Interface Inc (TILE) 2002 Q3 法說會逐字稿

Good morning. My name is Molly, and I will be your conference facilitator today. At this time I would like to welcome everyone to the Interface quarter three 2002 conference call. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press *, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key.

I will now turn the call over to Mr. Marco Lima of S.D. Morgan Walk for introductory remarks.

Thank you, and good morning, everyone. I'd like to welcome you to Interface's conference call. We're here to discuss the company's results for the third quarter 2002, which were reported yesterday after the close of the markets. Hosting the call today from Interface are Dan Hendrix, President and Chief Executive Officer, and Patrick Lynch, Vice President and Chief Financial Officer.

I'd like to say a word about procedures before we begin. After management has made its formal remarks, we'll take your questions. Please note that during today's conference call, management's comments regarding Interface's business which are not historic information are considered forward-looking statements.

Forward-looking statements involve a number of risks and uncertainties and could cause actual results to differ materially from any such statements, including risks and uncertainties associated with economic conditions in the commercial interiors industry, as well as risks, uncertainty discussed under the heading Safe Harbor Compliance Statements or forward-looking statements in item one of the company's most recent annual report on Form 10-K. We direct all listeners to that document.

Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, and as such speak only as of the day's date. The company assumes no responsibility to update or revise forward-looking statements made during this call, and cautions listeners not to place undue reliance on any such forward-looking statements.

Lastly, please note that this call is being recorded for Interface and contains copyrighted material. It may not be rebroadcast or rerecorded without Interface's express permission. Your participation in this call implies your consent to the company's taping of it.

With these formalities out of the way, I'd like to turn the call over to Dan Hendrix. Dan, please go ahead.

Thank you, Marc. Good morning, and thank you for joining us today for discussion of our results for the third quarter of 2002. Interface's third quarter results were within the range we provided on our October 15th press release. In our conference call last week, I gave you an overview of our performance during the quarter. If I may, I'd like to take a moment to recap a few points before Patrick turns to the numbers for the quarter.

First, I truly believe that we have the best carpet tile business in the world. It is healthy and profitable throughout the world, despite the current environment. And it is gaining strong momentum, particularly in the United States.

We are the absolute leader in the corporate segment and we are having great success capitalizing on growth opportunities for carpet tile outside the corporate segment in education, health care, retail, hospitality and government. In fact, for the U.S. carpet tile, the success of our market segmentation strategy has more than offset the decline in the corporate segment in the third quarter.

Also, in our press release last week we mentioned a survey that recently was conducted by Floor Focus Magazine, which, in their October 2002 issue, this is an annual survey of top design firms, which in many cases are the individuals responsible for specifying commercial interior products for projects. Interface outshined virtually everyone in the survey. It was ranked number one in the categories of quality, performance, service and best overall experience. And, for the fourth year in a row, carpet tile was ranked the number one hot product in the survey results.

So in terms of our market position, we are doing a lot of great things and we are perfectly positioned to ride the tide upwards as carpet tile takes more and more share from other floor coverings, including the corporate segment.

Second, we are pleased with our ability to generate cash and reduce our debt even in the midst of poor business conditions. In the third quarter alone, we generated $20 million in free cash flow and we're on track to generate $30 million to $40 million this year. Next year we believe we can generate a similar amount from operations only if we achieve break-even results. And, of course, we expect to do a lot better.

In addition, we could generate even more free cash flow through certain asset sales. We had approximately $17 million in cash on the balance sheet and zero borrowings under revolver at the end of the quarter. Additionally, we purchased $5 million of our senior-subordinated notes during the quarter and we are intent on further paying down debt.

Third, we have taken and will continue to take aggressive actions to reduce our cost structure to make our businesses profitable at current demand levels. In our second quarter conference call, I mentioned that we already have closed nine facilities and reduced our workforce by more than 20 percent over the last 24 months.

In the fourth quarter, we are rationalizing three additional facilities in our fabrics division where recent performance has been hurt by overcapacity, and further reducing head counts in both the U.S. and international operations by approximately 300 employees.

This restructuring is expected to result in over $20 million in annual savings and help us achieve profitability based on current market conditions. However, while we are seeking to reduce our cost structure, I want to make it clear that we have plenty of capacity to quickly ramp up when business improves, and we are continuing to make investments that are essential to the future of our business.

Among other things, we are developing new products, enhancing our sales force to support our market segmentation strategy, and bringing in new technology where it is needed. We will not compromise our future by neglecting our present needs.

