Standex International Corp (SXI) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2012 Standex International Corp. earnings conference call. My name is Larry and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to your host for today, Mr. David Calusdian. Please proceed.

Thank you. Please note that the presentation accompanying management's remarks can be found on Standex's investor relations website, www.Standex.com. Please see Standex's Safe Harbor passage on slide 2. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations, and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's recent SEC filings and public announcements for a detailed list of risk factors.

In addition, I would like to remind you that today's discussion will include references to EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA, which is EBITDA excluding restructuring expenses and one-time items; non-GAAP net income, non-GAAP income from operations, non-GAAP net income from continuing operations, and free operating cash flow. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States.

Standex believes that such information provides an additional measurement and consistent historical comparison of the Company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in Standex's first-quarter news release.

On the call today is Standex's Chief Executive Officer, Roger Fix, and Chief Financial Officer, Tom DeByle. I would now like to turn the call over to Roger.

Thank you, David, and good morning, everyone. Please turn to slide 3. Standex began fiscal 2012 on a good note, delivering its eighth straight quarter of non-GAAP operating income growth. Total sales grew 11.2% from the first quarter last year, reflecting organic growth of 5.4% and a 3.9% growth contribution from recent acquisitions, plus favorable foreign currency exchange.

Our organic sales growth driven largely by the Food Service Equipment Group during the quarter has continued to outpace sluggish growth in GDP in the broader macroeconomic market, demonstrating the continued success of the top-line efforts we began in fiscal 2010. At the same time, restructuring actions taken during the past three years, coupled with our ongoing focus on controlling costs, continues to reflect on our bottom-line performance, as non-GAAP operating income for the first quarter was up 9% from the same period last year, and non-GAAP net income from continuing operations grew 16.2% to $12 million.

While demand trends remain favorable in most of our end-user markets, there is enough uncertainty in the general economy of the world that we are still taking a cautious approach in our planning for the quarters ahead. We have clearly defined our operational objectives for the rest of 2012. First, we remain committed to driving organic and acquisitive growth. As I mentioned last quarter, we have identified some attractive opportunities for investment in both productivity and organic growth that we will be funding with capital as the year unfolds.

As examples, this quarter we opened a new Mold-Tech operation in Brazil, committed to an additional Mold-Tech facility in China, and are investing more than $1.5 million to expand the capacity of our recent Metal Spinners acquisition in the UK to support the new growth opportunities in the oil and gas sector.

We also continue to build a solid pipeline of acquisition targets as part of our acquisition strategy, and hope to continue the momentum established in this area during fiscal 2011. As part of our top-line focus, we have also engaged with the markets and our customers to implement price increases in order to offset some of the commodity inflation we have experienced. We have seen some traction with those efforts thus far.

Finally, we are maintaining our focus on improving our operations and tightly controlling our expenses. We successfully completed two facility consolidations during the quarter in the Food Service Equipment Group, which we estimate will generate approximately $1.5 million in additional annual savings.

Please turn to slide 4. Q1 was the eighth straight quarter of non-GAAP trailing 12-month EPS growth. As the chart illustrates, non-GAAP EPS for the trailing 12 months through the recent quarter was $2.96 a share. This EPS performance is 58% above our peak prerecession earnings of $1.87 per share, yet the trailing 12-month sales are still 7.3% below our peak prerecession sales levels. We are very pleased to see this continuing momentum in our earnings growth.

We will discuss each of the business segments after the financial review. With that, I will turn it over to Tom.

Thank you, Roger, and good morning, everyone. Please turn to slide 5. Net sales for the first quarter were up 11.2% to $174.7 million, from $157.1 million in Q1 of fiscal 2011. Operating income for Q1, which includes $0.6 million in pretax restructuring charges, was $16.5 million, down 6.3% year over year.

Note, however, that operating income to 2011 included a $3.1 million gain on the sale of excess real estate. Excluding this gain and other special items, non-GAAP net operating income and adjusted EBITDA grew 8.9% and 10.1% respectively from Q1 of last year. Earnings per share from continuing operations, excluding special items, grew 16% to $0.94 per share. This is another record for the Company and reflects our ability to leverage additional sales volume against the new lower cost structure that we have put in place over the past three years.

