MillerKnoll Inc (MLKN) 2004 Q2 法說會逐字稿

Welcome to this Herman Miller Inc. second quarter fiscal 2004 earnings results conference call. This call is being recorded. This conference call will include forward-looking statements that involve uncertainties and risks. There can be no assurance that actual results will not differ from the Company's expectations. Factors that could cause such differences include the Company's ability to improve operations and realize cost savings, competitive and general economic conditions, the future profitability of acquired companies, and other risks described in the Company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its other filings with the Securities and Exchange Commission.

Today's presentation will be hosted by Mr. Michael Volkema, Chairman, President and Chief Executive Officer, and by Ms. Beth Nichols, Chief Financial Officer. Ms. Nichols and Mr. Volkema will be joined by Mr. Joe Nowicki, Vice President of Investor Relations and Treasurer. Ms. Nichols and Mr. Volkema will open the call with a brief presentation which will be followed by your questions. We will limit today's call to 60 minutes. At this time, I would like to begin the presentation by turning the call over to Mr. Volkema.

Good morning everyone, and welcome to our second quarter conference call. I'm going to open the conference call with a few introductory remarks, and then I will turn the call over to Beth Nichols and Joe Nowicki for a more detailed review of our financials, and then we'll use the remaining time for your questions.

For the first time in almost three years, the business climate is suggesting a brighter outlook for our industry. The economy is growing. Surveys that measure business confidence are in positive territory. Corporate confidence and cash flow have improved, and even more important, the perception of future profitability is on the rise. Vacancy rates have reached historical highs. This tends to drive lower rental rates and has historically been one of the triggers for an industry recovery. I know this one seems a little strange, but as customers lock in lower rental rates and move to new locations, they generally buy new furniture when making the transition. As the vacancy rates drop, it generally gives rise to some growth in nonresidential construction which, again, benefits our industry.

If there is one sticky business metric, it is a lagging service sector or white-collar employment. But even that indicator is starting to turn the corner. In fact, many economists believe that the high productivity, which is a counterweight to adding new jobs, has been driven in large part by asking existing employees to take on more work. They now believe that there is very little elasticity left in the system. If they are right, employers will need to add jobs in the near term to respond to the growing demand. Of course, we hope that those new employees will ultimately be sitting in an office full of Herman Miller products. Let me say, we are not operating under any false expectation that the employers will return to the unrestrained wild abandon of the late '90s. They will probably remain cautious, concerned about the magnitude and duration of this recovery. Therefore, we believe that the recovery for our industry will be gradual, picking up momentum over the next 12 to 18 months.

As you saw from our published release, the sales line, different than orders and backlog, did not benefit from any recovery yet. Having said that, we were able to continue our string of profitable results and continue to realize many of the anticipated benefits from our restructuring efforts. Our relocation of the Canton operations to Spring Lake, Michigan is on plan, both in terms of timing and estimated savings. Our ending cash balance was over $207 million and continues to provide us with superior financial flexibility. And as most of you know, the Board of Directors plans to review our capital structure and the disposition of our excess cash at the January meeting.

But most important is the strong sequential improvements we saw in orders and ending backlog. The steady increase of our business that began this summer has continued through another quarter. In short, we are becoming much more optimistic about the future and our ability to participate in the emerging economic recovery.

And with those brief introductory comments, I'll turn the conference call over to Beth and Joe.

Thanks Mike. We would like to remind everyone that this quarter's call is also being Webcast and includes a slide presentation which can be viewed on our website at HermanMiller.com. If you haven't received the press release, it's also available there.

First the highlights. Our sales for the quarter were 330 million and EPS was 12 cents, which includes the negative impact of a restructuring charge of 4 cents. Our orders and ending backlog showed strong improvement from the previous quarter, with orders up over 10 percent and ending backlog up almost 15 percent. Operating expenses continued their year-over-year improvement as a result of the major restructuring efforts undertaken. Our ending cash balance was 207 million.

