Interface Inc (TILE) 2003 Q3 法說會逐字稿

Good morning. My name is and I will be your conference facilitator. At this time, I would like to welcome everyone to the Interface Inc., third quarter 2003 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 star then the number one on your telephone keypad. If you would like to withdraw your question, press star then the number two on your telephone keypad. I would now like to turn the call over to from Financial Dynamics. You may now begin your conference ma'am.

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

The press release from yesterday is posted on the investor relation's section of the company's web site and an archived version of this conference call will be available through that web site as well. Hosting the call today from Interface are Dan Hendrix, President and CEO, and Patrick Lynch, VP and CFO.

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 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, uncertainties associated with the economic conditions in the commercial interiors industry as well as risks and uncertainties 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 10K.

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've 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.

It contains express copyrighted material. It may not be rerecorded or rebroadcast without Interface's express permission. Your participation on the call implies your consent to the company's taping of it. Now that these formalities are out of the way, I'd like to turn the call over to Dan Hendrix. Dan please go ahead.

Thank you. Good morning and thank you for joining us today. We continue to see improvement throughout most of our company in the third quarter, as we maintain our focus on streamlining, strengthening and growing our business. In the third quarter we remain committed to the strategy that we believe will ensure the long-term prosperity of our company.

Diversifying into end market exposure, managing our costs very tightly and paying down debt to position the company for recovery and minimize our exposure to the corporate down cycles. Our third quarter results are evidence that these strategies are working. The third quarter of 2003 represents the first quarter in almost three years in which Interface has made year over year improvements in both revenues and operating income, compared to the third quarter of 2002.

Revenues grew 2.5% and operating income grew 7.1%. In addition, we showed sequential growth over the second quarter of 2003 in both revenues and operating income. In the third quarter our worldwide modular business continued to build on its strong historical track record, showing both sequential and year over year improvement in revenues and operating income.

Revenues grew 2.1% sequentially and 8.7% year over year and operating income grew 17.4% sequentially and 9.6% year over year. This strong performance in the modular business was largely attributable to our ability to sustain price levels and take advantage of opportunities in the corporate office, healthcare and education markets as well as our continued improvement in manufacturing efficiencies.

Our broadloom business continued its improved performance. As you will recall, our broadloom business returned to operating profitability in the second quarter of this year, and we are very pleased to report that this business maintained this position in the third quarter with a substantial year over year improvement in operating income.

We have been actively taking share in the broadloom space and our market segmentation strategy as continued to generate positive results, particularly in government, education and tenant improvement segments. We are focusing on further penetrating these segments as well as others and we expect good things from our broadloom business in the coming months.

In the third quarter we continued to take steps to improve operations in our fabric business and in the fourth quarter we expect to see the results of the integration and restructuring program that we've put in place in order to maximize the potential of this business segment. The task of returning our fabrics business to profitability has progressed slower than expected, but we still plan to reach this goal in the first quarter of '04.

We also have a new President of this business, Chris Richard, who has 25 years of experience in the textile industry and brings with him a wealth of knowledge in virtually all facets of this business. We're encouraged by the high levels of interest and activity that we are seeing in Interface Floor, our new line of residential modular floor coverings. We are particularly excited by the upcoming roll out of Interface Floor in the Atlanta based Lowe's stores, which will take place in mid-November.

This represents an exciting opportunity for Interface to work with one of the nations leading retailers to enhance the exposure of this new product to the residential marketplace. In essence, we are pleased that our third quarter results have exhibited the same positive momentum that we established in the second quarter of '03. We are successfully growing our top line by continuing to take share in our traditional markets, while expanding into new areas through our market segmentation strategy.

As a result, the proactive expense management initiative that we put in place two years ago. We are now lean organization that is ready to take advantage of an industry recovery when it occurs. And while we cannot yet declare that this recovery has arrived, we are encouraged by the increased level of activity that we have recently witnessed in the marketplace.

Now I'll turn it over to Patrick for a review of the financial details for the quarter.

Thank you Dan, and good morning everyone. I'll start by reviewing the income statement.