As slide 6 illustrates, net income from continuing operations for the quarter includes both tax of $0.4 million restructuring charge and discrete tax items of $0.5 million. The first quarter of 2011 included both tax of $0.6 million restructuring charge, $0.1 million of acquisition-related expenses, and $2 million after-tax gain from the sale of excess real estate.

Excluding these items from both periods, non-GAAP net income from continuing operations increased 16.2% to $12 million or $0.94 per diluted share, from $10.3 million or $0.81 per diluted share in the first quarter of last year.

Turning to slide 7, net working capital at the end of the first quarter was $129 million compared with $113 million at the end of Q4, and $112.8 million at the end of Q1 last year. Working capital turns were 5.4 turns in Q1, down from 5.6 turns at the end of Q1 last year. Inventory turns were at 5.3 compared with 5.9 a year ago. Barring seasonal fluctuations, we continue to strive for working capital turns hovering around the 6.0 level.

Looking at slide 8, we had negative free cash flow of $7.7 million during the quarter, largely resulting from the back-to-back quarters of double-digit sales growth which resulted in higher accounts receivable in conjunction with inventory buildup across several of our businesses during the quarter. We are in the midst of several product rollouts in the Food Service Equipment Group and have several long leadtime projects in the engineering technologies group that will be shifted in the second half of the fiscal year.

Additionally, we made some opportunistic metal buys at a couple of our businesses in order to capitalize on favorable pricing and also build safety stocks related to facility consolidation during the quarter. You will also note that our capital expenditures during the quarter are nearly double this time last year, as we have increased our capital spending to strategic investment level.

Please turn to slide 9. As Roger mentioned, our long-term capital strategy is focused on balance of growth initiatives and productivity improvements. Capital spending for Q1 of fiscal 2012 was $2.3 million, in line with our expectations. In fiscal 2012, we are anticipating that our capital spend will approximately be equivalent to our depreciation, or in the range of $10 million to $12 million.

These investments will allow us to continue to expand into new markets and to drive continued cost reductions. For example, we are adding capacity at our newly-acquired Metal Spinners facility to serve the growing demand in the oil and gas market. At the same time, we have installed high-tech laser cutting systems at two of our Food Service Group operations to further automate part production and improve metal utilization.

Slide 10 illustrates our net debt as of September 30. Our net debt for the quarter decreased to $49.6 million from $50.7 million a year ago, and increased sequentially from the fourth quarter from $37.2 million. We define net debt as funded debt less cash.

Our balance sheet leverage ratio of net debt to capital was 16.6% at the end of the first quarter of fiscal 2012, compared with 19.6% a year earlier and 13.2% in the previous quarter.

Moving to slide 11, our existing revolver expires in September 2012. As a result, all of our debt has shifted to current liabilities on the balance sheet. We are currently in late-stage negotiations to enter into a new revolver. At this point in time, we have received commitments from several members of our existing bank syndicates that are sufficient to cover the $225 million facility. We expect to receive firm commitments during the second quarter and execute the new facility by January 2012.

The new larger facility will provide us with additional financial flexibility to fund future growth, acquisitions, and other strategic initiatives. Overall, our debt position remains solid and the balance sheet will continue to be well-positioned to meet our needs.

With that, I will turn the call back to Roger.

Thank you, Tom. Please turn to slide 13 regarding the Food Service Equipment Group, and I will begin our segment overview. Food Service sales were up 11.7% in the first quarter year over year, and operating income grew 10.9%. The Group as a whole was driven by strong sales to quick-service restaurants and other national accounts, with margins offset slightly year over year by a combination of unfavorable commodity cost and selling price, and product mix and refrigeration. However, sequentially commodity prices have stabilized and we are seeing early signs of softening of some commodity prices. At the same time, we continue to implement price increases and did record positive year-over-year pricing for the entire group.

Refrigerated solutions sales were up modestly in the quarter, driven mainly by solid demand in the quick-service restaurant and scientific markets. On the retail side, sales growth in the emerging dollar store segment while positive has not been sufficient to offset deterioration in drugstore installations, which have slowed due to a lack of newbuild and remodels at the three major chains in the US. As these installations are typically good margin walk-in systems, the slowdown continues to unfavorably impact our product mix.

