Interface Inc (TILE) 2005 Q1 法說會逐字稿

Good morning. My name is Amy, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Interface, Incorporated 1st Quarter 2005 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press * and the number 1 on your telephone keypad. If you would like to withdraw your question, press *, then the number 2. Thank you.

Mr. [Oletti], you may begin your conference.

Thank you, Operator. Good morning and welcome to Interface’s 2005 [Q1] Conference Call. Joining from the Company are Dan Hendrix -- President and CEO, and Patrick Lynch -- VP and CFO.

Dan will review highlights from the quarter, as well as Interface’s business outlook. Patrick will then review the Company’s key performance metrics and financial results. We will then have time for any questions.

If you have not yet received a copy of the results release, which was issued yesterday after the close of the market, please call Financial Dynamics at 212.850.5600. Or you can get a copy off of the Investor Relations section of Interface’s website. An archived version of this conference call will also be available through that website.

Before we begin the formal remarks, 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, “Risk Factors,” in the amendment to the Company’s registration statement on Form S4 filed with the SEC on June 28th 2004. We direct all listeners to that document.

Any forward-looking statements that are made are pursuant to the Private Securities Litigation Reform Act of 1995. The Company assumes no responsibility to update or 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 copyrighted material. It may not be rerecorded or rebroadcast without Interface’s express permission. Your participation on the call confirms 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. Please go ahead, sir.

Thank you, Jim. Good morning to everyone. We are pleased with our 1st quarter results, which reflect a continuation of the trends we saw in 2004. Once again, our leadership position in the global modular carpet market, the benefits of our segmentation strategy, and cost-control efforts and the continued improvement in the corporate office market were the primary drivers behind our sales and operating profitability growth in the quarter.

The quarter also saw us benefit from improved results within both our fabrics business, which returned our profitability as predicted. And as Bentley Prince Street, we’ve had a 3rd straight quarter of operating profitability -- versus generating an operating loss in the 1st quarter a year ago.

As with the 4th quarter of 2004, our modular business led the way -- with particular strong sales in our US and Asia-Pacific markets. Our European modular business also saw a slight but extremely welcomed up tick in sales, as market pressures there were beginning to ease.

This sales growth and the benefits of our cost-reduction initiatives were enough to offset higher expenses related to raw material pricing, allowing us to generate an overall operating margin of 7.3 percent versus 6.5 percent in the 1st quarter of last year -- even as we continue to make [measured] investments in targeting sales and marketing initiatives.

We are encouraged by the fact that not only was the 2005 1st quarter a strong start to the year, but also because we continue to see demand and our core markets grow. Orders from continuing operations in the 1st quarter -- which is typically, seasonally our weakest quarter, increased orders by 9 percent -- to $261 million.

As the markets continue to recover and demand continues to grow for modular carpet, we believe that our leadership position, combined with our segmentation strategy that continues to reveal opportunities in the non-corporate office market segment will allow Interface to continue our strong growth throughout the year.

Along with the strength in our modular carpet business, our fabric business also posted improved sales in the 1st quarter. Now because a large portion of our fabrics are sold on a just-in-time scheduled basis to OEM customers, the results of this business were impacted more than others by having one less week in the quarter, compared to last year. Nevertheless, it still experienced a 4 percent improvement in sales, compared with the year-ago. And our integration efforts further helped it achieve an operating profit in the 1st quarter.

This is in line with our previously stated expectations, and we expect to see continued profitability improvements from this business as we progress through the year, and as market conditions -- both domestically and in Europe -- continue to improve

Results also improved from our Bentley Prince Street broadloom business, thanks to an improving market, as well as increased manufacturing efficiencies and the cost-containment actions we have taken. We also are encouraged by the level of activity at the higher end of the broadloom market, where we typically play.

Going forward, our focus will remain on building upon and leveraging our leading market position in our core modular business, while at the same time taking additional necessary steps to ensure that the improvements we’ve seen in our fabric and broadloom business continue throughout the year.

We are pleased with the strong growth in order rates we’ve seen over the course of the quarter, and with the trends in our markets that appear to be improving. We are optimistic that we can continue to generate revenue growth throughout the year and improve profitability across all our business lines.

With that, I’ll turn it over to Patrick.

Patrick Lynch. Thank you, Dan -- and good morning, everyone. As in previous calls, the results that I’m about to review -- with the exception of net loss -- exclude the owned-resource dealer businesses. As we’ve previously announced, the Company made the decision to exit this business -- which is therefore being treated as “discontinued operations,” in accordance with accounting standards.

In the 1st quarter of 2005, sales increased 11.8 percent to $234.7 million -- versus $210 million in the 1st quarter of 2004 -- representing the 8th straight quarter of year-over-year improvement in sales. The positive impact of currency changes on sales in the 1st quarter of 2005 was approximately $3.1 million.

First quarter 2005 gross profit margin was 30.3 percent, compared with 30.9 in the year-ago period. The decrease in gross margins was due mostly to increased raw-material prices -- specifically, fiber -- which is petroleum-based products -- generally tied to oil prices.