Fourth, as you probably could tell from my discussion of our carpet tile business, we are very pleased with the progress of our market segmentation strategy. This strategy is working as planned. The only setback is that corporate spending has continued to decline as we pick up business in other segments.

We've had a lot of success selling modular carpet into historically untapped markets, and I believe we've only scratched the surface of these opportunities in the non-corporate segments. We're also doing the same things with our broadloom carpet and fabric products and are beginning to gain traction in non-corporate segments as well.

While market segmentation is an important strategy for our future, we will not lose focus of our core corporate market. We will continue to nurture and grow that segment, along with others.

Now I'll turn the call over to Patrick, who will give you more details on the numbers. And I'll follow up afterwards with some closing comments.

Thanks, Dan. I'll start with the income statement. Sales in the third quarter were $235.4 million compared to $263.1 million in the same period last year and $240.6 million in the previous quarter. Net loss for the third quarter was $2.7 million or $.05 per diluted share, compared with net income of $.7 million, or $.01 per diluted share, before a $62.2 million restructuring charge in the same period a year ago and compared with $.8 million or $.02 per diluted share in the second quarter of 2002.

Gross profit margin in the third quarter decreased to 27 percent compared with 28.3 percent a year ago and 28.9 percent in the previous quarter. This margin contraction was due in part to low sales volumes in the quarter as well as a concentrated effort to reduce overall inventory levels, each of which inhibited the full absorption of fixed manufacturing costs. However, the steps we have taken recently should curtail any further margin erosion.

Operating income was $6 million in the third quarter compared with $10.7 million, excluding the non-recurring restructuring charge in the third quarter of 2001 and compared with $12.2 million in the second quarter of 2002. Interest expense was $10.7 million in the third quarter versus $9.2 million in the same period a year ago and $10.8 million in the second quarter of 2002.

The year-over-year increase is primarily due to the senior note issuance in January of this year. Depreciation and amortization in the third quarter was $9 million, resulting in EBITDA of $15 million for the quarter. This compares with EBITDA of $22.5 million in the same period a year ago and $21.8 million in the second quarter of 2002.

Capital expenditures in the third quarter were $3.8 million, and we expect total capital expenditures for Fiscal 2002 to be approximately $12 million.

SG&A costs remain fairly flat with the second quarter in absolute dollars but increased as a percentage of sales due to lower revenue volume.

As Dan mentioned, during the third quarter we generated approximately $20 million in free cash flow. We repurchased $5 million of our 9-1/2 senior-subordinated notes. At the end of the quarter, we had approximately $17 million in cash, zero borrowings in our revolving credit facility, and the balance under our securitization facility was approximately $30 million at the end of...excuse me...$33 million at the end of the quarter.

We are currently able to de-lever by repurchasing our 10-3/8ths percent senior notes if we choose to do so, and we intend to seek the consent of our holders of those senior notes to allow us to resume repurchasing the 9-1/2 senior-subordinated notes.

Now I'll review our individual business units, starting with our domestic floor coverings. Our U.S. modular business continued to be the strength of the organization. Both sales and profitability improved slightly in the third quarter as compared with the second quarter, and overall profitability has been maintained throughout this entire year.

The European modular business also continues to perform well despite difficult business conditions, and local currency sales during the third quarter were up 5 percent from the previous quarter. While margins were down slightly as a result of lower volumes during the European vacation season, we effectively managed costs in order to maintain existing profitability levels.

Our Asia-Pacific business had one of its best quarters on record. Sales were up 18 percent sequentially and profitability almost tripled. Although this is a relatively small division, it's a good example of the leverage that our modular business can take advantage of with just a slight upturn in volume.

In our service business, Re:Source Americas, sales after inter-company eliminations were down slightly on a sequential basis and margins were impaired as a result of lower volume and increased pricing pressure, specifically in the Northeast. However, like in our Asia-Pacific business, our cost at Re:Sources Americas are sufficiently scalable to offset the margin erosion.

Our broadloom business experienced a lower level of profitability in the quarter, primarily due to lower volume levels. Specifically, sales in the quarter were down 8 percent compared to the second; secondly, an inventory reduction initiative that resulted in under-absorption of fixed overhead costs; and thirdly, a non-recurring manufacturing inefficiency resulting from a breakdown in equipment late in the quarter.

