98 versus $0.62. If we turn to the balance sheet we'll see the receivables are up $123m to $664m that's a 23% increase in receivables, if you may recall our sales were up 28%. If we do it on receivables days they both, first quarter of 2003 and 2004 are 45 days. If we look at inventories, $897m up $135m,. $50m of that had to do with Lees inventory, $50m had to do with hard surface but the inventories are only up 18% as indicated volumes up 28%. Our inventory returns for the first quarter were 4.6, that compares to 4.3 turns in the year before. Working capital came in at $783m, that is $0.14 on the sales dollar, $618m a year, the quarter before is also $0.14 in the dollar. Our debt-to-cap is at 29.6%, reduced from the December time frame.

Thank you. All of our product categories are experiencing increased sales and operating earnings. The operating profits in the first quarter were surprisingly good given the unanticipated rise in natural gas, oil and commodities and resulting rises in profit material, energy and distribution costs. Mark has announced multiple increases in carpet selling prices to pass these through. The impact of the lag between increased costs and selling prices were more pronounced due to greater cost increases than we anticipated. We expect to cover these increased costs by the end of the second quarter. The carpet industry has shown remarkable resolve to push increases through the channels when they occur. Other factors influencing the Mohawk margin were greater investments in our regional shows, product promotions, increased training in sales and manufacturing, conversion of the lease system and increased maintenance expenditures to support a more robust economy. The carpet products in residence and commercial are both showing improvement as sales are rebounding from the economically depressed first quarter last year. Our residential regional shows received a favorable response from our customers. New product introductions were implemented earlier with strong support from our retailers. No wonder our brand received the dealers' choice award at the national market. The commercial channel also continues to strengthen, projects which were postponed earlier are beginning to be reactivated by our customers. The commercial retail, hospitality, healthcare and assisted living channels are leading the improvement in the category for it. The integration of our Lees Carpet acquisition has progressed rapidly with all information systems fully integrated including operational, administrative and financial systems. The present lease business is still being impacted by the lack of investment in both product introductions and inventory levels during the prior ownership. The Lees service levels have been restored as we increase inventories to support the business. New products are being introduced to grow the business in the future. In addition, a value line of carpet tile has been introduced in the market under the Mohawk Commercial brand. Lees was accretive to our earnings in the first quarter. Our hard surface product continued to grow and increase its market share. We continued to extend our Mohawk brand, hard surface offerings and distribution. Our present products can fill the needs of every consumer in the marketplace. The Dal-Tile segment continues its hard growth trend. In addition to a strong residential and improving commercial market, sales increased due to the successful new product introduction, improved service and investments and additional sales personnel. The Dal-Tile margins were impacted by higher energy costs, exchange rates and transportation costs along with greater investments and sales personnel, distribution points, product introductions and the addition of new customers. These investments will continue our growth in the future. Our stone business also continues to expand. The products have a lower gross margin, but the operating margins and return on capital is good due to lower capital investments than our other Dal-Tile business. Dal-Tile also opened two new tile and stone galleries in the Annaheim and Las Vegas markets for a total of six. These design centers in major markets are used by architects and designers to select products for both residential and commercial usage. The product purchases are placed through our customers creating more regions to Dal-Tile. Discovery remains on schedule with our plan. It is running about 80% of capacity and we continue to introduce new products into the plan. The manufacturing costs are in line with our plan and will continue to improve over the next 18 months. We moved production between our own plans as well as outside sources to balance our capacities with our sales. Our home products are also seeing increases in sales due to increased consumer spending, new product placement, and market share gains. We put greater emphasis on innovation, design and a focused approach to each retailer needs. We're progressing with the unique sales organization focused on the specialty floor and retailer that are and Mohawk's select brand. Finally on Forbes report that Mohawk has been placed at number 349 on the Fortune 500 list, and 848 on the Forbes 2000 list. We're very pleased that we've been named vendor of the year by Lowes, Target, and Fred Myer, which reflects the emphasis we've placed on product development, service, and our value-added approach. In addition Mohawk received the Best Buy Award for value and multiple product categories in ceramic and lemon. The company believes that strong economic growth will continue. The industry could be affected either positively or negatively by future oil, gas, and material price. After considering these factors, the second quarter earnings forecast is in the range of a $27 to a $34 per share. We continue to feel confident in our strategy of being a total flooring company supported by low cost manufacturing, a quick delivery system, leading brands, innovative marketing and well designed products. Our management continues to find creative ways of creating more efficient processes, and assisting our customers in improving both their sales and profitability. With that we'll be glad to take questions.