On a more positive note, our Value Line refrigeration products continue to be well received by the dealer market, and we are expanding the line from upright cabinets to also include undercounter models this year. Also of note during the quarter was the successful integration of Kool Star into our master build operation in Mississippi which had minimal customer impact, and we expect to achieve the full rate of savings resulting from this consolidation by the end of the fiscal year.

In addition to eliminating redundant operations on the cold side, this move also freed up room in Nogales with the continued expansion of Cooking Solutions. Growth in Cooking Solutions was driven by increased domestic and international quick-serve restaurant business, as well as strength in the North American grocery store segment. This growth was offset somewhat by our business in the UK where our largest retail customer continues to push out new purchases.

As I mentioned previously, we have an exclusive arrangement with 7-Eleven to fulfill all their hotdog roller grill requirements, and this continued to drive top-line growth in the quarter. We also saw increased sales activity related to the contract we won with a prominent quick-service hamburger chain to supply griddles for their premium burger rollout. Sales were also driven by shipments of cooking equipment to the military.

During the quarter we completed the move of Tri-Star from California, moving all of our range manufacturing to our plant in Nogales. As I mentioned in the last call, we've transferred more than 40% of our North American hot side production to Mexico during the past three years. Similar to the Kool Star transition, it will take time now that the move has been completed to get the operations up to target levels of productivity and efficiency.

As a result, although we expect to begin seeing some of the cost savings in the second quarter, it will probably be around the end of Q3 when we begin seeing the full anticipated run rate. Combined, these two moves are still on track to achieve the $1.5 million in annual savings that I mentioned on our last conference call.

This was also a strong quarter in our Custom Solutions product line, where it typically takes the longest for demand to recover from economic slowdowns. This business tends to be a lagging indicator because so much of it relates to projects like stadiums and university dining facilities that have long lead times. In addition to the return of this project-related work, Custom Solutions also benefited from a second consecutive strong quarter in buffet and cafeteria chain business.

Looking forward, our Food Service Equipment Group will continue to focus on driving growth in both sales and operating margins, and we expect our top and bottom-line growth initiatives, combined with improved pricing in moderating commodity costs, will go a long way towards achieving these objectives.

Please turn to slide 14, the Engraving Group. Standex Engraving sales were up 5.1% in the first quarter year over year, while operating income was down slightly at 1.5%. This Group continues to benefit from the strength of the Mold-Tech rising business where our expansion in emerging markets continued to drive sales growth and margins.

During the quarter, we saw a double-digit sales growth in Europe, India, and China. While down year over year due to a tremendous first quarter last year, the North American mold texturizing business continues to perform well, and we expect planned automotive platform work to drive sequential improvement next quarter in North America. The decrease in North American mold texturizing sales caused lower profitability reported by the Group in Q1.

We will continue to gain market share in this business essentially across the board, driven by both our superior technology and the customer proximity and access provided by our global footprint. With respect to this strategy, we ended our Mold-Tech licensee relationship in Brazil during the quarter and brought the business in-house as part of our existing Sao Paulo engraving facility.

Brazil is the world's fourth-largest automotive market by sales and sixth-largest by production. We have thus far been very encouraged by our Brazilian customers' positive response to this transition.

We have also committed to a fourth facility in China to be located in Fujian, which will commence operation during the second half of the year. This facility will be focused on providing texturizing services to manufacturers of televisions and electronics, which are prevalent in that region.

On the rolling, grading and machinery side, our business remained soft in the first quarter, as a significant portion of engraved rolls are commonly used for building products such as siding, decking, and flooring materials. The ongoing sluggishness in the housing sector and related lack of capital spending at our major customers continues to weigh on the business.

However, quotation activity for engraved rollers and machines continues to improve in the quarter, and we also booked our first orders worth over $1 million related to the new cigarette package labeling requirements that will soon take effect in Canada. At the same time, we still expect the US and Brazilian governments to impose similar packaging requirements which should also create future sales opportunities for our Engraving Group.

Please turn to slide 15, the Engineering Technologies Group. Engineering Technologies sales were up 16.8% Europe year over year in the first quarter, while operating income was down 13.5%. The Metal Spinners business we acquired in fiscal 2011 fueled the top-line growth, with penetration into the oil and gas market.

As we expected, our sales in energy-related markets declined from the first quarter last year, primarily due to an inventory correction implemented by one of our major OEM customers in the land-based turbine market. Based on forecast information from this customer, we continue to expect our energy business to return to more normal sales levels in the second half of fiscal 2012.