Sales in our access flooring business declined 32 percent from the second quarter of 2002, which translated into an operating loss of $1.5 million during the third quarter. We've reduced our footprint dramatically in this business, but the low volumes resulting from drop-off in new commercial construction activity make it difficult to achieve acceptable levels of profitability.

In our fabrics division, sales in the third quarter declined 4 percent with the second quarter. Margins remained under pressure, primarily due to the under-absorption of fixed overhead. Costs in this business also increased in the quarter due to additional information technology and relocation expenditures. We are expecting our first year-over-year improvement in sales in the first quarter, but a few of our OEM customers already have announced early shutdowns for the holiday season, which may affect our results.

Now I'll turn the call back over to Dan.

Thanks, Patrick. Of course we're disappointed that the commercial interiors industry has not yet stabilized as expected in the second half of this year. The latest figures we've seen say that the industry is projected to be down more than 20 percent this year, which is especially unfortunate when you consider where the industry was last year.

Our marketing segmentation strategy has helped us cope with these difficult conditions. But, with the exception of our U.S. carpet tile business, the decline in corporate spending has simply outpaced the success of our market segmentation strategy.

While we are hopeful that corporate spending will soon begin its return to historical levels, we're not just waiting around for that to happen. Instead we're going out and creating our own opportunities elsewhere in education, health care, hospitality, retail space, residential and government segments while still maintaining our stronghold in the corporate segment. We're also adjusting our cost structure to make our business profitable at current demand levels, so that when the industry does recover, our growth path will even be steeper.

We know that our success depends on our ability to deliver earnings, even under difficult conditions, and that is what we intend to do. Going forward, we will continue to focus on our strategic initiatives, executing our market segmentation strategy, which we're having success, generating free cash flow to pay down debt, which we're having success, and realizing our cost structure to match current demand levels.

I am confident that if we execute this plan, and we will execute it, that Interface will come out of this leaner, more agile, less dependent on corporate spending and more financially sound and a much more profitable company. And we will have the tremendous up side for earnings.

Again, thank you for joining us today. And I'd like to open it up for questions.

At this time I would like to remind everyone, in order to ask a question, please press *, then the number 1 on your telephone keypad. When your line is open for questions, please restate your name and affiliation. And we'll pause for just a moment to compile the q-and-a roster.

Your first question comes from Rex Henderson of Raymond James and Associates.

Good morning. I'm filling in for Sam today, who's on the road, but he sends his best.

Good morning.

First question, I guess, is just can you give us any kind of update on where the negotiations with bond-holders and banks stand right now? I think you had kind of an agreement in principle with the banks last week. Is there any update on that?

Yes. We have a waiver in place with the bank group, and we are pursuing some options for a long-term amendment over the course of the next 30 to 45 days. There's a couple of options that we can pursue. We have not addressed the bond-holders currently. We're still gathering information and preparing our recommendation to the bond-holders or our proposal to the bond-holders.

Okay. Do you have any idea when you'll be talking directly to those people?

Not at this point.

Okay. And I guess, secondly, is there business trends in the first few weeks of October, have they remained pretty much on track with what you saw at the end of September?

I would say that the business trends are okay. They obviously haven't turned up at all, but they're pretty much stabilized and a little bit better than September.

Okay. Any particular segment or end market that's noteworthy?

You know, I'd say the fabrics business is showing some pretty good signs for the last four weeks in order activity. Our modular business and broadloom business continue to be okay.

Okay. All right, thank you very much.

Thank you.

Your next question comes from Robert Menowitz of UBS.

Hi. Good morning.

Good morning.

Just a couple of quick questions. First, is there any way of estimating what the incremental margin erosion was from the reduction of inventory? In other words, idle capacity in excess of end-market demand. Can you quantify what that did to your margins?

It's probably close to $2 million when you look at it.

Okay. Great. And...

That's just in the fixed-cost absorption of the inventory. That doesn't count the variable part that you don't absorb.

Right.

That's not fixed.

Okay.

And it's more fixed than variable, but even though it's considered variable.

Okay. And as we look out into next year, would you anticipate reducing inventory further, or are you at a level now where you think you're sort of matched to end-market demand?

I think there is an ability to continue to reduce inventory to generate cash, which we're going to be focused on.

Okay.

We have a targeted reduction similar to the first...well, next year that we had this year.

Okay. On your receivables balance, are you seeing any up tick in bad-debt expense?