SG&A expenses in the 1st quarter 2005 were $54 million or 23 percent of sales, compared with $51.1 or 24.3 percent of sales in the same quarter. The year-over-year increase in absolute terms was due primarily to investment in sales-and-marketing initiatives and a $1 million currency impact versus the year-ago period. However, our cost-savings program allowed us to reduce SG&A as a percentage of overall sales.

Now the 1st quarter saw operating income grow to $17.2 million or 7.3 percent of sales versus $13.7 million or 6.5 percent of sales in the 1st quarter of last year. Interest expense was $11.6 million in the 1st quarter of this year versus 11.8 in the 1st quarter of last year. The reduction was due primarily to a combination of fewer borrowings and the improved pricing on borrowings under our revolving credit facility.

Income from continuing operations in the 1st quarter of 2005 was $2.9 million or $0.06 per diluted share. As Dan mentioned earlier, we’re reporting the results of operations for owned-resource dealers as “discontinued,” as required by accounting standards. Included in those results are an after-tax operating loss of $4.8 million and a loss of disposal of $0.3 million after-tax.

Now I’ll update you on our plans to exit the resource-dealer businesses. To date, we’ve addressed 13 of the 15 locations. We’ve sold 7 and have initiated the closure of 6 others. We’re pleased with our progress on this front, and we believe we’re on track to be substantially complete with the exit activities by the end of the 2nd quarter.

As we’ve said in the past, our aligned distribution channel is very much an important part of our strategy, and we remain focused on servicing our customers and opening additional sales opportunities for our modular and broadloom carpet mills.

Included in the impact of discontinued operations, we reported a net loss in the quarter of $2.2 million -- or $0.04 per diluted share -- compared with a net loss of $3 million or $0.06 per diluted share in the 1st quarter of 2004.

Depreciation-and-amortization in the 1st quarter was $8.1 million, compared to $9.3 million in the 1st quarter of last year, and capital expenditures were $3.4 million versus $6 million in the year-ago period.

A couple of key balance sheet items. At the end of the 1st quarter of 2005, we had $23.3 million in cash. We had $51.1 million of additional borrowing capacity under our revolving credit facility. Our DSOs in the 1st quarter were even with the DSOs in the 4th quarter, and our inventory turns were down slightly -- 4.3 versus 4.7 in the 1st quarter of ’04 -- due principally to the seasonal build-up of inventory during the first half of the year.

I now will go over a few details of our individual business units. As Dan mentioned, we continue to see strong activity within our worldwide modular business. Sales in this segment rose 15 percent -- to $153.5 million -- up from $133.2 million a year ago. In the past quarters, this is largely the result of the ongoing successes in our market segmentation, and the gradually improving conditions in the corporate-office market. The increase in sales led to improved operating profits from this segment -- which totaled $16.5 million or 10.7 percent of sales -- versus $13.1 million or 9.8 percent of sales last year.

Bentley Prince Street sales increased 3.7 percent in the 1st quarter, to $28 million -- up from $27 million last year. Bentley Prince Street generated an operating income of $0.5 million -- versus an operating loss of $0.3 million in the 1st quarter of 2004. Sales in our fabrics business increased 3.6 percent, to $48.5 million versus $46.8 million a year ago.

We’ve begun to see the benefits of our integration efforts, and we’re able to produce or generate an operating profit of $1 million versus $1.4 million in the 1st quarter of last year. The decline in profitability was due to increased selling costs on higher sales, and we expect to see the performance of the fabric business improve as we progress through the year.

Now I’ll turn it back over to Dan.

Thanks, Patrick. As you may have heard me say before in 2004 -- Interface has set the foundation for future growth. The 1st quarter of 2005, we are seeing the Company begin to build upon that foundation.

On the last conference call, I highlighted the following areas or goals for 2005, and I want to repeat them again. Recurring things, here. Continue to lead and shape the modular market, worldwide. Further reduce our dependence on the office market, through market segmentation. Increase share in a rebounding office market. Drive sales in broadlooms, improve profitability and absorb overhead. Complete the exiting of the resource-service business. Realize the continuing operating improvements in the fabrics business, to achieve and sustain profitability at the current or improved sales levels. Capitalize on a leading position in sustainability. Pay down debt through cash flow.

To date, I believe we’ve taken the first steps toward achieving these goals, with a continued focus on SG&A expense control, the generation of additional operating efficiencies, and with the continued cooperation of the overall market, I am bullish about our future.

Thank you for listening, and 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 * , then the number 1 on your telephone keypad. We’ll pause for just a moment to compile the q-and-a roster.

Sam Darkatsh, Raymond James.

A couple questions for you. First off, free cash flow expectations for the year. Is that still going to be around that $20-25 million range, as you see it?

It is. Typically, the 1st quarter is our [use quarter]. Then we start generating cash.