In addition, we are making good progress towards winning new land-based turbine business and capturing new opportunities in the aviation jet business. First-quarter sales in our legacy aviation and aerospace markets were also down year over year, reflecting the lumpiness also inherent in this part of our business. Looking ahead near-term, we still expect to report sales growth in the aerospace segment during this fiscal year.

In addition, our presence on the Delta 4 and Atlas 5 heavy lift platforms positions our aerospace business to participate in the near-term unmanned spaceflight opportunities. Longer-term, we have the potential to play an important role in providing hardware for the heavy lift launch vehicle component of NASA's proposed man-rated space launch system.

If this program receives congressional approval, it would create several significant sales opportunities for our Spincraft business. We are still under contract with several active development programs, including those in the still-emerging private spaceflight sector.

Please turn to slide 16, Electronics and Hydraulics. This was another good quarter for the Electronics and Hydraulics segment, which delivered 11.8% year-over-year top-line growth and operating income growth of 13.2%. The consistent growth that our Electronics business posted in fiscal 2011 was interrupted this quarter, primarily as a result of a softening in reed switch sales in China and the Asia-Pacific region, and lower orders from several large OEM customers in North America.

However, operating profit in Electronics still grew double digit year over year, reflecting recent price increases as well as ongoing operating cost reductions. As we discussed previously, we have a very active new business opportunity sales capture funnel in place at Electronics. Within this funnel are a number of new programs which are slated to begin production in the second half of the year, and we believe they will have a positive impact on our Electronics business going forward.

Our Hydraulics business meanwhile recorded all the sales growth for this segment in the quarter. In North America we continue to see improved demand for dump trailer systems and new business in refuse handling applications. While the Chinese domestic market has slowed significantly due to government tightening of credit, we continue to benefit from sales of telescopic cylinders into Latin America and in the Asia-Pac region from our Chinese facility.

Rod cylinders which we also produce in our China operation continue to contribute to worldwide sales growth in hydraulics, including in the US where we were previously unable to compete on cost. The introduction of a new product line at our US facility created labor and material inefficiencies that negatively impacted margins, as well as unfavorable mix of lower margin sales.

The manufacturing inefficiencies have been resolved and we are implementing targeted price increases to address the margin issue. Looking ahead, our pipeline of new products and application in emerging markets are positioning the Electronics and Hydraulics Group for continued performance as fiscal 2012 unfolds.

Please turn to slide 17, the ADP Group. Our Air Distribution segment delivered his third consecutive quarter of year-over-year top-line growth amid ongoing weakness in the US housing sector. Sales were up 11.6% year over year, primarily driven by the success of our recent pricing initiatives as well as the market's positive response to the complementary products we have introduced for the past several quarters.

At the same time, we continue to reduce ADP's cost structure while commodity metal prices stabilized and in some cases showed signs of softening. As a result, ADP generated operating income of $0.5 million, its first profitable quarter in two years. We also took action earlier this month to restructure a portion a ADP's manufacturing infrastructure which will generate further cost reductions of approximately $1 million annually.

Looking forward, we believe the success of ADP's strategy to drive growth and improve operational performance positions the business to realize top and bottom-line benefits from even a modest eventual recovery in the housing market.

Please turn to the summary on slide 18. In conclusion, while we are pleased with the first quarter's performance, we continue to be cautious in our outlook for fiscal 2012. Our organic growth initiatives are building positive top-line momentum, and our recent acquisitions are contributing to both our top and bottom-line growth.

In addition, more than three years of structuring and productivity gains continue to benefit our bottom-line performance, as we reported a record quarterly EPS of $0.95 per share. We remain committed to conservatively managing our headcount and expenses.

Standex is more agile and better prepared than ever before in its history to take on the near-term challenges of the global economy, and continue to transform more of our revenue gains into shareholder value. At the same time, we will continue to focus on evolving and maximizing the value of our overall strategic portfolio of businesses.

Our recent acquisitions are performing well and the new credit facility on the near-term horizon will provide us with the additional liquidity to pursue similar promising opportunities in the future.

With that, Tom and I would be pleased to take your questions. Operator, can you assist, please?