Thank you. At this time I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Again, we'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Michael Rehaut with J.P. Morgan.

Good morning. How are you?

Good morning. Very well, thank you.

Just getting into Delta for a little bit, I was wondering if you could talk about, obviously very impressive sales growth and what you guys expect for the rest of the year in terms of sales growth and in particular, how much the - how many new people do you have on this sales force and what are you looking to do in the tile and stone galleries that you are - seems like you are rolling out more of those, what are your plans for that over the next one to two years?

Let's say, to begin with - we don't give our sales forecast going forward, we just give out for the next quarter earnings per share in the range, but given that, we still believe that the hard surface business is going to grow as an industry in the 6% to 8% range. We believe that, we're going to continue gaining share, going forward. We must go over that, to remind you that last year, the first half of the year was very weak in sales, and it continued to pick up throughout the year, so that comparisons in the second half will be more difficult than in the first half, but we believe that will pick up and we'll be doing better in the total economy. The design centers are placed in order to assist our customers and us in specifying more products in the market place. We believe that they have benefit and it takes very large market places for them to add value, and we believe somewhere in the neighborhood of 30 could be the potential deals in each of the market places as we go forward. I answer to most of the questions?

Yes, most of the questions. The things just to follow on that would be - do you feel that, I guess the design centers are actually bolstering your sales and in addition, if you could give some visibility on the - how many people that did you add to the sales force, and obviously that looks like that's bearings some fruit as well?

I don't actually have the number for the number of sales people in the quarter. What's happening is, we continue to add sales people to support the growing business and it's been going on throughout the past year and we continue to expand it as we go forward in order to support the growing business. And if you want call us back later, we can get you a number, if it means something to you, but I don't have it. What was the other part of the question?

The design centers you said, it's been more to support the large markets, but would you say that it's also contributing to improved growth?

Most definitely. Where we put demand we have found that we have experienced higher growth rates where they are and they are very attractive showrooms that designers, decorators, and architects come in to and utilize them as well as we provide assistance to them in how to utilize ceramic tile and stone for specific design and actually help them create more complex environments on the floor than they could have before.

And other is, cost going through on CAPEX and could you give us an idea what each one of these costs roughly?

A very little of it is CAPEX, it's mainly rental facilities, locations.

Both the investment in the people and - -

And expenses.

What would a center typically cost in upfront?

I don't think we have that number with us, but if you call us we'll be glad to give you a number.

Great. Thanks a lot.

Thank you.

Thank you. Your next question comes from the line of Laura Champine with Morgan Keegan

Good morning. Can you talk about what you think pre-buying might have added to sales in the quarter for, well, really for either segment, pre-buying in advance of price increases. (audio gap).

It's difficult to tell after - - in prior increases after the fact, it's difficult to tell because you have the economy improving, you have changes going on as it's happening. And with this one there are multiple increases about four to six weeks apart that are going to increase the prices again, so there is pre-buying in each one. There is some timing differences on how they take it out versus ordering and typically it impacts the business about six weeks after the fact. The order rate will go down, but the shipments will smooth out a little because we don't ship them exactly as they are ordered when they are pre-buying it. Is that so? We don't really have an exact method of evaluating it and after the fact we have a difficult time.

Sure. You started to tell us some of the buying. If you have to take a stab at it, would you say that economic growth has been much more important than pre-buying or could even qualify it like that?

Why, it's even harder now because of last year's weak sale. How much of it's caused by, the blip that was caused by last year's economic environment. So the first quarter of last year was very poor, so, one is you have to judge what that is and then you have to judge on top of that how much is the economy separate from that. It's difficult, we believed it. We don't believe that the industry is going to grow 10%. If you look back historically, we've consistently said that we expect the industry to grow some where around GDP or 3% on the carpet side and we don't believe that in this year. Historically, in years where the economies picked up, has jumped to 4% to 5%, every once in a while 6%. So those are the ranges and we don't know - - we don't have any reason to believe that this could be on an ongoing bases, different to that.

Okay, can you talk about -- can you quantify the growth that you're seeing in the commercial channel?

If you look at the industry numbers for the first two months, it shows the industry being up about 8% in dollars. But again it's against poor comparisons for the last quarter, so you have to again guess that what's going on there. We believe that the industry is turning around and they will continue improving throughout the year. If that's just the first two months against week comparisons.

Got it. Thank you.

Thank you. Your next question comes from the line of John Baugh with Wachovia Securities.

Hello John.

Good morning. You touched on several cost issues that were related to Dal-Tile. I was wondering - one if you could go through that list again and two may you put some color, on any of those, and give me a sense for -- on the carpet side with the price increases, give me a sense for what you've done on the ceramic tile side with price increases, and when, you know, the offset or at least you will neutralize the cost increases on the Dal-Tile side of the business, and part and parcel of that question, is there anything going on with the mix of what you sold in the first quarter and neither the Mohawk Division or Dal-Tile had accounted for, you know, some of the market pressure - Dal-Tile operating margins, what were the issues that caused them to be under pressure and what might be the timing of price increase there, when would that offset the cost pressures?

The first is the energy prices which - we had high energy prices in December, and since then the natural gas prices have gone up almost 24%, 25%, just on the natural gas prices. We also have the transportation costs, which are related to gasoline prices, which if you assume may have gone up the same as oil in the period, they have gone up another 15% approximately, also all starting from half point in December. So, those have all been additional, there has been some product mix change that has gone on in the marketplace as we have increase of sales and try to take more market share as well as there had been pressures on mostly products coming out of Europe with the euro change and the decline in the euro value, now it's not exactly proportionate to the euro, because some of that is absorbed by some of the suppliers, but it's still gone up dramatically.

Aren't you hedged on natural gas, and help me again with what you've done with pricing on the ceramics side and when you might expect to `recoup` the margin?

Okay. The natural gas I believe we have about 30% of it hedged, don't hold me exactly to the number, could be a little more, and so the rest of it is basically going up and down with the market. The other question is on the price increases, the price increase on the towel side has been in the neighborhood of 2% to 8% depending upon which product categories and where they've been on the ones that have gone up, all of them haven't gone up.

And that might, when did those go into effect and when did you get the offset, Jeff?

Some of them, the cost prices, as we purchased that are going up, the implementation of it started in the first to middle of February, but again it's a process of implementation, not a moment in time.

So, you would expect, I think your comment was by the end of the June quarter, ceramic tile business?

Yes.

Thank you.

Thank you. Your next question comes from the line of Susan Hager with Schroeder.

Hi, Jeff, I am wondering what the consumer is seeing in times of a price increase at retail and it was seen from your sales state that there doesn't seem to be much resistance or price elasticity. I am wondering if the consumers are also buying ahead of price increases?

Typically not, the consumers are more focused on when they need it and when they are shopping for it, multiple things happen, one is that we offer -- most consumers when they come to buy carpet actually find out it's much less than they expected to purchase, and in addition to which we offer multiple options, and in some cases the - - we trade them down, having nothing to do with how much they are willing to spend, but the ones that are price conscious other then the opening price points which are a limited portion of the entire volume, you can actually find alternative products at the original prices if you choose to only spend that much.

Thank you.

Thank you. Your next question comes from the line of Tommy Zilenziger with UBS.

Hi John and Jeff. I just had a question, a little bit more color on the commercial side of things. Last quarter you said that the low end had picked up and you are expecting the higher end to come in at the second half of the year. Have you seen any improvements there or is that still your indication?

We are seeing some improvement up through the stream. There are -- I'll just use examples. In our hotel projects that are starting to be brought on today, that were postponed, we are seeing some increase in activity in the higher end parts of the market place. It's not across the board and it's not in everything. I think the institutional and the corporate, we are seeing less increases than we are in some of the other categories.

Great, thank you.

Thank you. To our next question, comes from the line of Keith Hughes with Robinson Humphrey.

Thank you. I wanted to ask on Dal-Tile, what is the progress of the new Oklahoma facility? What kind of capacity rates are we running out there right now?

The Oklahoma facility is running about 80% of the projected capacity. The plant is operating in line with our projections for unit cost. We expect the major costs have been taken out but there is going to be continued decreases in manufacturing cost over the next 18 months as we continue to improve the efficiencies within the plant.

So in calendar '05 will it really start hitting strides in terms costs?

By the first half of next year it should be fairly close to where it's going to get in costs with the exception of -- there can be more cost taken out as we expand the business. We had to put x amount of infrastructure in it, as we put more capacity in the future it will effect the cost of the total plant.

Okay that's good enough. And just finally on the Mohawk corporate tile line, the lower price line there. Is that product being made by the Lees folks?

It's being made in the Lees facility. They are all Mohawk folks.

Okay, that's right. And would that be sold with the Lees sales reps or how is that being brought to market?

We are leaving the Lees sales group focusing on the value added sale and we are leaving the products and sales force together to focus on a specific customer and product category. This is being introduced with different styles, design, and different value proposition in the Mohawk commercial sales group.