Now let's get into the details of consolidated sales, orders and backlog. On a consolidated basis, net sales for the quarter were at the low end of the guidance we provided of 330 to 350 million. On a year-over-year basis, the sales for the quarter were down approximately 7.6 percent. As you may recall, we began to see a false start in the economy last year that drove the high level of sales in last year's second quarter. We knew our comparables for this quarter would be difficult. The good news is that our sales have increased about 1.8 percent from the first quarter levels. We have continued to see sequential sales growth now for the past three quarters, which is definitely an encouraging sign.

Consolidated new orders for the quarter is a very bright spot. They totaled 358 million, which is up 1.6 percent compared to last year and up 10.5 percent from the first quarter. This represents the highest order levels we have seen in the past six quarters. Orders booked during the second quarter equate to an average of $27.5 million per week, as compared to 25 million per week in the first quarter. Our order patterns started strong and stayed good all quarter long. It was much more stable than (indiscernible) in the past quarters. While we are starting to see our seasonally lower volumes this month, they are still improved from last year's levels.

We continue to be excited about the energy around our new Mirra chair line. Orders and shipments are ahead of our forecasts. We're ramping up production capacity to increase shipments even further. As you may recall from our (indiscernible) presentation, we began order entry in June and shipment in August. We had a high level of interest both domestically and in our international markets. Another encouraging sign is that instead of cannibalizing Aeron's sales as we had predicted, we've actually seen a pickup in our Aeron chair sales. They are up over last quarter volumes and also above the same quarter in the prior year. We are also very encouraged by what we see when we look at our sales funnel. The dollar value of potential project business continues to grow, and the level of business activity as measured by client visits was up over 30 percent from our first quarter levels.

Now, on to backlog. For the quarter, our ending backlog of 216 million was up about 15 percent from the first quarter. On a year-over-year basis, it's up roughly 11 percent from last year's second quarter level of 194 million. That's the highest backlog recorded in the past nine quarters. Included within the ending backlog is product that was shipped to our own dealers and various governmental agencies during the quarter but not recognized, as it did not meet our revenue recognition guidelines. While this is a standard part of how we do business, it was unusually high this quarter and was approximately $12 million more than last quarter. It is currently recorded in inventory at its cost of approximately $7 million, which explains some of the increase in working capital requirements that Joe will discuss later. Also included in the ending backlog are approximately $10 million of orders that are not scheduled to ship until the fourth quarter. As we have discussed previously, with the exception of any large orders like those just mentioned, approximately 85 percent of the backlog traditionally ships in the subsequent quarter.

Now I'll give you a breakdown of our domestic and international results. Domestic sales decreased 7.9 percent year-over-year, while new orders improved 1.1 percent on a year-over-year basis. On a sequential quarter basis, meaning first quarter to second quarter, domestic sales actually increased 1.4 percent and orders were up 8.7 percent. Our international business environment was much better this quarter. On a sequential quarter basis, the percentage of growth in our international business outpaced the domestic business. International sales increased by 4 percent and orders were up 29 percent. On a year-over-year basis, sales for the quarter decreased 5.6 percent while new orders increased 4.5 percent. We continued to see growth in Canada and Japan this quarter. We were also pleased to see a significant pickup in our UK business. This is our largest marketplace outside the U.S., and as we mentioned last quarter, the furniture industry in the UK has seen a significant decline in the last 12 months.

Now let's talk about gross margin. We told you last quarter that we anticipated our gross margins to be challenged this quarter by the inefficiencies of the Canton move, and they were. Our gross margins declined from 31.8 percent last year to 30.9 percent this year. There were three major factors causing the decline.

The first was the year-over-year decline in quarterly sales. With sales down 7.6 percent from the same quarter a year ago, we weren't able to achieve the same level of fixed overhead leverage that we did then.

The second major impact was the continued pricing pressure we discussed previously. Higher discounting in the second quarter as compared to a year ago reduced our domestic margin by approximately $4.6 million. This was higher than what we have seen the last two quarters, driven primarily by several large projects. This will continue to be an area that we will watch closely as we go through the year. We anticipate the third quarter discounting trends to be similar to what we saw this quarter.