Sales in the third quarter of 2003 were 237.1 million compared with 231.3 million in the same period last year and 233.9 million in the second quarter. Gross profit margin in the third quarter of 2003 was 27.5% compared with 27.9% in the same period a year ago, and 27.7% in the second quarter of 2003. The slight decreases in gross profit margin are due primarily to the manufacturing inefficiencies in our fabrics business, which we have already taken measures to correct.

SG&A expense in the third quarter of 2003 at 57.2 million were essentially flat with the third quarter of last year and were down 1.4 million versus the second quarter of 2003. The sequential decrease is due primarily to the results of our recent restructuring initiatives. Operating income in the third quarter of 2003 was eight million, compared with operating income of 7.5 million in the third quarter of last year and 3.7 million in the second quarter of 2003, which included 2.5 million of restructuring charges.

Interest expense was 11 million in the third quarter of 2003, versus 10.6 million in the same period a year ago. The increases are due primarily to one, the determination of our accounts receivables securitization program which carried an overall lower borrowing rate and two, the unwinding of our interest rate swap agreement which were both done in connection with the amendment and restatement of our credit stability in June 2003.

Loss from continuing operations was 2.1 million in the third quarter of 2003, compared with a loss from continuing operations of 1.7 million in the third quarter of last year and a loss from continuing operations of 3.9 million in the second quarter of 2003. Loss from our discontinued operations including an 8.8 million after tax loss on the disposal of those operations, was 11.2 million in the third quarter of 2003, versus a loss from discontinued operations of one million in the same period a year ago.

Net loss for the third quarter of 2003 was 13.4 million or 27 cents, compared with a loss of 2.7 million or five cents per share in the third quarter of 2002. Depreciation and amortization of the third quarter of 2003 was nine million, as compares with depreciation and amortization of nine million in the same period a year ago.

Capital expenditures in the third quarter of 2003 were 2.8 million, consistent with our previous forecasts. We continue to expect total capital expenditures for fiscal 2003 to be approximately 15 to 17 million. As for the balance sheet, we reduced debt by 16.2 million during the quarter, primarily through the reduction of working capital.

Now I'll go over some details from our individual business units. We continue to be very pleased with the performance of our worldwide modular business. Modest up tick in the corporate office markets during the third quarter resulted in improved top line growth in the U.S. and our market segmentation strategy continued to generate positive results both domestically and internationally.

For these reasons, we realized both sequential and year over year improvements in both revenues and operating income. Orders in our worldwide modular business were up six percent in the third quarter of 2003 versus the third quarter of 2002. In the third quarter of 2003, our broadloom business continued to capture market share, boosting revenues by 6.3% and improving operating income by 2.4 million versus the prior year.

At the end of the third quarter of 2003, broadloom orders were up 5.4% year over year. We return this business segment to operating profitability during the second quarter of 2003 and we are confident that we can continue to improve the performance of our broadloom business going forward. Our fabrics business continued to struggle during the quarter, with year over year third quarter sales down five percent.

Profitability also continued to be negatively impacted by our consolidation and integration activities, which when completed should improve operations significantly. Despite the fact that our results in this segment remain somewhat depressed, we are encouraged by year over year improvement in orders during the third quarter, which marks the first year over year improvement in 2003.

Finally, our service business continues to perform below our expectations. Sales during the third quarter were down 13.8% compared with the third quarter of 2002, but have shown modest sequential improvement in each of the past two quarters. This business has been subject to intense pricing pressure during the down turn, so we've focused a lot of our attention on controlling costs.

On the bright side, we did see a slight increase in order activity in our service business late in the third quarter, which has resulted in a slightly higher backlog going into the fourth quarter as compared with the third. Now I'll turn the call back over to Dan.

Thanks Patrick. In the third quarter we continued to manage our business in accordance with the strategies and principles that will drive the long-term success of our company. We continue to generate positive momentum in our businesses, particularly our modular and broadloom segments, driving top line growth and improving overall profitability.

We maintain our market leading positions in our existing markets and continue to take proactive steps to increase our activity in a diverse range of new markets. This is evidenced by the October issue of Ford Focus magazine which includes results of its annual survey of the top 250 design firms in the United States, and Interface was ranked number one in five of the seven categories for carpet manufacturers. And for the fifth straight year, Carpet Tilex ranked as the number one hot product in the survey results.

These results further confirm our belief that we are positioned extremely well in the marketplace. While we are not celebrating these results, we are encouraged by the progress our company has made in the past two quarters and the firming trends that are developing in the marketplace. WE do realize that the industry environment is still weak and that visibility remains poor regarding the timing and magnitude of an eventual recovery.

However, we are taking every measure to position our company to capitalize on improvement in market conditions and we are looking forward to a successful fourth quarter and a fiscal 2004. Now I'll open it up for questions.

At this time I would like to remind everyone if you would like to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Sam Darkatsh from Raymond James.

Good morning Dan. Good morning Patrick. How are you?

Hi Sam.

Couple of quick questions. Dan, can you help us understand the fabric integration issues, some of the hiccups that we're seeing? Help us understand what's going on there and what steps we're taking to correct that and the timeframe of when we start to see.

You mentioned that we look to be profitable perhaps in the fabrics in Q1, but what specifically are we struggling with in the integration process?

Well, we moved the looms from our Aberdeen plant into the Chatham plant, and we're moving the weaving capacity from that plant to the other plant. And the issue has been trying to get up the speed from a weavings standpoint. We're having a lot of off quality, trying to match the styles and so forth and a lot service issues.

But I will tell you, we see a lot of light at the end of the tunnel and it's getting better every month and we expect that we'll be over the hump in the fourth quarter.

The OI run rate in Q3 in fabrics was down a couple of million, I'm guessing? Is that about right, or what's the ...

Sequentially, Sam?

Yes. I'm just trying to get a sense of what we should be figuring the impact of the integration hiccups in Q3 and then the eventual subsiding of those issues.

There's probably a million plus in turn around savings when we get it right. Per quarter.

OK. And that should gradually go away in Q4 in Q1, you're saying?

We should be over the hump in Q1 and we should be much better in Q4.

OK. Second question, I'm guessing that due to some seasonality in the education end market, that Q3 is seasonally lighter than Q2? Would it be fair for us to assume, then, that corporate made up some of that difference you had sequentially?

Corporate was ahead sequentially for the first time in a while.

And give us a sense of sequentially orders and backlog across your end markets.

I would say that from an order standpoint, the order activity in the third quarter was up slightly over the second quarter and up over the first quarter, but you haven't seen this marked improvement in orders.

It's pretty much flat lining where we are today with a little slight improvement. It's firmed significantly from where it was beginning of the year.

OK. I'll let others ask questions. Thanks gentlemen.

Thank you.

The next question is from from CSFB.

Good morning. Couple of questions. One, wondered if you could give us a sense of cash flow from operations, then a sense of some of the major components there? You mentioned improvements in working capital being a source, but maybe if you could give us a little more detail, that would be great.

Sure. Receivables were up a little bit in the quarter. We saw cash of about 2.5 million. Inventories were down generating about cash about three. Prepaids were down, which generated an additional three. Accounts payable and accruals were up about eight million in the quarter.

Some of that coming from the income tax refund, actually, in the third quarter which was about $5 million.

OK. Great. That's very helpful. And than I apologize if I missed this. You said fabric orders were up year - you said there was a year over year improvement but I didn't get the number, the percentage of the improvement in fabric orders.

About three percent.

Three percent.

That's correct.

OK.

That's the first improvement in probably three years.

Terrific. And the - in terms of the, you know, any other color that you can give us either by segment or otherwise in terms of, you know, how this is likely to translate into fourth quarter, you know, momentum or sort of early interest as far as, you know, noise relating to potential orders now that we're into the fourth quarter here?

I would say that while October is playing out like the third quarter. It's OK. It's not great, you know, everybody's looking for this big pick up in the corporate office market and that's not happening yet. But it's getting better. It's the first time in a while that our corporate office market was up year over year and up sequentially.

What you're seeing is, you're seeing projects freeing up that have been on hold and delay for sometime two and three years. So that's one thing that's starting to feed the market, is you're seeing projects that freed up that's been put on hold. And there's just an overall better feel to the marketplace. You talk to our sales force, the activity is better, design firms have more projects that are active and so forth.

So it just feels better but you cant really declare that the recovery's out there and then the other market segments we're taking share in education, healthcare markets. There's no doubt.

OK. And then lastly, the - how much of an improvement do you think in inventories are we likely to be able to see from here? I know that's been something you've targeted as source of ...

I think there's another 10 million that can come out of our inventories within the next three quarters.

Terrific. Thank you.

Thank you.

The next question is from from UBS.

Yes. Hi. Good morning. Just two questions. First, can you give us an updated snapshot on where you are in terms of spending or collecting cash from what all non-recurring items, i.e., the, you know, the asset sales, the tax refund, any restructuring costs?

Sure. As far as the income tax refund, those are done. We have some one off sales and some assets that may materialize in the fourth quarter to the tune of less than $2 million. As far as restructuring, we spent about 1.7 million in the third quarter and I think we're forecasted to spend less than 700,000 in the fourth quarter.

There's an order of magnitude, not big items coming through in the fourth quarter or going to the first.

Right. And then my second question is on the foreign currency translation. Was there a positive impact in the quarter from effects?

There was. There was probably $6 million pickup in sales, about a 4.8 million pick up in sales and 1.8 million in SG&A, which translates into about two or 300,000 pick up in operating income.

Great. Thank you very much.

Thank you.

The next question is from Lee Brading from Wachovia Securities.

Hi guys. Dan, you mentioned kind of at the end of your opening remarks there talking about better activity and you've referred to it as well in the Q&A. Could you give more detail? Are you more RFP's and sampling or are you actually seeing, I imagine that you're talking October. Are you actually seeing orders pick up in October?

We're seeing it's more samples and so forth and requests for proposals obviously are out there. Design firms are more active. You just, you know, from an order standpoint the trend is improving but it's not a marked improvement from where it's been.

OK. And then I know people have touched on the fabric business and you mentioned in Q1 you expect it to become profitable at time, what kind of assumptions need to accrue, I guess, for that to take place? Is it flat revenue? Or you mentioned the order trends are up, so do you need to have an up tick here or, you know, is it just getting your cost control efforts?

It is more in the line of getting the operations more efficient and keeping this same top line with maybe a slight improvement, a $1 million improvement in sales.

OK. And then ...

You know, if you take the order rate that we have today and you translate that into the first quarter and we're efficient on executing the manufacturing side then you would be break even.

OK. Great. And then lastly here, on the SG&A you talked about a one million increase sequentially or a little better than that, I guess. Should we look for something flat here going forward or further improvement?

We're going to continue to drive SG&A and figure out how to reduce costs, but we're pretty much hitting the bottom unless we restructure our company.

OK. Great. Thanks very much.

We're also investing in our residential business to a tune of about a $1 million a quarter.

OK, and that's incremental from ...

That's new costs over last year.

Great. Thank you.

Your next question is from from Waddell Reed.

Hi. With the restructuring savings, how much of are the close to the costs and how much of it flows through SG&A?

A lot of it will flow through costs of good sold. The SG&A part we've realized through headcount reductions.

So is it two-thirds, one-third type of split or do you have numbers to it?

Seventy-five percent through the cost of goods sold line.

OK. And then how much was education and healthcare sales up year over year?

Year over year it was up about around 30%.

In terms of absolute dollars?

In terms of absolute dollars, it's - I had it in percentages in my head. I don't have the absolute dollar.

Yes. I don't have it at my fingertips, . Come back to me if you want.

OK.

We have the data, it's just not sitting here on our desks.

That's fine. And can you quantify October orders so far?

No. We don't do that.

OK. Thank you.

Thank you.

The next question is from Michael Kender from Salomon Smith Barney.

Yes. A couple of follow ups. One is on the discontinued operations, just want to get a sense for how much, basically, what the cash lead was and so if you eliminate that how much you pick up in terms of improvement?

The cash bleed in the quarter was about - cost about $3 million a quarter, cash perspective, excluding the proceeds from the divestiture.

OK.

On a net basis it was a lot less than that.

OK. So - and the other question I had was on the fabric side you talked about getting break even first quarter. What would the, you know, if you look at, you know, whether we wanted to talk operating income or EBITDA, how much of a year over year improvement swing would that be, you know, if you were able to achieve that '04 versus '03? Can you just ...

If you took '01 compared to '01 this year, if you look at it that way from break even that would be about $3.5 million.

OK. Thank you.

Thank you.

The next question is from from Goldman Sachs Asset Management.

Good morning. Are you still on target to hit $30 million of free cash flow for this year?

I think the range is, you know, around 25 million.

OK.

Little bit less than 30, but 25.

All right, so it's down. OK. Can you walk us through how you get there, because I guess year to date you're at negative 15 and to get to ...

No. No. Year to date we're at positive, let's see, almost 18. We generated 16 in the third, four in the second and borrowed two in the first. So we're positive through the third quarter.

OK. Maybe we were just looking at it differently. When you say free cash flow, how are you describing that?

Free cash flow is paid down debt. We paid down 16 in the third and four in the second. You might be getting confused by the asset securitization that may have rolled back under the revolver.

OK. So year to date you're at what level?

Around 18 million through the third quarter.

OK. And how do you anticipate that $7 million can be during the next quarter?

Well, depreciation amortization will be around nine. I think there's probably three or four million dollars of working capital that we'll pick up in the fourth quarter. And then, now, you can back into whatever the, you know, the net income what that will be. We haven't given any guidance for the fourth quarter at this point.

But you can make up the difference that way.

OK. All right. There was a $14 million increase in other liabilities. What is that number, please?

Some of that is the - well we had the tax refund came in, we had to debit it in the accrued liabilities. So cash proceeds from the tax refund and also there was a current maturities that was at liabilities held for sale that got flipped into current liabilities as well.

So when we divested that raised access business, some of those assets, liabilities, flipped into the continuing operations assets.

Got it. Final question just has to do with looking at your debt, which ironically, the stock has been doing very well and the debt seems to be trading off indicating that people are concerned that the company may have some difficulty refinancing the '05 debt or at least it will be a little bit more expensive that where you initially issued it. And I was wondering what options does the company have as you look toward that date?

Are there other assets that theoretically you could sell if you needed to raise additional proceeds?

Sure. We have all kinds of assets that we could sell. I would say that our goal is to increase the earnings profile and issue something that's less than the 9.5% and also we'll have a lot of free cash generation as well.

Can you give us a sense of what type of free cash flow you think you can generate next year under kind of a normalized environment?

Twenty-five to 30 million next year.

OK.

That is if you have a protracted, I'll call it, recession in the office market. If you have a rebound it's more than that.

Got it. And I know that there's some limitations in terms of your ability to buy back some of the bonds that are out there, but have you looked at trying to issue some equity because it would obviously ...

We collected a lot of options on the refinancing and we are pursuing what makes sense for the company. We haven't put our head in the sand related to that.

Right. Thank you.

Thank you.

Thank you.

The next question is from from Salomon Brothers Assets.

Morning.

Morning.

Can you, Patrick, mention what the EBITDA was with the raised foreign business in the last 12 months?

It was a negative, probably, six or seven million dollars.

Dan, did you ...

Yes. Negative six or seven.

OK. And these manufacturing inefficiencies in fabrics, can you say what they have totaled year to date?

They're north of $3 million bucks year to date.

OK. And it'll be a less of a variance you said in the fourth quarter and then back to normal ...

... back to normal in the fourth, I mean first.

The first. OK. Thank you.

The next question is from Mary Gilbert from Imperial Capital.

Yes. I just wanted to clarify the cash bleed that you were talking about of three million. Is that related to the fabrics business and that was in the quarter?

Are you referring to Mike Kender's question about the cash bleed from discontinued operations, the three million?

Yes. I was wondering what that was related to. Is that related to raised access flooring?

That's correct and it will not continue in the fourth quarter.

OK. SO that was in the third quarter and year to date it was six to seven million?

And negative EBITDA. That's right.

Wow. OK. And then what about the cash bleed from fabrics?

Well, it lost $2 million in operating income for the quarter. It lost $2 million in the second quarter.

OK.

We lost three million in the first quarter to give you a sense of.

OK. And then also I wanted to find out how much you have outstanding on the revolver at the end of the quarter and how much you have available?

I had 5.5 million outstanding under the revolver and a total availability was north of $50 million at the end of the quarter. I think it was around 55.

Fifty-five.

Right.

And any LC's outstanding?

There are. That's netted in that 55 million already. It was roughly 12 million but you should not adjust that.

Yes, the 55 is already ...

I've already netted it in the $55 million of availability.

OK. And then also on the working capital side, you were breaking down the components and I just missed one of them before you mentioned accounts payable being eight million. What was the other number?

Accounts accrued and accrued liabilities, the combination of both.

Oh, the both of them it was eight million.

Yes. There's some noise in there for currency and some noise for non-cash items associated with the divestiture.

OK.

Not a true balance sheet to balance sheet comparison.

OK. And then why - where is the shortfall coming, because you had targeted, obviously, higher levels of cash to be generated from working capital. Where are the challenges coming from?

Where? Targeted, what, for the year? For the quarter?

For the quarter and the year.

We hit about 10 million in working capital in the quarter. I think the upturn in sales has - we had a negative use of cash for our receivables. But I think we're well on our way. We had a nice DSL month in September, though, and we've reduced our inventories in the quarter and I think we'll reduce our inventories in the fourth quarter as well.

OK. SO it's because of the upturn in revenue?

That's correct.

I would say that we track that as almost a religion in our company now, working capital through the supply chain management initiatives and we are on target to hit what we said at the beginning of the year.

OK.

We should see a nice improvement in working capital reduction in the fourth quarter.

OK. And I'm sorry if you mentioned this, but what were the exact proceeds from the raised access flooring business this quarter?

They were about three million.

Three million.

Yes.

All right. Super. Thank you very much.

Thank you.

Your next question is from John Baugh from Wachovia Securities.

Good morning, and I apologize if you've covered this already. But, your carpet tile business it looked like it had an up tick in revenue year over year. Can you comment on the margin trends in that business, Dan, and also help us understand in that segment if it's not corporate where you're seeing growth or may be it is corporate in carpet tile?

Yes. From a margin standpoint we actually improved margins in that business. We've been able to actually improve our pricing in our U.S. modular business from year to date. As far as where that business is coming from, in the third quarter corporate actually was up nicely as well as the education market.

And then switching over to broadloom quickly. Give us a feel for where their annual revenue run rate is. Are you profitable in market segmentation efforts in that business?

Yes. The run rate is around $30 million a quarter now. We've lowered the break even point to now where we're profitable around the $28 million level. Education is a market and healthcare, a market that we're growing. We're also taking, I believe, share in the office market in that business.

There's a lot new energy around the Bentley Prince Street brands in the market place.

OK. And then I'm sure you've commented on this and I apologize, again, but order trends in fabric, have they plateaued? Are they still earning down?

They're continuing to improve.

Year over year orders in fabrics are up?

Are up. And October started out pretty strong as well.

And how quickly on average will those orders ship?

They ship pretty quickly actually. It's probably an eight-week lead-time. We have an order in hand and we can make it, we can ship it.

Great. Thank you very much.

Thank you.

The next question is from Mark Degenhart from Oppenheimer Capital.

Good morning.

Good morning.

Two questions. Is there anything you can say about progress on going after large accounts, especially within apartment rent space or hotel chain space? And then a second question would be could you talk about why the roll out at Lowe's has apparently been delayed?

Yes. There's three questions there. As far as the tenant improvement business, we're seeing pretty good activity there. We shipped almost a million dollars in the quarter in that marketplace.

As far as the Lowe's rollout goes, it's just trying to deal with their system of approvals. You have to get your kiosk approved and it takes - there's just a process you have to go through. You negotiate a master agreement, then you negotiate how you're going to roll it out and how it's going to look in the stores and so forth. And that just takes longer than you think.

But we now are making the kiosk and there will be a definite roll out in mid-November. What was the - there was a third question. I forgot it.

Hotel chains?

Well, that's what we think a big opportunity for us. We just got through finishing the Hyatt in downtown Atlanta and that's sort of our showcase case study that we're rolling out. And I think, you know, we're going to have a pretty exciting hospitality business going forward.

Thank you.

Thank you.

I would like to remind everyone if you would like to ask a question press star then the number one on your telephone keypad. Your next question comes from from Goldman Sachs.

Hi. Just wanted to follow up on another question that someone had asked before. Forgive us because we're a little new to your story, but in terms of looking at the free cash flow. It seems like two quarters ago you guys were guiding to 30 to $40 million in free cash flow. Then last quarter you brought that down to 30 million and now you're saying it's going to be 25.

What is it that you guys are having difficulty getting your arms around? Is it the when the pick up in the economy is going occur?

Yes. And I would say that 25 million is hopefully the low side for the year.

Right, but is it simply that you've been perhaps a little aggressive in terms of top line growth or is it that the working capital improvements haven't come about as you had anticipated?

I would say its more in the lines that the access flooring business and the fabric business have not improved the way we thought they would improve, and it took it longer to sell the access flooring business which cost us a lot of capital this year.

Thank you.

Thank you.

The next question is from Keith Hughes from SunTrust Robinson Health.

Good morning. It's Scott Phillips sitting for Keith. Most all of our questions have been answered. I just had one last detail.

Can you just update us on looking at the flooring segment, how much of your revenue was non-corporate and how that compares year over year?

I think moved it to about 60%, actually a little under that. Now corporate and the other segments obviously the biggest segment for us is educational and retail space.

The 60% corporate right now?

Right.

And how does that compare year over year? Is that about the same or ?

Actually it was, Scott, was 68% last year.

Sixty-eight percent. All right. OK. Thanks a lot.

OK.

Your next question is from from .

Regimen Capital. Thank you. You now have only five and a half million left under your revolver over 22 million in cash and its still generating free cash flow. What do you plan to do with the free cash flow you generate?

Are you going to get back into the market of buying your bonds?

My goal is to get to two over two on a fixed charge coverage and buy back bonds.

OK. And any idea when you might get to that point?

Well, we don't project. I think the street, if you look at their estimates, have us getting there close to - by the end of next year.

OK. So you just accumulate cash in between now and getting to that level?

Right.

Thank you.

The next question is from from Quadrangle.

Hi. Are there any restrictions to buying back bonds in the market?

Yes. We have to get back to a two to one fixed.

And that's under the credit agreements?

No. Senior agreement.

Thank you.

Just to clarify, it's a restriction of bringing in the sub notes. There aren't any restrictions to bring in the seniors. Clarify that.

Your next question is from from Harbor Management Corporation.

How you doing. I missed a little bit of the call. Did you give depreciation amortization numbers for this quarter and the same quarter last year?

Nine million in both quarters.

Thank you.

The next question is from from Salomon Brothers Assets.

Yes. Dan, you mentioned that the Bentley Prince Street product is doing well and has a lot of energy around it. Can you say what's different? What's improved this year? Is it a design ...

Yes. Actually if you look at the floor focus article that Bentley Prince Street brand was number one in design. It moved up significantly in that category. We moved it out from under the modular management group a year ago. Created it's own identity and we homogenizing the modular and broadloom businesses and we separated them and we put a new guy in charge named , who is doing a fantastic job in growing that business in the marketplace and reducing our operating costs.

I'm just pretty excited about the prospects of that business now.

It's taken a tremendous amount of complexity out of the manufacturing process out there which has been painful in the short run but yielding some positive results at this point.

OK. Great. Thank you.

Your next question is from from Harbor Management Corporation.

I'm sorry, again. I didn't know if you mentioned it. Did you give one number for short coverage for this quarter?

It is 1.3.

One point three. OK. Thank you.

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

Thank you.

Thank you.