(Operator Instructions). Michael Saloio, Sidoti & Co.

Good morning. First question on food service. What are the demand drivers in your opinion that are leading to revenue growth there? Do you think you are taking share within quick service? Have quick-service restaurants begun to reinvest more than they have over the past six months? What specific drivers would you name?

I think you hit on some of it. I do think that there is -- if you look at the forecast and reports put out on the US Food Service market in general, I think those reports would say that those markets have returned to growth say over the last three quarters or so, more in the single-digit 2% to 4% range, and we have been growing more in the 8% to 10% range.

So I think the market has returned to growth. I think the quick-service area has grown, if you will, more robustly than say some of the upper market fine dining and casual dining chains. Our strength, both on the refrigeration side and the cooking side, tends to be more on the quick-service side where we do business with really all of the top 20 or so chains. So we have seen strengthening there.

I think from a marketshare standpoint, we have taken share. Particularly on the cooking side of the business we see some opportunities with some of the national chains where we have taken share. I think in general our presence, we are fortunate that we are participating with some of the stronger chains which are in turn taking share from perhaps some of the weaker chains. So definitely we are seeing that market return to growth.

Great. Is it coming more on the cold side of the business or the hot side, would you say?

Both, both. The quick-service sales in both the hot and cold side were high-single, low-double digit kind of numbers this quarter.

Okay. When you talked about ADP you mentioned additional cost savings. I think I kind of missed your comments. You said $1 million in annual cost savings that you still have left to do on ADP?

Correct.

And that is on top of the $1 million that you outlined by consolidating factories at the food business, right?

That's correct. To be real clear on that, what we have said is the two factory consolidations in food service, the Kool Star move and the Tri-Star move which were completed in the quarter, will generate $1.5 million of annual savings.

And basically what we are saying is that will begin to ramp up in Q2 and be fully up by the end of the fiscal year. During October, which would not be obviously in our Q1 run rate, we took additional action within ADP where we realigned some manufacturing production, moved from higher-cost facilities to lower-cost facilities. And from that move, we believe we will generate an additional $1 million worth of cost savings in ADP itself.

Obviously, with that move just taking place in October, it clearly wasn't in our Q1 rate. It will begin in our Q2, but because it was done in October and because of the revocation relocation inefficiencies, you would expect to see that ramp up again through the course of the fiscal year.

I would expect that certainly beginning in the latter part of Q2 and going into Q3, we would see some pretty good readout from that move.

And that is $1 million annually?

Correct.

Can you give us a sense as to what the profitability impact was at Metal Spinners in the quarter?

No. I guess the way, first of all, we don't give detail by business line in a segment. But I keep pointing us back to the statement that we made at the time of the acquisition, where we talked about the accretion range that we expect from Metal Spinners, and we are definitely on track for that. And I think you just have to look at it as it is going to be lumpy. But taking that number and divide by 4 is probably a good approximation.

Did the business break even this quarter?

No, it was very accretive in the quarter.

Okay. Aside from the cost savings you already outlined, do you foresee there being any room at any of the other segments to take out additional costs?

As we mentioned, we have continuous improvement projects and activities going on constantly throughout the organization. That is really across the units through our lean enterprise techniques. What we have tried to do is highlight -- when we have a major facility consolidation, we will identify that out typically in our reports to give you an idea that there may be a one-time or a one-off change in run rate cost savings.

But again, we are constantly working on continuous improvement and cost reductions throughout the organization, driving productivity improvements, lower rates of scrap, better metal utilization yields, automating processes with CNC equipment, and that process goes on continually.

Okay. I just have one last question, and I apologize if I missed your comments on the Engraving Group. What was the number one factor leading to operating income declining in the quarter?

Again, the end, it was really the result of our quarter-over-quarter comparison in our North American Mold-Tech operation. Our Mold-Tech North American operation had just a grand slam record performance really, if you will, in the prior year quarter. We have identified that Mold-Tech mold texturizing business can be lumpy by quarter, depending on the amount of project work.

We just had an exceptionally high level of automotive platform work last year. We still had a good level this year, but the year-over-year comparison caused both sales in North America as well as profit for the group overall to be negatively impacted.

Okay. That is all the questions I have.

Thanks, Mike.

Jamie Wilen, Wilen Management.