Okay, thank you.

Thank you, your next question comes from the line of Errol Rudman with Rudman Capital Management.

Hello.

Good Morning Errol.

Good morning to you. We wanted to talk a little bit about how you are pricing in terms of protecting its commodity price increases in your margins. Do you have a policy such that you are attempting to recover the costs that have gone up or do you try -- are you trying to improve the margins as well?

Typically we try to get a little back that we may have lost in points in time as you have these multiple increases as they are, it becomes more and more and difficult as the amount of the increases have gone up dramatically. So at this point we are more focused on recovering what we have, what we have gotten. It's got to do with the amounts and the frequency of the increases are very difficult to get through the industry like we'd like.

Is most of the resistance occurring at your customer level or at the retail level?

The resistance -- nobody likes to get increases so the resistance is mostly at the -- our customers' level, that is in their customers. But I have to say, the increases at this time have gone through as well as any as we've had in our history because the amounts of the increases by our suppliers to the industry are so great we don't have an option not to put them through, as well as our suppliers' margins have been so depressed that as these costs have come to them they don't have any option to pass them through, which is why we are getting these multiple increases -- is that they can't anticipate what is happening and they are passing them through as they come to them.

Okay, Errol had a question.

Just a quick follow up. Hard surfaces, what percentage of total sales is hard surface?

Like around 30% of the entire business if you add it all up together.

And in your initial remarks you made a comment about Mohawk Hard Surfaces. What is the differentiation strategy between Dal-Tile and Mohawk? Just to help us understand a little better.

Historically Dal-Tile had focused on contractors and large tiled dealers. They had a limited portion of flooring retailers and they also have limited portions of the residential business. So, the Mohawk brand is focused on the retail flooring dealers where the Dal-Tile brand will overlap it somewhat but only where there are the large dealers in those. In saying that we sell ceramic under three bands, actually under four brands today. We have Dal-Tile, Mohawk, American Olean which is an independent distributor brand, as well as a brand that we take to the major home builders we call Portico, and there is some overlap, and you may find in some establishments at least all three of the brands.

Okay, but do you have a separate sales force for Mohawk's hard surface?

The Mohawk hard surface is sold by a separate sales force and separate sales management, but they also carry the other hard surface products that we have under Mohawk, which is wood, laminate, vinyl, and ceramic. All together under the Mohawk brand.

So, when you dig the deal with Dal-Tile, your intention was to do this cross selling into the huge retail mom and pop shops, and where do you think that's come along? Are you seeing the sales come up or you think you are just positioned at the right time, right now with all the sales people?

I think what we are seeing is an increase in the Dal-Tile business, I am getting points and time mixed up, 8 point in time their residential business and their commercial business were about equal. Their residential business is growing dramatically and it's because of the expansion into the residential business through a broader product line, more sales people, etc, at the same time the Mohawk brand is also growing. Both brands and product lines are being managed by the Dal-Tile group, so it's a extension of their sales growth -- is an extension of their marketing, but it's controlled by the sales people in the Mohawk position.

Do you intend to add Mohawk hard surfaces to the general hard surface line at some point, how will you break out Dal-Tile separate, could you call it soft versus hard?

We don't have any plans to do that at the present time.

Thank you.

Thank you. Once again I would like to remind everyone. In order to ask a question, please press star then the number one on your telephone keypad. Again, we'll pause for just a moment to compile the Q&A roster. Your next question comes from the line of David Herman with Capital.

Could you remind us what your intentions are to do with the strong free cash flow, you guys are generating, your debt to capital is 30% and I guess the Oklahoma facility spending is coming to an end. How should we think about you redeploying your capital going forward?

It's been consistent. Our priority is to do acquisitions and the flow in categories to grow our share. We believe that it's going to continue to be a consolidation in the total flooring industry and you're going to end up with a limited number of large flooring suppliers crossing the categories, and we are going to continue looking for acquisitions instead of strategy and all the different product categories. We'll continue spending money on capital expenditures as needed to support the business. Stock buybacks are then an option for the cash flow and finally dividends would be considered if we determine if it's better than buying back stock, but we haven't taken that route at this point.

As you're looking for acquisition, is the environment out there pretty active on the M&A side, you are going to build capacity on your balance sheet or at what point will we start looking to redeploy the capital beyond acquisitions.

Acquisitions, there are never any guarantees of what's going to happen. We are constantly in discussions with various alternatives, very few of those come to fruition because of the value or philosophies or a lot of different issues, but we're always working on various options.

I guess besides the natural gas price increase you talked about on the ceramic side, obviously you are seeing quite a bit of increase on the fiber side, the raw materials of the fiber. Can you remind me, you know, when those price increases occurred and I know there was one in December, I think, you said there was one in January and one in March, is that correct or am I mistaken?

It is difficult to talk about them as a whole and fiber is only a portion of the increases. Typically, when we talk about fiber those are increases from the nylon suppliers. We also have polyester suppliers, polypropylene suppliers, we have backing suppliers, chemical suppliers, latex suppliers, and each one of these things, almost all the material starts from oil and gas pieces, we have had increases in December, January, February, March, and more in April, we're all here and they are all flowing through the different amounts from different suppliers.

Okay and this is the last question. A caller asked earlier about the pre-buying, how does that simply work? I didn't think they would be much capacity for inventory storage by your customers and your dealers and retailers. So, how impact is you're pre-buying the delivery days?

It is -- there are a portion of the customer base that still sells back inventory and those customers that do that tend to increase their orders for the future and they bring it in sooner at the old prices, because their cost of holding it, they consider less during the increases. So, that portion of the dealer base typically does increase, it tends to be in the lower price points that are advertised by the dealers, as well as in the price points of the commodity items going in a new construction business, as well as these commodity prices going into the apartment, all of which hold the inventories.

How forward do they place their orders? You're having customers buying now for three months out or six months out or is that atypical?

Well, we used to except we figured that one out and we give them two weeks to take it up.

So, they are ordering, it's two weeks gone for your system?

Correct.

Okay. Great, thank you guys.

Thank you and your next question comes from the line of Michael Rehaut with JP Morgan.

Hi, just a follow up on, you had mentioned a couple of times the -- you have several price increases, you know, in store and I was wondering if you could just walk us through sort of the, you know, timing of that and, you know, just to remind us that, you know, you started off with the price increase, I think it was in the beginning of February or mid February, just starting at that point with the present increase and then the next couple that you have planned. Thanks.

The corporate increases, the first increase that was announced started being implemented in mid February and the second one, I think it's the first week in April and the next one is the two weeks later after that one. And the accumulated amount of those things in the general piece ranges from about 5% to 10% in general with some exceptions in all directions.

So, that would be in the 5% to 10%, you are saying would be the sum of the three increases you just mentioned?

Correct.

And then going forward do you have additional ones increases or when you talk about second quarter, that had taken through the end of the second quarter before you see all that flow through. Are you referring to the three increases that you just mentioned or there are others coming?

It's the implementation of all those increases.

Okay.

Even though we talk about them as a single moment in time it is not. There may be, we don't know when we talk to our suppliers, they have no idea what's going to happen to the basic chemicals and the cost of effect down and which is one of the reasons, our industry would have preferred to do this once, but our suppliers don't know what is going to happen either in the future.

So, at this point -- you think that there is more flexibility, you know, if your suppliers come through, you know, prices continue to rise, that you will be able to at this point to continue to pass those along

That's the goal.

Very good thanks.

Thank you. Your question comes from the line of Barbara Allen for Natexis Bleichroeder.

Thank you. I was wondering - I just want to make sure I understand your sales growth. When you say that 7% of the sales gain was due to the four extra days. Do you mean that without that your sales growth would have been 21%?

What we did was that, there are 66 days in this period versus 62 in the last. So if you are taking the last 4 by 62, you come up with that percentage of 6.5%. If you divide it by a 6% you end up with 66 days, you can end up with a different number, because that was you arrived at.

Yes. It is the same answer that you are saying Barbara.

And then, so I would come from the 21%, and subtract the 6% from it. So approximately is the kind of organic sales growth was approximately 15%?

That would be reasonable.

Okay. Thank you very much.

There are no further questions at this time.

Very good.

Thank you very much. This is a final comment, we really are very happy with the results of Dal-Tile business of growing in both top and bottom line, our strategy to continue investing, and grow our business by expanding the sales force, product lines, distribution systems, and customer base continues to be a success. The Mohawk side, we are experiencing one of the most difficult changes in its cost structure that has been in the industry. In the first quarter, we are seeing all the increases, in oil, and energy, and materials rise at significant levels from the fourth quarter. Historically given these conditions, the industry margins would have been under dramatic pressure and possibly even would have collapsed, but with the improved economy, and the industry combined with the price increases that we're implementing, we think that we've created significant positive financial results. I am encouraged by the total business and where it's going for the entire year. With that I appreciate it and have a good day.

Thank you for joining today's Mohawk Industries first quarter 2004 earnings conference call. You may now disconnect.