Actually, we're seeing the days improve. We have a pretty concerted effort to improve our days outstanding receivables to generate cash, and I think our receivables are in pretty good shape.

Okay. So we should really kind of start to see the borrowings under the AR facility come down going into next year. Is that fair?

If business doesn't turn up, yes.

Right, right. Okay.

We hope it goes up.

Sure. And then, lastly, in your plans to amend the covenant under your bank facility, is there any anticipation of addressing the maximum-leverage test?

Yes, there is.

And what would you...I know on your last week's call you talked about the minimum coverage. What would you do to the maximum senior secured-leverage test?

I'm sorry, I'm not sure...

No, no. That would...

No, we're in great shape there.

Okay, so you'll just leave...

Yeah, we're in great shape there.

Okay. And that stands at two times, including the receivables.

Right. We're spending like .45.

Okay, great. Thank you.

Thank you.

Your next question comes from Raja Nikerjee of Oxigon Credit Investment.

Hi. Good morning. Just one question on the revenue target for the fourth quarter 30 to 40 range. I guess essentially it's sort of flat to the third quarter. Do you expect...I just wanted to probe in terms of the basic assumptions for that range. Is there any movement in any of your segments, or are you assuming that the modular business sort of keeps growing at the same pace that it did in the third quarter? Or are you assuming some other further erosions in some of these other...

Actually, we are assuming that...we're anticipating that the modular business will continue to show improvement. And we think the broadloom business actually will turn up as well.

Okay. And in terms of the modular business...

The fabrics business is the one with the shutdowns that you have in December, that we're anticipating that to be done in association with the shutdowns.

Okay. Like I said, in the modular business, are there any weak spots? I know that this obviously has been great. But are there any weak spots that concern you at this moment, maybe pockets of weakness in that segment?

No, actually, the market segmentations part of that business is doing well and I think will continue to gain market share in those market segments. And corporate, you know, needs to hold up. If it turns down, we'll have to offset it with the market segmentation strategy.

Okay. And on your accounts receivables facility, you mentioned that you had about $33 million outstanding at the end of the third quarter. How much incremental capacity do you have under that facility right now?

Up to 50.

I'm sorry?

Up to 50.

Up to 50. And does that facility also have same covenants that you need to address in your [inaudible] revolver?

No, that does not have covenants. It's secured facilities.

Okay. Okay, great. Thank you.

Your next question comes from Mike Kender of Salomon Smith Barney.

Yes, just a couple of questions. One is, you gave revenue and EPS guidance for the fourth quarter. Can you give us EBITDA guidance? Is it a fair assumption that it should be somewhere in the similar range to what we saw in the third quarter?

Yes. Yes.

Okay. And on the pre-announcement conference call a couple of weeks ago, you mentioned a large tax refund. Do you expect it in the fourth quarter? Has anything changed on that?

We will...our tax refunds...we actually said in the second half, Mike.

Okay.

...of the year. We don't...it will be $10 million.

Okay.

It is $10 million.

Okay. But that is...that's, what, fourth quarter, or was that already...was that in the first quarter?

Third quarter.

Okay. That's it. Thank you.

Thank you.

Thank you.

Your next question comes from Pamela Wilson of W.L. Ross.

Two questions. Is there an expiration date on the securitization facility?

Yeah. It's a 365-day evergreen renewal process.

And when does that...

January.

January, okay. Do you anticipate any problem in that?

Not at all.

Everybody wants a piece of securitization.

Okay. And could you give us any guidance for next year in the EBITDA? If we're looking at a $60 million annualized run rate right now in the second half of the year, do you feel comfortable with it being higher next year in your...

I would anticipate next year we will be higher for sure.

Do you think you'll get to the $80 million level?

I think the street estimates have us, I believe, between $90 million and $100 million next year.

Doesn't that seem a little high?

Not if we get any kind of help out of the corporate spending partner when our segmentation strategy kicks in. There's a lot of up side in the earnings of this company. And if we generate the $20 million in savings from the restructuring and you get any kind of modest growth next year, that doesn't seem unreasonable.

Okay, thank you.

Your next question comes from Macon Rudifield of Keane Capital.

Hi, guys. How are you doing?

Good.

Fine.

Good. Just a couple of questions I jumped on the call kinda late. Just kind of in layman's terms, can we go over, you know, what the bank issues were and just very simply exactly what happened? In your pre-release, you mentioned it.

Sure.

In just very kind of simple layman's terms how that's parlaying, so there's not too much of an issue getting drawn on this.