Hi, fellows, good quarter again. Just wanted to follow up a little bit on the restructuring charges and how it involves the savings. So this quarter you took a $600,000 restructuring charge?

Yes.

And then the second quarter we will have a little charge for the closing of the plants and not much involving gains from the Tri-Star consolidation? And then I don't want to put words in your mouth, but by the time we get to the fourth quarter are we looking at $650,000 of quarterly savings from these events?

So -- no, the way I would look at it is -- let's take them one at a time. The two in food-service are essentially on the same kind of ramp. They were completely executed as far as the work relocated by the end of Q1. And what we said is that the total of the two would be $1.5 million, and that they would be in a full run rate by Q4.

So kind of go from zero to $1.5 million by the end of Q3, early Q4, and do a little linear estimation, I think you get a reasonably good indication of how those cost savings would hit the P&L on the food service side.

And then on the ADP side, again, what I just said to Mike was we'd expect to see some of that hit in Q2, be up fully running certainly by the end of Q3. Annualized savings of around $1 million on a run rate basis.

As far as our restructuring charges, I would say two things. We are constantly looking at ways to relocate product and manufacturing processes to lower-cost facilities. We have mentioned in the past that we have an ongoing program to reduce our headcount on the Western European side of our engraving operation.

We tend not to do big splurges in restructuring but continue to kind of peck away at things over time. So you are going to see a consistent $0.5 million to $1 million worth of restructuring per quarter. And again, just depending on what activity is going on, also some of these programs lap over a couple of quarters. And again by GAAP, we recognize those charges as they occur.

So I guess my point there is we try to give good clear guidance as to what savings are going to occur and when we expect them to occur. But they can be disconnected, if you will, by the specific quarterly timing of any restructuring charge that we take.

It's truly amazing how you have transformed these businesses to make them so much more efficient with so much higher operating margins by all these cost savings, things you have put into action. In Mexico, how would you describe the efficiency of how that plant is running? You are obviously moving more and more things down there. It must be doing a respectable job.

Very much so. I mean if you take a look at our Procon operation, for example, that we moved and one of the first operations to move down there some six years ago, our productivity levels in terms of pieces per hour are actually significantly higher than they were in the US. So our productivity level on a pieces per hour basis is better, and obviously our labor cost per hour is much lower.

And that is fairly typical. In other words, obviously whether you are moving to Mexico or China or to the US, when you first introduce the new products or processes into a facility there is a learning curve that goes on. And your productivity was obviously typically not as good in the receiving factory as we call it versus the sending factory.

But our experience in Mexico is that certainly by the end of the second year, we would expect productivity levels to be equal to or better than from where we came. We are -- also at the same time we moved to Mexico, one of the comments that Tom made is we were adding automated equipment, in this case laser cutting equipment, which also helps us boost productivity.

So we are working both the efficiency, the labor cost, as well as automation to drive cost reductions, and Mexico has been benefiting from that just like many of our other operations are as well.

What are your approximate labor costs per hour versus what you would have in the states?

I think we have said publicly that our labor and fringe rate in Mexico is around $4 an hour -- and again, that is labor and fringe. And in the US it really varies significantly by operation; probably on the low side $12 to as high as $25 an hour in some of the more costly activities. But that is a pretty broad range.

And how much capacity do you have down there, and are there plans to bring additional production down there?

Again, as I mentioned, we are constantly looking at opportunities to relocate production into lower-cost operations, and there is still additional capacity available in Mexico.

Okay. With the revolver that you hope to finalize the renegotiations on, any idea what the interest rate terms would be versus what you are currently paying?

The LIBOR rate, the spreads are obviously up. And I think our spreads were in the range of say 55 to 70 basis points, depending on where we are at on the matrix. You can probably add around 40 to 45 basis points to that? Again, the spread varies depending on where you are at in the leverage matrix on the revolver.

And lastly, you bought back a couple of million dollars worth of stock. Was that merely exercising of options that was back at the Company?

That's correct.

Very good. Great job, fellows. Thank you.

(Operator Instructions). With no further questions, I would like to turn the call back over to Mr. Roger Fix for closing remarks.

First of all, we want to apologize for the delay in getting our conference call started. We had some mechanical problems with the CEO, but we do appreciate your interest and the questions, and we look forward to talking with you again next quarter. Thanks very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation.