Interface Inc (TILE) 2003 Q1 法說會逐字稿

Good morning. My name is Derrick and I will be your conference facilitator. At this time I would like to welcome everyone to the Interface Incorporated 2003 first quarter earnings 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 * and then the number 1 on your telephone key pad. If you would like to withdraw your question press * then the number 2 on your telephone key pad. Thank you. I would now like to turn the call over to Lindsay Hayden with ST Morgan Walk. Ma'am, you may begin your conference.

Good morning and thank you for joining us. Today, I'd like to welcome you to the Interface conference call. We are here to discuss the company's results for the first quarter of 2003, which were reported yesterday after the close of the market.

The press release from yesterday is posted on the investor relation section of the company's web site and an archived version of this conference call will be available through that web site as well. Present in the call today from Interface are Dan Hendrix, President and Chief Executive Officer and Patrick Lynch, Vice President and Chief Financial Officer.

I would like to say a word about procedures before we begin. After management has made its formal remarks we will take your questions. Please note that during today's conference call management's comments regarding Interface's business, which are not historical information are forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements including risks and uncertainties associated with the economic conditions in the commercial interiors industry as well as risks and uncertainties discussed under the heading "Safe Harbor Compliance Statement for Forward-Looking Statements" in item 1 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. The company assumes no responsibility to update and revise forward-looking statements that they have made during the call and cautions listeners not to place undue reliance on any such forward-looking statement. Lastly, please note that this call is being recorded for Interface. It contains copyrighted materials. It may not be re-recorded or rebroadcast without Interface's express permission. Your participation in the call implies your consent to the company's taping of it. With these formalities out of the way I would like to turn the call over to Dan Hendrix. Dan, please go ahead.

Thank you for joining us today for discussion of our results for the first quarter 2003. I would like to start by giving an overview of some dynamics relating to the first quarter that I believe will help you reconcile and understand our results. Our modular business performance expectations in the first quarter, generating an operating income of 9.1 million, and sales were up 3 percent compared with the first quarter of 2002. Sales on our fabric service and broadloom businesses however were down 19.7 million collectively in the first quarter of 2003 versus the first quarter of 2002. Using our average contribution margins this translates into a decline in operating income of approximately $6 million from those businesses compared with the same period last year. And, this does not account for the under absorption of fixed manufacturing costs as a result of lower sales which was another hit.

In addition, the disruption associated with the integration and restructuring of our fabrics division in the first quarter cost us approximately $2 million, and we spent approximately $2 million on sales and marketing initiatives during the quarter, particularly in connection with the launch of InterfaceFLOR, our residential modular carpet business, the launch of our Prince Street House and Home residential broadloom collection and the launch of our successful i2 marketing campaign which will drive modular sales in various segments of the commercial market. The i2 campaign should have an immediate impact on sales, particularly in education as schools begin buying carpets that we will install during the summer months when school is out. All of these factors contributed to the shortfall in earnings compared with the prior quarter. The good news is orders received during the quarter totals $230 million which is down only 1 percent compared with the first quarter of 2002.

Due to the uncertainty surrounding the many customers delay projects until the geopolitical situation begins to stabilize. But now the turn of business has improved. Our backlog at the first quarter was $14 million higher than it was at the end of 2002 and therefore we expect to ship more in the second quarter than we did in the first quarter. We also have $20 million in annual line savings and cost cutting initiatives as we are eliminating 544 employees in the first and second quarter of this year that we should realize some savings in the second quarter and we fully realized the savings in the second half of the year.

From a cash standpoint, we ended the quarter with $23 million in cash on the balance sheet. We expect to generate free cash flow of $25 million during the second quarter. This free cash flow projection is derived from an anticipated $30 million of cash provided by the operating activities, less than expected $4 to $5 million of the cash in investing activities both are determined in accordance with GAAP. Included in that calculations are $17 million tax refund that we will take in the second quarter. In addition, we currently have zero borrowings outstanding under our $100 million revolving credit facility.

As I said earlier, the overall turn of business in our marketplace is much better than it was at the start of the year. We expect that sales profitability and cash flow will show considerable improvement in the second quarter. We cut costs, we're working aggressively to improve liquidity, and we believe we will see the continued benefits of our market segmentation strategy in the second quarter. Our management team has implemented operational and marketing strategies that we believe has strengthened our company and will deliver long-term value to our shareholders. Now, I'll turn it over to Patrick for some detail.

Thanks Dan. I'll start with the income statement. Dealt in the first quarter of 2003 we were $210.2 million compared with $226.7 million in the same period last year with $232.3 million in the previous quarter. During the first quarter of 2003 we recorded a $2.1 million pre-tax restructuring charge associated with our previously announced initiative. Operating loss during the first quarter of 2003, which includes this restructuring charge was $3.4 million compared with operating income of $10.6 million in the first quarter of last year and compared with an operating loss of $16 million in the fourth quarter of 2002. For your comparison purposes I will note the company recorded a pre-tax restructuring charge of $23.4 million in the fourth quarter of 2002.

Loss from continuing operations was $9 million in the first quarter of 2003 compared with virtually breakeven results from continuing operations in the first quarter of 2002 and compared with loss from continuing operations of $17.4 million in the prior quarter. Loss from discontinue operations of our raised/access flooring business, and of tax was $1.3 million in the first quarter of 2003 compared with the loss of approximately 100,000 on those operations in the first quarter of 2002 and compared with a loss of $12.8 million on those operations in the fourth quarter of 2002.

For comparison purposes, I will note that the fourth quarter 2002 results of the discontinue operations included pre-tax impairment loss of $18.3 million associated with the write down of the carrying value of the assets of that business to their net realizable value as required by FAS144. Net loss for the first quarter of 2003 was $10.4 million or 21 cents per share, compared with a net loss of 106,000 or zero cents per share in the first quarter of 2002 and compared with a net loss of $30.2 million or 60 cents per share in the preceding quarter.

Gross profit margin in the first quarter of 2003 was 26.1 percent compared with 28.9 percent in the same period a year ago, and 27.8 percent in the fourth quarter of 2002. The decline was a result of lower than normal production levels specifically in our broadloom and fabrics businesses, which caused increased under absorption of its manufacturing overhead.

Interest expense was $10.2 million in the first quarter of 2003 versus $10.4 million in the same period a year ago, and $10.3 million in the fourth quarter of 2002. Depreciation and amortization in the first quarter of 2003 were $9.3 million, this compares with depreciation and amortization of $9.2 million in the same period a year, and $8.4 million in the fourth quarter of 2002. Capital expenditures in the first quarter of 2003 were $4.6 million. We expect total capital expenditures for fiscal 2003 to be between $12 and $15 million.

SG&A expenses were fairly flat with the fourth quarter of 2002 but up $2 million when compared to the first quarter of 2002. As Dan mentioned, our investments are in the InterfaceFLOR residential launch, the Prince Street House and Home collection residential broadloom launch, as well as thei2 marketing campaign for our modular product.

Couple of the currency fluctuations resulted in higher SG&A level year-over-year. At the end of the first quarter of 2003, we had $22.9 million in cash on the balance sheet. The loan under our securitization facility was approximately $26 million as compared with a loan balance of $30 million at the end of 2002. The first quarter is historically a period when we use cash, for example, we make necessary premium payments for our insurance programs. In addition, we raised our inventory levels in anticipation of sales growth in the residential and educational segments in the second quarter.

We also increased our yarn inventory levels to higher than normal to take advantage of ordering prior to the effectiveness of the announced yarn price increase, it to offset the service and delivery problems we had with certain suppliers over the past few months.

Despite the use of cash during the quarter our liquidity position remained sound. We have a bank commitment in place for a fully underwritten $100 million asset back lending facility that we will remand and restate our $100 million revolving credit facility and we expect to close the transaction in the second quarter. Now, I will talk a little about our individual business unit. Our world wide modular business continues to be very profitable with year-over-year sales of almost 3 percent, consolidating operating income margins of over 9 percent.

As Dan mentioned earlier, the additional marketing costs during the quarter offset some of our profitability improvement measures we implemented in 2002. Orders in our worldwide modular business were up 11 percent the first quarter 2003 versus first quarter 2002, and our backlog in this business going into the second quarter is up 20 percent compared with yearend 2002. In broadloom as with our businesses, production levels were very low as a result of the over activity in the marketplace.

This low volume causes significant amount of under absorbed fixed manufacturing costs during the quarter. However, the trend improved throughout the quarter and the broadloom business was near breakeven for the month of March. While the first quarter sales were down 25 percent compared with the fourth quarter of 2002, we remain optimistic about this business' feature as evidenced by a 60 percent improvement from yearend 2002 and our backlog going into the second quarter of 2003.

Our fabrics division performed below our expectations during the first quarter. Despite virtually flat sales versus the fourth quarter of 2002 there was decline in profitability. Disruptions from the integration of the three facilities led to increased inefficiencies and lower production volumes, which caused under absorption of fixed manufacturing costs during the quarter. These factors coupled with early in the quarter, which caused an increase in our utility costs, led to lower than expected profitability. We believe the integration issues are largely behind us and we expect this business to be near breakeven in the second quarter.

Finally, our service business experienced decline in revenues that was consistent with the industry. However, at such low volumes any hiccup in operations has a dramatic effect on results. We are working diligently to prevent this from happening now and in the future and we have recently instituted some significant cost cutting measures, predominately headcount reductions to lower our breakeven level even further. Now I will turn the call back over to Dan.

Thanks Patrick. Of course, we are disappointed as the commercial interiors industry has not stabilized more quickly, but all indicators they pick up in orders and increase in backlog, good response for our market segmentation strategy make us believe the worst is behind us and our strategy will position us to outpace the market as recovery begins. We fully expect the second half of the year to show significant improvement over the first half. In the meantime we will take all incremental steps necessary to cut costs, watch our cash, debt and still be the same with strength in our ability to provide the best products and services for our customers.

In short, in the last 30 months we've transformed our company from one that was multi-line, fragmented, acquisition driven and corporate market dependent, to one that is modular centric and focused and intent on nurturing organic growth in new segments in broader geographies. This is the hallmark of a company that will create value for shareholders. Again, thank you for joining us today and I will open it up for questions.

At this time, I would like to remind everyone if you would like to ask a question please press * then the number 1 on your telephone key pad. We will pause for just a moment to compile the Q&A roster. Your first question comes from John Baugh with Wachovia Securities.

Good morning. I apologize because I came in late, I hope you addressed these, apologies, but did you give any detail in carpet tile, then on retail education and hospitality, whatever, that they're different in markets?

No, we did not, John.

Could you give us some flavor and I am particularly interested in the order picture versus the shipments and how you see progress coming in those other...

Well, I will tell you that from a retail standpoint we had obviously just launched at March 19. We expect probably to take a couple of $100,000 in order; in the second quarter we took 35,000 orders last week. The activity is interesting. I mean, we've got 1000 hits a day now on our web site. That's one of the businesses that you're trying to grow with and it will be very successful, it's just how quickly you can get it successful. So, that's not making a big impact short-term, and we're spending about a million dollars a quarter on that business today.

The education has a huge up side for us and I think we're going to have, I mean, it was up in the first quarter, it's going to be up significantly in the second quarter. All indications are that our education strategy is working, and I expect education to be a big contributor this year for us. Hospitality is well that's up, all the other segments are actually up John, retail place and so forth, and those segments are going to generate some pretty good results this year. The market obviously is still down.

And you mentioned in the release, the cash flow to be good for second quarter. Does that change your guideline for the year? I recall it was at least $30 million with a hope for more free cash flow.

I think we will still need a $30 or $40 million.

Okay. And just one last quick one. The order picture I think you quoted in the release figure, I want to say it was $230 million or something. What is that compared to year-over-year in terms of all incoming orders?

Last year it was flat.

Flat with last year.

Right, from fourth quarter last year.

And that was just again on a carpet tile number or was that ...

was for total business.

Total business. So, that's fabric, that's broadloom, that's ...

Right, that's the total business.