Sure. Under the credit facility, we had an interest coverage test requirement of EBITDA to interest of two to one. We have a waiver in place for the third quarter, and we're pursuing a long-term amendment with our bank group and don't foresee any obstacles at this point.

There are a couple of options that we can choose. There's an asset-backed facility structure that's an option for us where we can eliminate covenants altogether. We have in excess of over $100 million as a borrowing base so that we could recreate the $100 million revolver on a pure borrowing-base structure, which...or we can reset the interest coverage test to near 1.65 times and begin to ratchet it up over the second half of 2003. We're currently exploring some options with the bank group there.

Secondly, under the indentures, there is a fixed-charge coverage test, two to one, under both the senior notes, the new senior notes and the senior-subordinated notes, that requires to stay above two to one. And it's not [inaudible] default. It is an incurrence test that prohibits certain restricted payments, including the repurchases of bonds and the issuance of dividends.

So the governing indenture at this point is the senior subordinate...excuse me, the senior notes of 10-3/8s, which prohibits us from bringing in the senior-subordinated notes, any junior capital. So we can de-lever by repurchasing the 10-3/8s going forward. However, the earliest maturity is the senior-subordinated notes, which is due in November of 2005.

Ideally, we would like to have the opportunity through free cash flow to bring in those senior-subordinated notes over the course of 2003 and 2004 just in order to de-lever the organization. So we do have the flexibility to de-lever. It's not the optimal scenario that we would like. We'd like to have that opportunity to bring in the 9-1/2s. And so we're going to pursue seeking the consent from our bond-holders to allow us to bring in the 9-1/2s.

Okay.

We have a very small bank group. There's four banks and it takes a majority vote on it. So we...or 66 percent, I guess. So we feel pretty confident that the bank amendment will happen. We also don't intend to borrow on our revolver. I mean, we're going to generate cash in this quarter and next year. So in my mind, we'll be generating sufficient cash and won't even need the revolver, even though, to get $100 million in capacity, we have the balance sheet to do that pretty easily.

So right now that $100 million revolver is just restricted to working capital needs.

Yes, that's correct.

And one of the options may be to convert that $100 million into general cash generation which you could prolong?

Absolutely.

Is that what I'm hearing?

Yeah, we could...I mean, what are you suggesting, that in theory we wouldn't need the...our intention is not to use the revolver at all.

But if it ever was needed, it could be accessible, probably.

No question. No question.

Absolutely.

Yeah, we can...I mean, I understand in asset-backed facilities, you can go out and not have covenants and pledge your assets and have a formula. And if you use the formula on our balance sheet, today you would have $100 million of capacity.

Okay. And just two other quick questions. One, on the free cash flow estimates, what was working capital or maintenance CAPEX in the quarter?

Our maintenance CAPEX is around $10 million for the year. I will tell you that we have a lot of capacity reinvested, one and a half times depreciation for the last five years. Up until 2000, we have the latest toys. There's not really anything lacking in the technology side. And if there was, we'd go out and invest in it. But we don't see any technology investments we need to make, and we have plenty of capacity today.

So we could see that as a kind of a forward run-rate number?

Yeah, you can see next year we think it would be between 12 and 15.

Okay. And earlier in the call you mentioned potential asset sales.

Yes.

Is there any quantification on...

There's about $20 million in assets that are non-strategic, not quoted as business that we're looking at. There are facilities that we've rationalized, that they're on the market and so forth, and some small businesses.

Are people...

Yes, we actually are...

Are people pursuing these, or are these something that...

I think we will close on $10 million of it in this quarter.

Okay. And I don't have the statement. Operating margins in the quarter were...

Gross margins were 27 percent. The EBIT margin was two and a half percent.

Okay. Okay, guys.

Thank you.

Thank you.

Your next question comes from Christopher DeYoung of Allied Irish Bank.

My questions have been answered. Thank you.

At this time I would like to remind everyone, if you would like to ask a question, press the *, then the number 1 on your telephone keypad. And we'll pause for just a moment to re-queue the roster.

Your next question comes from Larry Taylor of CSFB.

Good morning.

Good morning.

Just a couple of quick questions to clarify the non-operating cash items in the fourth quarter here. If I think I understood you correctly, the tax refund actually was in the third quarter?

Right.

Okay. So that's already taken place. And you mentioned $10 million of asset sales.

Right.