The third major impact was the Canton move that I mentioned. As you know, we're currently relocating a significant portion of our manufacturing from Georgia to West Michigan. During the quarter, we were starting up the West Michigan facility while at the same time still producing product in Canton. This caused approximately $2 million in additional costs due to the inefficiencies. We did anticipate these costs and they are within our initial analysis. We are also on track to completing this move and achieving the $10 million in annual savings that will benefit gross margins, operating expenses and taxes. Currently, 98 percent of the assembly equipment has been moved, 100 percent of the powder (indiscernible) line have been placed, and 75 percent of the fabrication equipment is in place. The rest of them are scheduled to be completed in January and February.

Material costs for the quarter totaled 38.6 percent of sales, which is an increase from the prior year of 37.5 percent. Some of the increase was caused by higher discounting, discussed earlier. In addition, our product mix for the quarter was weighted more to seating, which has a higher material content than our other products. These were both offset to some extent by the continued efforts of our procurement and supply chain management teams to lower cost with the suppliers. They were able to successfully offset almost half of the material percentage increases. We did, however, continue to see a year-over-year increase in steel costs, as we have discussed in past conference calls. Steel costs were up approximately $200,000 from the prior year.

Our direct labor costs increased from 5.1 percent of sales in the prior year to 5.2 percent this year. The increase was driven by inefficiencies from the Canton move, combined with the annual wage increase and benefit cost increases that went into effect last quarter, and also higher discounting mentioned earlier. These increases were offset by the mix shift proceeding this quarter, which had the higher material percentage but lower labor content. On a pure dollar basis, overhead spending declined by over $6.6 million, or 9 percent, compared to the same quarter of last year. Overhead spending also decreased 1.1 million when compared to the first quarter. Primary drivers in both cases were reductions in our pension costs, bonus accruals, and higher allocations to inventory as a result of the increased inventory levels.

Moving on now to operating expenses. We continue to demonstrate year-over-year improvement in this area. For the quarter, operating expenses totaled 85.2 million as compared to 92.8 million in the prior year. The current year includes restructuring charges of 4.4 million, and also a $5.2 million benefit associated with the favorable outcome of an illegal suit that was previously reserved for. Excluding these two items, operating expenses were down almost $7 million, or 7.3 percent from the year earlier period.

The most significant decreases were in compensation, variable incentive accruals, pension costs, and depreciation. The $5.2 million legal benefit was from the favorable legal decision related to our Florida (indiscernible) dealership that was disclosed in our year-end Form 10-K. During the first quarter, the plaintiffs in the lawsuit filed an appeal request with the Florida Supreme Court. During this quarter, the Florida Supreme Court ruled that it would not be taking the case; as a result, we reversed the accrual.

Restructuring charges for the quarter totaled 4.4 million and were primarily associated with the relocations of the Canton and the Formcoat operations, as previously announced. The Formcoat relocation is complete and the Canton move as discussed earlier, is on schedule, and will be completed in the next quarter. In addition, restructuring charges included an $800,000 benefit associated with the sale of the Allen (ph), Michigan chair plant facility at a price in excess of its estimated value.

Moving on down the income statement, other expenses for the quarter net of interest income totaled 2.5 million, compared to 3 million last year. The prior year amounts included 1.8 million in income from an interest rate fund related to prior year tax audits, and 2.2 million in pre-tax charges related to the impairment of an equity investment in our Philadelphia dealership. The net of these two amounts explains the majority of the difference between the second quarter of this year and last year. When you roll this all up, net income for the quarter was 9.1 million, or 12 cents per share. The negative impact of restructuring charges was 4 cents per share, net of tax for the quarter.

Now I'll turn the call over to Joe Nowicki, Treasurer and VP of Investor Relations, to talk about our cash flow and the quality of the balance sheet.

Thanks Beth. For the quarter, operating cash flow was 3.3 million as compared to 30.6 million for the same period last year. The year-over-year decrease was driven primarily by an increase in working capital requirements of 23 million. As Beth mentioned earlier, approximately 7 million was due to product that was shipped to our own dealers (indiscernible) during the quarter that has not been recognized as it did not meet our revenue recognition guidelines. This amount was recorded in inventory and will ship out in the third quarter. In addition, approximately 1.2 million was due to a scheduled inventory buildup supporting the Canton move.

Lastly, our trade accounts receivable are primarily in the owned dealer network, as (indiscernible) higher sales in Southern California and Philadelphia. In light of the current industry conditions, we continue to monitor our AR and credit exposure very closely, and believe we are adequately reserved for bad debt expense. Our collections of AR continue to remain relatively good, our DSO in inventory and receivables decreased by 1.3 days from the same quarter in the prior year to 51.2 days. In addition, our AR aging has continued to improve year-over-year, and as compared to last quarter.

Capital expenditures for the quarter were 9.3 million. This was up from the 5.5 million we spent last quarter, primarily due to investments supporting our Canton and Formcoat relocations we have talked about. Our forecast for the full year is still between 30 and 40 million, which is consistent with the prior year. We continue to closely scrutinize capital spending to ensure we're making the right investments to sustain the business and to preserve our ability to introduce innovative new products.

Now I would like to give you an update on the status of the facilities that we exited in the restructuring. We continue to have a high degree of success with selling the facilities that we're vacating. This quarter, we completed the sale of our Holland, Michigan chair plant for 6 million, and collected the remaining proceeds of 5.8 million. There was 800,000 in excess of our previously estimated realizable value. As mentioned above, we classified the gain as an offset to our restructuring expenses for the quarter. The other facility we currently have listed for sale is our Canton, Georgia building that we will be exiting in February of 2004. This property has been appraised and listed and we have seen initial interest, but nothing beyond that at this early point. In regards to lease space, this quarter we successfully concluded our negotiations to terminate the lease on our Formcoat facility. We incurred a lease termination cost in line with our original restructuring accrual of approximately 1 million (indiscernible). We have also completed our move out of this facility.

Let's move on to our liquidity and cash position. We are again this quarter in compliance with all debt covenants and don't foresee any problems with compliance in the future. Our profitability and positive cash flow, combined with the 186 million available on our revolving credit facility, and our 207 million cash balance, provides us tremendous financial flexibility. To continue to balance our mix with fixed and floating rate debt, we took advantage of the historical low short-term interest rates and executed two additional interest rate swap agreements this quarter. One agreement that expires March 15, 2011 converts 50 million of fixed rate debt securities to a floating rate basis. The second agreement that expires March 5, 2008 converts 15 million of fixed private rate placement debt to a floating basis.

Our total debt balance stayed approximately the same. During the second quarter, we also continued our share of purchase activity, buying approximately 348,000 shares, or $8 million, at an average price of $23.12 per share. As mentioned in the prior conference call, we're currently reviewing our overall capital structure and how best to utilize our excess cash. We have completed most of this work, and will be discussing this with our Board at the January meeting.

Thanks Joe. Now let's turn to the outlook for the third quarter.

As Mike and I have both discussed, we are very encouraged by our recent order and backlog trends, but we remain cautious because of the softness that remains in the economy. The third quarter is also a shorter than normal period due to the holidays and our scheduled plant closure during the Christmas week. We are confident in our ability to continue to drive improvement in our gross margin and also operating expenses.

Our gross margin assumption is 30.5 to 31.5 percent. That's in line with our second quarter results. We do expect some continued inefficiency during the transition of the Canton operations to West Michigan, but that should improve slightly from what we saw this quarter. Our operating expenses may also increase slightly as additional new product and marketing program investments ramp up. As a result, we expect our third-quarter sales to be in a range of 320 to 335 million, with earnings per share between 5 and 11 cents, which includes restructuring charges of approximately 3 cents per share for the previously announced actions.

Let me explain our guidance in revenues. We start with our beginning backlog of 216 million. A net amount (indiscernible) $10 million of large orders at international and our own dealer network that will not ship until the fourth quarter. This brings the backlog available to ship to about $206 million. We normally ship 80 to 90 percent of the backlog in the following quarter. We then added an amount for the 6 to 8 weeks available to order and ship, but because there are holiday weeks, we assumed a low range of 21 to 23 million per week. This gives us our guidance of 320 to $335 million.

Our earnings guidance for the third quarter, as well as the results for the second quarter, confirm the rule of thumb that was previously conveyed. For every incremental dollar that they (indiscernible), we can generate between 25 and 30 cents of income after-tax and after bonus. When you adjust our second quarter results for the Canton inefficiencies, we're right in line with this measure. It's also important for us to know here that we're currently reviewing the impacts of FASB interpretation number 46 on our financial statement. The intent of this pronouncement is to improve the clarity of representation for variable interest entities. This was initially scheduled to be effective with our second quarter results, but we've delayed until February 28, 2004, the last day of our third quarter. The FASB deliberated this topic again yesterday, and we believe our effective date may now be delayed even further. To us, the impact doesn't appear significant, but it does mean that we will probably have to consolidate two of the dealerships that we have financing arrangements with. This has not been included in any of the forecasts we have given you, as we continue to investigate our options around this issue.

In summary, we've once again met the commitment we made last quarter, $330 million in sales and 12 cents per share in net earnings. We're also much more optimistic about the top line, given the high rate of orders and ending backlog that we have experienced, our highest order levels in the past six quarters, and the highest backlog in the past nine quarters. Our Canton relocation is progressing well, and we're on track towards beginning to recognize the savings we promised. In addition, our cash balance is strong and we're in compliance with all of our loan covenants.

I'd like to now turn the call back to the operator to open it up for your questions.

(OPERATOR INSTRUCTIONS). Margaret Whelan, UBS.

It's actually Susan McCleary (ph) for Margaret. Can you talk a little bit about the makeup of the orders and the backlog that you are seeing? I know that last quarter you said you saw some increased orders from some different kinds of clients. Has that continued?

I don't think we have seen any (indiscernible) the healthcare and education markets continue to be strong. I don't think there's been any significant shifts in our customer mix per se.

Probably the only thing that we have seen, as Beth previously mentioned, is that we are starting to see some of the more major project activity reenter the marketplace. Now that's going to be, again, lagged out 4 to 6 months in front of where we are today. But we are encouraged by some of those projects that clearly were either put on hold or discontinued 2.5 years ago. Now we're starting to see some of those customers emerge again and the interest in rekindling some work around those projects.

Are you seeing then, projects with more solid kind of schedules and due dates and things like hat?

Yes. I think we are seeing a greater degree of firmness in the interest around some of these projects, and that is the piece that really left the marketplace for the past 2.5 years, is in fact some of that more major project business.

It does seem like the customers who are visiting -- I think I mentioned this last quarter but its continued on this quarter, that the customers who are visiting are oftentimes visiting with specific projects in mind, whereas in the last couple of years a lot of them were just more window shopping so that when the economy turned and when they decided to pull the trigger, they would have background information. But now it's much more specific projects.

On the pricing side, can you talk a little bit about -- I know that that continues to cause you some of your gross margin -- how do you plan longer-term to really offset that? Have you had any luck with price increases or anything like that?

One of the things you have to remember when you look at the increase discounting is the price increase. We always have (indiscernible) we'll put a price increase in place, there is some expectation that we won't get out of it and won't see the difference in increased discounting. So that's part of the reason why there was a spike this quarter, but it's also because of the larger projects which tend to be discounted higher. And as you see the larger projects start to come into play again, you'll see that increase. We have a lot of initiatives in place, mainly around Herman Miller production systems, to help us offset those going forward.

Obviously, as we get through this reorganization of the operations, we will be entering a position where the additional incremental value will have some real positive impacts on margins going forward.

And our newer products that are innovative tend to not be discounted as highly, and when you look at things like Mirra, and the fact that we're continuing to spend our research and development, we hope that the new product introductions will also help offset (indiscernible) differentiate it from others.

One last question. Along the lines of the Herman Miller production system, as Canton comes to a close and you have kind of consolidated about as much manufacturing space as you plan to, what are the next areas that you move to with that? Where do you see areas that you could really improve still?

Probably, I would say there are three areas -- first one being distribution. We have a lot of efforts right now in that distribution area and are freeing up space -- quite a bit of space projected over the next year; second one would be an international. No, we know that we do have some excess capacity over there and we're trying to tie some of the moves to some (indiscernible) expirations and some potential (indiscernible) sales. And then, also (indiscernible) dealer distribution network, where we are trying to push the (indiscernible) for what we call the last mile. (indiscernible) the customer office begins to see it even more.

(OPERATOR INSTRUCTIONS). Chris Hussey, Goldman Sachs.

(indiscernible) question for you, maybe you could start with the market in general. (indiscernible) is showing shipment data that's sort of flat to slightly down. You guys in the U.S. down almost 80 percent. How do you reconcile that? Was November particularly tough? It sounds like it wasn't; you had a pretty consistent order pattern.

It is tough to do a two-month to a three-month comparison, and because the November (indiscernible) numbers aren't out yet, we don't know. We always try to caution you not to look at just the quarterly numbers; we always have to look at the prior year difference also and look at a longer trend. But I think we're pleased with our win rates, and when we look at our win rates compared to what they were in the past, we don't feel like we're losing any market share, even (indiscernible) short-term (indiscernible) industry numbers may show something different.

We were performing as we normally do when a market begins to accelerate or recover. We did better in the first two quarters of last year during the false start than many of our competitors did. So we obviously had some different comparables than the industry as a whole.

Okay. So when you look out to the marketplace -- Mike, you're sort of unequivocal today, much more optimistic about the future. What does much more optimistic about the future equate to? What type of growth? Starting with this next quarter, this quarter we're in now, the February quarter, we're coming up against some pretty easy comps. What type of percentage growth can we get in a recovery year that it looks like we are embarking upon now?

Chris, you are asking a really great question. And I think you're going to find most people in my position lacking crystal balls right about now. And we are a little bit (indiscernible) in trying to go out and be too overly optimistic about the future. Having said that, if you went back even a year ago and you really looked at all of the indicators and business confidence surveys, and even surveys -- I just saw one from Manpower that indicated that once again, when they surveyed 16,000 public and private companies in 460 different domestic marketplaces, that finally we have got it that 20 percent believe they're going to hire and only 13 percent plan to reduce, and 60 percent plan to stay the same. And even at the business roundtable, again, we had for the first time 93 percent of the 120 chief executive officers saying that they planned to, you know -- that they thought (indiscernible) sales were going to improve, and 25 percent of them thought they were going to hire people next year. So we haven't seen any kind of data like that that would mirror image those positive results in a 2.5, 3 year period. So if history is any indicator, when these things tend to start to get aligned like that, we have had double-digit recoveries in our industry. I don't think anyone sitting where I am right now would try to predict that. But I do believe that Herman Miller, if you go back and looked at the historical performance, whenever a recovery happens we get a disproportionate share of that recovery, in large part because we're more heavily weighted toward the project business and have a significantly large installed base with existing customers. So generally speaking, as I think I referenced in my opening comments, I don't think next quarter -- especially with the seasonality that we tend to go through as an industry -- that that's the quarter that you need to look to. But fourth quarter, we are anticipating a more positive uptick. And I then think it's going to get stronger from there moving out into the next 12 to 18 months.

One of the reasons we're not projecting higher percentage increases is because of our cost structure. We want to make sure we don't budget expenses and costs predicated on double-digit growth in the top line. We want to make sure we keep those costs so that we get the leverage, and when it happens we'll be able to take advantage of it, or making sure that we're positioned to take advantage of it. But we don't want the comps to get ahead of us either.

(indiscernible). When you think about the strength now, you've got 2 chairs on the market now that are strong with Mirra and the Aeron chair. Are higher steel prices -- they hurt the profitability of that product on a relative basis, (indiscernible) more steel content in a chair than there is in a systems furniture? Or are these as I would imagine, higher margin products as well for you?

We'll try (indiscernible) maybe address the margin differential between the different products specifically. But as far as steel content is concerned, obviously, the products (indiscernible) into categories. And the top tier would be metal casegoods and storage products would have the highest steel content. Then, especially products like (indiscernible) space that have a steel frame. Other systems products we have actually don't have steel frames, have wood frames. But if you got into the steel content, the chair would not rank up as being one of the higher steel content product lines that we offer in the marketplace.

Thanks. Even more specific, (indiscernible) maybe, or Joe, could you give us a little bit of help on, was the international business profitable this quarter?

Yes. (indiscernible) pretty close to breakeven; not hugely profitable, but a little bit.

As we come out of this cycle and we start seeing better work demand in the U.S. and hopefully abroad, what are you looking for out of the international operations that is going to keep you there? In other words, will you just keep going along if this does not get over breakeven? Or will there come a threshold of pain where you decide that's a lot of management talent working overseas for not a lot of return?

You may recall (indiscernible) to go back and take a look at some of the numbers, we have always had a little different perspective on international than even some of the competitors, principally because we believe that there's a direct relationship between, historically in our industry, the amount of money that you've invested in international markets and the amount of economic value or shareholder value that you've destroyed. We really pursued a very different formula which dealt largely with trying to pick those markets where we felt we could be a market leader, and then having more of a thin coverage or a service and support network (indiscernible) other parts of the world. So we have specific, targeted markets which does include UK, where we're also (indiscernible) in the United States one of the market leaders where, when you look back historically just before the downturn, we were not only profitable but (indiscernible) positive. Again -- so we think our formula in a slightly more robust marketplace is going to perform at a level that will not only be profitable but (indiscernible) positive. And then we take those one market at a time.

Aaron Braun, Willow Creek Capital.

I just wanted to revisit a question that I believe I asked on the last conference call, because it seems to be a continuing issue. And that is, the presentation of the restructuring charges. Because I don't know how many consecutive quarters this has been, but given the Company is at a billion-plus revenue run rate, it almost would seem in other companies in other industries that these charges would be just factored into business as usual operating issues and such. So I guess I'm just trying to be able to look at apples to apples financial net results of what this Company is earning, and subsequently, how to value the equity. So if you could maybe revisit that subject for me?

I think that first of all, the new rules don't allow big accruals at the beginning of the restructuring. They wanted to get away from the (indiscernible) accounting, so the way we represent it and the way we show it is governors for us, and how we can do that. And we have had, I think, about $110 million in restructuring charges in the last two years. It is not our expectation that those will continue. We have some that we're not allowed to record for the recent activities until they actually happen; things like severance costs that until the Canton move is complete, until people actually take money out of the pension, we're not allowed to record those. So there are a few that are going to be hanging on here for the next couple of quarters, but there's nothing in the works right now that suggests we have any significant other activity planned. And especially in light of what we think is an economic recovery, I don't think you can (indiscernible) none of us consider this to be normal business. If you look at our history, it's only been the last two years when our industry was down 40 percent that we have undertaken restructuring charges. And in the past, (indiscernible) activity we did, both in the normal course of business, running through normal expenses.

(OPERATOR INSTRUCTIONS). We are standing by with no questions. At this time, I'd like to turn the call back over to senior management for any additional closing remarks or comments they may have.

Thanks everyone for your time and attention today. We would like to close by wishing you and your family the happy and blessed holiday season.

Have a great holiday.

Once again ladies and gentlemen, that concludes today's call. Thank you for your participation. You may disconnect at this time.