That's for everything. And lastly, is there anything with broadloom clearly, I guess the utilization rates are very low? Is there an obvious further cost reduction effort that can be undertaken there or you had a dicey point where you can...

No, we actually have cut another $3 million out of that business, we did that in late March and there is a another opportunity to go after some more cost cuts there. So we're not at the bottom there.

Okay, thank you. Good luck.

Your next question comes from Sam Darkatsh with Raymond James.

Good morning Dan, good morning Patrick.

Good day.

I understand you didn't give guidance in the release Dan, I was just wondering if we could maybe take a look at what you expect for certain line items in Q2 versus Q1, just so we can see if we can back in to some reasonable expectations. Q2 restructuring costs, do you have a sense of what that might total?

Sam, I think it would be around $2 million and that should be it. That's the end of it.

So in Q2 you had $2 million and that will be it for the rest of the year?

That's correct.

That's roughly three cents, and then you have essentially the same as Q1, marketing costs in Q2 versus Q1?

I think they will be down, we are still going to spend the main on residential, but I think the rest we won't spend.

Is that about a million bucks?

Right.

...from Q1?

Right.

The fabrics disruption piece won't be there hopefully. Restructuring savings, you said you are targeting $20 million annually. What kind of savings do you foresee for the second quarter, which you didn't see in the first quarter?

3 to 4.

And you mentioned that broadloom, the cost cutting, is that $3 million? Is that a hard savings that we see in the second quarter, is that an annualized run rate what does that $3 million represent?

That's an annualized run rate of which we will see probably annualized two of it in the second quarter.

Half a million dollar or so in the ...

Right...In the second quarter.

Okay. And so we can do the puts and takes from those items plus whatever we assume for revenues with a 30 or 35 percent contribution margin of back and what our reasonable expectation might be from the second quarter then?

Yes.

Okay. You talked about this briefly, Patrick about inventories being up sequentially. Can you quantify for us the amount? I guess, it was up about $10 million from the end of the quarter. Can you quantify how much of that was the extra spend for the education and residential markets along with the extra yarn purchases?

I would say, it would probably be about $2 million in additional yarn and probably $4 million in education and $4 million in residential.

And do you think your inventory levels are a little bit high given where you might have had a little bit less of a revenue based in the quarter where you might have to trim the revenues going forward which might hurt margins a bit?

Well, I think we are going to benefit from the education obviously and the yarn going into the second quarter, in other words, the buying season for educations right know and we anticipate that coming down. We had a nice backlog increase which is placed very well into the inventory increase as well. But I don't perceive a huge under absorption related, but we got some inventory billed, that's ear marked.

And can you talk about resource a bit, I like John, came in a little late. Did we talk about that in the prepared remarks or did we have, can you give us some color of what you are seeing in resource?

Resource activity has picked up. We entered the, backlogged was about $5 million higher before you have our elimination associated with it. The activity and resources is actually doing pretty well. For the first quarter, it was pretty much in line with what's going on with the industry. We cut cost in resources. Well, we did not talk about that. We have taken about the remaining costs, better resource on annualized basis, Sam. And we are just going pair resource down to make money and its going to be driven by a success in our modular business

And last question for others. You mentioned that broadloom was breakeven in March. With your cost savings, do you expect broadloom to breakeven to profitable in the second quarter or what are your margin expectations for broadloom going forward?

We are anticipating that the broadloom business is breakeven a little bit. We got a nice backlog going in to the second quarter as well.

Okay. Thanks very much.

Your next questions comes from Robert Manowitz with UBS Warburg.

Hi, good morning. A couple of questions on this new facility. Exactly, is this a new facility or is it an amendment of the old facility?

It is an amendment.

It is an amendment to the old facility?

Yes, but the structure appear as a back structure versus the quasi-hybrid structure that we had previously, which was a head cash flow and asset backed element to it. This is a pure asset backed facility.

Okay, so do the covenants then change or the ...

The covenants change. The structure will have a certain minimum excess availability requirement. If we fall within that minimum excess availability zone the covenants will go into play. I foresee roughly $30 to 40 million in availability before the covenants come into play. We don't have the final shake out yet on the borrowing base but the intention is to be in the $30 to $40 million range of excess availability before covenants are in effect.

Okay and ...

When we go into, I mean, obviously we will have the full availability. The covenants won't be in play, we'll be in compliance.

Correct.

Okay and any sense of what those covenants...

Yeah, there will be a fixed charged coverage of 1 to 1, and senior secured, the EBITDA not to exceed two times.

Okay. So the interest coverage ratio will be gone.

That's correct.

Okay, will there be a ratings figure?

No.

No.

Okay. Was there any impact in the quarter from the foreign currency translation given the value of the dollar? Did that run through your sales line?

Yeah, it did.

What was that impact this year versus last year?

It was probably ...

$3 to $4 million. I'd say close to 5.

$5 million.

$5 million positive?

Right.

Okay, and, what is your cash position today? Yesterday, why not we have the most recent data?

Roughly, $30 million.

Right.

On a basis.

Right. And then my last question is just on this, the InterfaceFLOR, the residential bulk business. Where do you see the cash recovery, it sounds like you spent just about $2 million in that.

We spent a million in the first quarter.

A million in the first quarter?

Right.

Where do you see the breakeven point, does that become a cash flow breakeven proposition by the end of this year, is it into '04?

I'd say it's probably first quarter '04.

Okay.

You know, we have got a budget, which you don't know when you have a business like this. We have a budget of $2.5 million this year.

Of...

Of sales, net sales. And you got marketing campaigns that will tail off going into the second half of the year.

Right. Great, excellent, thank you.

Thank you.

Your next question comes from Lee Brading with Wachovia Securities.

Hello, on the, you mentioned the order trend, positive order trend at $230 million which is essentially, I think, you said maybe 1 percent flat versus the prior year. Could you talk anything different you're seeing, may be year-over-year in the conversion of those orders and the shipment, just kind of curious if we could see a similar sales in Q2 this year versus Q2 last year?

I would say that there is, obviously was a tendency to delay based on what was happening in the Middle East. We typically, the conversion cycle is a quarter of that. So, we anticipate that we would be able to convert obviously the backlog into orders, I mean in the shipment.

Any update on the asset sales and can you talk about the raised flooring business?

Yeah, we have got a couple of interested suitors. We have got a couple of offers that we are working through. We expect to have resolution of that some time in June.

Any thing different from what you had talked about in the past, as far as the potential proceeds?

No, we are still in that same .

Okay, right go ahead.

Yeah, we are ongoing and obviously I don't want to talk about negotiations on that.

Right. Among the annual savings, I guess you mentioned $20 million, three to four coming in the second quarter, the number, is it 540 employees a year?

Yeah, I our headcount reduction is 540 employees that we will pretty much be through by the end of this June.

But we see a lot of that, I guess going through on the gross margin basis, so we see some of them in the SG&A as well.

More gross margin than that is with SG&A, but some of it is SG&A too.

And on the restructuring, you mentioned another $2 million restructuring, I guess in Q2, is that mostly going to be cash?

Yes. I expected that, we used about $5 million in cash in the first quarter and then 2 remaining for the balance of the year.

Okay, and all that will fall on the Q2?

That's correct.

And on the SG&A side, I guess you talked about, essentially about $2 million, kind of launching of new products in SG&A. We see, should SG&A then play off your of 55 number or shall we see further reduction there?

I would say that 55 should be the ceiling and we are going to try and drive it down further from there.

All right, thank you.

Thank you.

Your next question comes from Mike Kinder with Salomon Smith Barney.

Yes, a couple of questions. One is, on the fabric side of the business. Your talked about the facility disruptions and, the impact from those, I guess question number one is, is that you mentioned a $2 million number early in the calls was that the cost of those disruptions?

Yes, Mike.

Okay, and are those over with or still on ...

We are pretty much as of the second week in April pretty much through with the moving or weaving into our two facilities and shutting down those facilities.

Okay, so basically that $2 million of hit, it should go away in the second quarter?

Right.

In terms of severance on the 540 people, how did that run through the national statement, was that all in the restructuring charge or some of that run through in ...

Most them is restructuring and we got another $2 million to go in the second quarter.

Okay, so basically it's below the operating income line, it's not any cost disorder SG&A?

Right.

Okay. In terms of pension and healthcare cost, how much of it was that year-over-year?

Healthcare ...

Healthcare was probably, actually neutral to down. We made some pretty dramatic changes to the program of our structure. Going into 2003 we kind of reduced it significantly. So, our healthcare cost on a year-over-year basis was fairly flat, because of the changes in the structure of the program. The pension costs on an annual basis will probably be an incremental $2 million euros and so we probably had a half million or so in the first quarter increased pension contributions.

Okay. And just following up on to Lee's question about backlog conversion. Just looking back in the second quarter last year, you guys had a $241 million of sales, is that a rough approximation of what we should see in the second quarter of this year or this time you are going to pull that down?

Yeah, we are not giving guidance from the top lines Mike?

Okay. That is all I have.

Thank you.

Your next question comes from Jeff with Solomon Brothers Asset Management.

Good morning. I just wanted to try to get a feel for the toner business. You did mention your orders were up versus yearend and you have a feeling at the end that is a, a bit of catch up versus the first quarter or are you seeing orders continuing to build week to week?

Actually orders are up, if we look at April to January, the first two weeks orders were up about, I think 10 percent?

That is right.

The tone has improved because we got a healthy backlog going into this quarter.

Okay. And again do you have a feeling that that's just to catch up the pent up demand and the waiting for to reside?

No, I don't, - no I don't think so, I mean I think there are lot of projects now that are starting to come through but I don't think the first quarter was the pent up demand coming through with the Middle East at all. And I just think that, as far as trying to ship orders you probably had some delays in projects and so forth. But I think the overall tone is just better than it was going into the first year.

All right. And then ...

You contribute some of that may be to the Middle East, but pent up demand, there is pretty much with the pent up demand out there. I wouldn't say that you had pent up demand just related to the situation in Iraq.

Right okay, and can you commit at all about the price actions in the industry?

We are actually holding up price pretty well in our broadloom and in our carpet tile business, which we typically do because we specify product.

And, your competitors?

...I think there is pricing, when you get in to a big project, you have to bid to win the project and there is some pricing pressure a bit overall, our pricing is pretty much stable.

Okay, thank you.

Thank you.

Your next question comes from Larry Taylor with CSFB.

My questions have actually been answered, thank you.

Your next question comes from Chuck Fear with American Express.

Right, thank you. You mentioned earlier that you are hoping to be breakeven in the broadloom operations in the second quarter. Can you give us some kind of sense as to where you were at first quarter in the broadloom business?

We lost about $3 million dollars in that business, Chuck.

How about in the fabrics business? On the fabric side, it should have been a thorn in your side for a while now and not being able to get that thing to become profitable again. I read a recent article, an interview with you Dan it led me to believe that your thoughts on fabrics may not be as core as they once were. What are your thoughts on fabrics business and what kind of train is that for you guys right now?

Well, the fabrics business historically has been as you know, a very good business. It is historically had 12 percent EBITDA margins going back to as far as 1986. I mean, the issues we have is that we have not been able to downsize it with this 40 percent decline in this differential market which is why we actually shipped this product in too. When we come out of this, the fabric business would be a very good business. We are actually taking share when we you look at the adoptions with the majors and so forth and we have got a diversification strategy associated with fabrics and, we just need to get a profitable even in this trough and then we will have a much better business coming out of it. But, we obviously are focusing on our carpet tile business as the engine that drives this company right now.

What kind of a drain is the fabrics business?

It lost $3 million as well. We collectively, I think I told you that they... those three business lost 9.7. We pretty much had a third of third of third in those three businesses.

Oh, great. What if you could walk through for me, I am just trying to come up with the $25 million of free cash flow target for the second quarter of that number as to 5?

Well, you are going to get $17 million from a tax refund, you have got EBITDA of 9.3 ...

Appreciation amortization.

Yeah, I am sorry. Appreciation amortization 9.3 and you have got some other assets that we think will get closed, as far as disposition goes.

And well, you had mentioned the asset sales, can you just refresh our memory what is the of the raised/access foreign business out there? Is there is anything else that potentially...

Yeah, you have got a lot of facilities that we have shut down, that we are out marketing. You have got Prince Street facility, which is our east coast broadloom business that probably has, $5 to $6 million value that we actually think we are going to get offer on that in the near future. You have got facilities in Dudley, Massachusetts as well as in North Carolina associated with the fabrics business that we are looking at.

And can you just blast on the raised/access businesses that drain was a little bit higher than what I would have been anticipating given the efforts to restructure that business that also came through in the first quarter anyway? Before you are able to get that business sold, if it stood outstanding for the whole second quarter, what kind of additional losses would you be expecting?

I think you are probably looking at about a million dollars after tax loss. You know, we are going to do something with it, obviously in May or June.

Thanks very much.

Thank you.

Your next question comes from Roger McKurgee with Octagon Credit Investors. Mr. McKurgee your line is open.

Your next question comes from Larry Clarke with TCW.

Yes, I wanted find out what is your balance on your facility currently and if your new...that a facility will ... that receivables' facility go away before you go into the new one or we just do not have the .

Yes it will go away and the balance, I think, roughly as of today is roughly $28 million or so.

28 million$

That's correct.

Okay, good. Thanks.

Your next question comes from Mark Dagenhart with Oppenheimer Capital.

Hi, Dan. Hi, Pat.

Hi, good morning.

Could you give us a sense of any new national accounts in either retail, restaurants, those types of areas? And how significant are those types of accounts as a percentage of sale at this point?

We have actually, I do not want to throw them over this conference call, Mark.

Okay.

I will talk to you about that in private, if you want, as far as just some key customer accounts that we have. They are not insignificant, I will tell you that and we are doing pretty well in that area. We just landed a couple of big ones in the first quarter.

Okay. And the second part of that was just, could you give us a sense of how significant that is as a percentage of overall sales?

I would say that it probably runs 20 percent of overall sales.

Okay. Thank you.

Thank you.

Once again I would like to remind everyone, if you would like to ask a question, please press * then the number 1 on your telephone keypad. Your next question comes from Rob Green with Value Fund.

Good morning. A couple of quick questions for you. One is, could you just refresh my memory on the free cash flow that you are anticipating for this year of $30 to 40 million. Could you just break that up for me?

Sure. Appreciation amortization should be about $36 million, CAPEX of around 15, working capital contribution positive of roughly 15, 5 of which is coming from receivables and 10 from inventory predominantly.

And plus the tax refunds...

Yeah, there are some outsides with the tax refund as well as the disposal of non-strategic assets.

Okay. So, is the tax refund going to be greater than the 17 that you are getting next quarter?

Potentially. I am hesitant at this time, but potentially.

Okay. Could it be meaningfully more or...

I wouldn't say.

Well, it could be $7 million more.

Okay.

Could be.

Okay. Next question, this has to do with the company's pension. It looks like there is about a $50 million under funded pension plan. I was wondering what the company's obligations would be in terms of cash funding.

The cash funding this year will be roughly the $4 million Euros which is about a million euros more than what it has been historically, we have agreed to any schedule contributions under this plan. And so it is an addition of, roughly an additional million euros that we are expecting to have to the fund in this year.

Okay. And would that same number hold for the next year presumably ballpark?

Presumably, that's correct.

Okay. Now is that number ... is the under funded pension number up a lot from last year or...

Yeah, it's up probably 20... yeah, it is up about £12 million from last year.

Okay. Was there a reason why... was it just the under performance of the underlying assets or was there change?

No, that's correct, the underperformance of the underlying assets.

Okay, great. And my next question is more of a bigger picture question. When I look at the company, it looks like, on a relative value, it seems like it is trading at a pretty nice multiple of, 2000 or... of 2003 to 2004 EBITDA and at the same time it also, quite leveraged. So, I just wondered if you guys had contemplated trying to do any type of equity offering in an effort to, number one, de-lever the company and also to add some liquidity to the stocks?

Not right now. We have not ... we think we have got some pretty good free cash flows and when we will look at that as we go forward, but I think the... we are going to see an improvement in our earnings stream.

Okay. Is the company still buying back bonds?

Not currently.

Okay. Was there a contrary interest decision to that or is that just as a result of the company's redoing its bank deal?

We actually...we are redoing the bank deal, pretty much.

We can talk about the main deal...

... maintain as much liquidity as possible at this point.

Right, because it just seems like doing an equity deal would be accretive, if you could do equity here and buy back your debt, it would accretive for the company.

Well, we will take that as advisement.

Okay. Thank you.

Your next question comes from Roger Harris with Credit Suisse Asset Management.

Good morning.

Good morning.

Can you give us an idea of what is happening in raw material costs right now and each of the lines of businesses, what your outlook is there and then to I guess, if we look back a year ago, it looks like we are basically in the same position where, it feels like things might be ready to be getting better and...but what is different about, your sense now versus a year ago?

As far as raw material price increases, we had a nylon price increase in March, 3 to 5 percent. We actually raised our prices as well in March to offset that. The pressure on raw material stays as decided when we are linked to oil in a pretty big way...

Yeah.

... with petrochemical base. And, I hope to see that's actually coming down a little bit. As far as the toner business, I mean we everybody obviously expects this office market to recover. It has been down to a 30-month downturn. The typical refurbishment cycle is 8 to 9 years and we are now going on years 11 and 12 and there is just a lot of pent up demand. And undoubtedly, I would say that some of the design firms are saying that they are getting a little bit more busy. Projects seem to be springing up. We are actually not waiting on it. When the corporate office market could come, we are actually going out and creating other market segments to offset the corporate office market. But the activity pretty much in April and March was a heck a lot better than it was in December and January.

Great, thank you.

Thank you.

Your next question comes from Darren Heitmann with Schneider Capital.

Good morning.

Good morning.

Your last response was helpful for what my question was, but maybe we could talk about that a little more. It sounds as if you are fairly or maybe reasonably confident that your orders could be up again in the second quarter versus the first quarter?

If you looked at the first three weeks, orders activity has been pretty good. If you looked at March, order activity was good as well.

And so, I guess, how much of that is coming from the corporate market versus union market initiative?

I would say a lot of it is coming ... it is actually probably a combination of both. We are not anticipating the corporate office market to improve significantly in the second quarter though. Our activity, we believe, will come from the market segmentation strategy.

In terms of the revenue that you...

Right, right.

When you look at the order activity of the corporate market in isolation, it sounds like that much better than it has been in the last 18 months though.

I would say our activity has been better, but I don't think the corporate office market actually is better.

Okay. Okay, so you can't really look at that as an indicator?

Yeah I can't look at that, right.

Okay. All right, thanks.

Thank you.

Your next question comes from Steve Hughes with SunTrust Robinson Humphrey.

Yes, you mentioned the price increase earlier. Did you see most of your peers who have had a similar price .

Yeah, they did. They did.

Was there any differences in corporate market versus non corporate.

No, there is none since it crossed the board

Okay. Thank you.

You do have a follow-up question from Mike Kinder with Solomon Smith Barney.

Yes, Dan, I just wanted to follow-up on the raw material issue. You talked about that nylon. Could you also talk about some of your other key raw materials?

Polyester. We saw similar price increases in polyester. We are pretty much a nylon polyester house line. That's our two key components.

Yes. And in terms of the other price increase, it sounds like ... and it sounds like from what you are saying price increase, you expect that the ... you know, offset the raw material cost increase?

Right.

Is there any sort of lag that we should expect?

We actually increased prices right when the DuPont price increase occurred and so, we should pretty much offset it.

Okay. And on the ... getting back to the bond buyback question, under the new back facility will you have the ability to buy back in the nine and a halves?

Not the nine and a halves, but the seniors are still available.

I mean, while in the new facility, we could buy back nine and halves. We just cannot buy them back because ...

Because of the indenture.

Right.

Okay. So basically there is indenture limited on the by the senior Okay.

Right.

That's all I have. Thank you.

Thank you.

At this time there are no further questions. Mr Lynch, are any closing remarks?

No Thank you.

Thank you.

This concludes today's conference call. You may now disconnect.