You know, other than, you know, whatever our expectations are for operating results in cash interest, what other non-operating or non-p-and-l stuff is going on in the fourth quarter here?

We've got the restructuring that will take place. A lot of the cash side of that equation won't happen until the first quarter.

So of the $8 million cash, do you think 60, 70 percent of it is first quarter?

Yes.

Oh, yeah. I'd say maybe a million dollars this quarter.

Okay.

Your next question comes from Chuck Speer of American Express.

Great, thanks. Can you just walk through your $20 million free-cash-flow calculation for the quarter? I'm having a little trouble coming up with that amount.

Patrick, do you want to do that?

Sure. Let's see. Net income should be about the same. I think there's about $10 million...what do you have in your working capital model? It should be about $10 million in working capital.

Right.

Depreciation, CAPEX, should be about two or three.

Okay.

Net income, break even to a small loss.

I'm still...yeah, I'm just still not coming up with this. If you start out with...you mentioned your EDITDA came in at $15 million.

Right.

Take out your interest of about 10.7.

Right.

It's got to be in the tax. Was this all...this whole tax refund of $10 million, did that come in this quarter?

Yes.

You've also got...I'm sorry.

Go ahead.

You want through the fourth quarter, Chuck, or the third?

The third quarter.

Okay.

Oh, the third quarter. Oh, the third quarter. I'm sorry. I thought you were looking for the fourth quarter. We had a positive $5 million of receivables, $14 million in inventory. So there was about $20 million in working capital in the fourth quarter...excuse me, in the third quarter. Capital expenditures were 3.8 in the third.

Okay, I think I've got it now with the $20 million in working capital.

Yes. I'm sorry.

And, I'm sorry, for the fourth quarter working capital, what were you expecting then?

Oh, along similar lines.

Another $20 million recuperation of cash from working capital in the fourth quarter?

That's correct.

Okay, thanks.

Your next question comes from Keith Hughes of Sun Trust Robinson.

Scott Phillips on Keith's behalf. Our question was, why is modular performance so much better than other business segments in the third quarter?

Because it's got a lot more traction on market segmentation.

[Inaudible]...

And modular is taking share of other floor coverings in the corporate.

Right. And you said that education is where the [inaudible]...

Higher education...

Is that pretty much leading the charge here?

Well, higher education is the market segment that we're doing very well in. Retail space we're doing very well in. In government as well, we're doing well. All those non-corporate segments, we're doing pretty well in.

Okay. And then, looking across the other business segments, is share pretty constant there year over year?

Yeah, we're not losing market share in any of those businesses.

We actually think we may be taking share in our fabrics business.

Okay, is that from...

And our...

You mentioned there's some segmentation there as well. Is that...I mean, is it...

That's very much tied to the furniture industry.

Okay, great. Thanks a lot.

But I also believe we were taking share in our broadloom business.

Okay, thank you.

I think the corporate market's down 20 percent in that segment.

Okay.

And I would again like to remind everyone that in order to ask a question, please press *, then the number 1 on your telephone keypad. And again, we'll pause to queue the roster.

Your next question is from Pamela Wilson of W.L. Ross.

What factors do you think...can you attribute your ability to take market share to? Is it sales force or is it bankruptcy of one of your competitors or...

No, I think it...well, I think it has to do with a combination of factors. One, we are definitely the design leader, particularly in our modular business. We've got a great sales force. But also, carpet tile as a product is a better product than other soft-floor coverings. And people are starting to see the benefit of modular carpet and the return on that asset or that investment.

So you've got a market that's looking at carpet tile now as a design feature. Before it wasn't considered to meet the design or aesthetics of a retail space, hospitality and so forth. So it's now moving into other market segments because it's cheaper to install, it's cheaper to maintain. And if you've got a problem with it from a maintenance standpoint, you can actually replace one tile with another tile and not replace the whole product. And the most expensive day of taking up other floor coverings is the day you take it up. With modular, you can just take it up and move the furniture around and not have to take all the furniture and displace the people. So the economics of the modular is really starting to play in all the market segments.

Within the broadloom segment, do you think you're maintaining your market share or...

I think we're actually...you know, we've got a new energy with [inaudible] that we put out there. We've got a dedicated manufacturer. We located the Prince Street facility into the West Coast. We've got a whole new team, and the sales force really is very stable. And I just believe that we're taking share from our competitors in that business. We're a high-end niche broadloom player.

And at this time there are no further questions.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference. You may now disconnect.