I guess going along with that, inventories both next quarter and then throughout the year -- how do you see that progressing?

Well, 2nd quarter we’ll probably build a little bit of inventory, and then it’ll start to come down in the 3rd and 4th. That’s generally the seasonality trend that we’ve experienced over the last couple of years. So I expect that to continue.

And by, “build,” you mean that on a days-cost-of-sales basis, or on a dollars basis?

On a dollars basis.

Sam, actually in Europe, we shut our plants down for maintenance for two weeks. So you’re having inventory build to meet that in the 3rd quarter.

In the 2nd quarter, you’re shutting them down? Or in August.

Actually, in the first weeks of July.

July. Patrick or Dan, did you talk about in your prepared remarks the order activity you’re seeing in April?

We did not. But the order trends continue to be strong through April.

Any color on that you’d like to share, in terms of order activity based on segments?

I’d say it’s across all the segments, Sam. Strong order activity in Asia. Actually some pretty good order activity in Europe. If you look at the US, the market -- I think -- is improving. I wouldn’t say it’s robust, but I’d say we’re seeing continued improvement in the commercial market in the US.

Two more quick questions -- then I’ll defer to others. Assuming whatever you have internally for sales growth sequentially, how are you looking at your contribution margins this year? Based on perhaps a couple of expenses that you may need to incur -- either capacity-wise or sales force-wise? How do you see your contribution margins over the next few quarters?

I’ll put it this way. I think we’re going to see continued expansion in our operating income. Our goal has been to drive our gross profit line close to the 32 or 33 -- which is where it was in 1998, and continue to drive SG&A down. I think you’ll see that continue.

We are making investments in marketing and sales, to grow the top line. That’s impacting the contribution margin, to some extent. But we’ll see continued margin expansion, I believe.

So expansion both on the gross and on the operating line?

Right.

Or the gross line and SG&A, as well?

Right.

Last question. Have the dye issues that we saw in fabrics finally gone away? Have we rectified that problem? Were there any negative impacts of that in the quarter?

We actually saw the benefits of that in the 1st quarter. The plant you’re referring to is in Elkin, and that is actually operating very efficiently. And I expect to see continued improvement.

Excellent! Keep it up! Thank you.

Keith Hughes, Robinson Humphrey.

Is there any way you can quantify or get some kind of feeling on what -- how much raw materials hurt you in the 1st quarter? Particularly, nylon?

It’s tough to quantify. It probably overall cost us $0.01 or so. To get our arms around it, it’s tough to say -- to really calculate the lag. But it probably at least cost us a penny.

It’s going to hurt you a little more -- or maybe at a similar level -- in the 2nd quarter, is it?

Pressure is continuing.

Specifically in fabrics, have you seen any kind of impact with the textile quota rules changing, coming out of China?

No, we’re not.

And the raw materials, there. Has there been a pressure there, as well?

Not as bad.

Do you use a lot of polyester?

Polyester. Right. It’s not as bad.

[Lee Brady], Wachovia Securities.

Could you provide…? You might have, if you haven’t done this -- but could you provide some detail on the modular side? You mentioned US and Asia up. What percent was, for example, the US up on the modular side?

We really don’t give that out, Lee. Partly because of competitive reasons. But actually, Asia was the strongest -- US was the next and the Europe lagged a little bit.

Now on the raw materials side, a couple of people just asked this as well, but… When do you expect…? You mentioned gross margin expansion. When do you expect to turn the corner on that? I think you alluded to another quarter covering more pressure on that side.

Yes. We continue to raise our prices. We’re also looking at how to average down our raw material prices by using other raw materials, and so forth. And that’s just an ongoing business deal you have, there. Our goal is to make sure we have the right contribution margins and deal with the raw material price pressures by increasing prices, and finding alternatives to the raw materials side.

You haven’t found any pushback on raising prices, have you?

Well, we’ve raised them and there’s always a lag. To date, we’re raising our unit price as we have raw material price increases.

What percent have you been raising prices by?

Anywhere each time, probably in the 4-5 percent range. Each time. The last 2 have been in that range.

Then you mentioned $20-25 million in free cash flow for this year. Could you help a little bit on the components? I think the last call, you said D&A 33-34, Capex up 25. And the potential [inaudible]

Yes. I think Capex is going to be a little bit less than that, after the way the 1st quarter has shaped up. So you know it’s probably turning closer to 20. You’ll still see you’re going to get 10-15 through just the disposition of dealers. And if we can keep working capital neutral-to-slightly-negative -- under $5 million or so -- I think that would be a good day’s work, based on these order trends and sales trends.

That working capital -- keeping it neutral-to-slightly-negative is considering the net between the dealer process and just your normal growth in your business?

No. I’m considering that separate. I’m netting the 2. One’s going to be positive and then excluding the dealer impact, it should be… Working capital will be negative -- 0 to 5 -- or it could be north of 5. But that’s our target.

Then last on just the working capital, too. I know seasonally, this is usually a [use] period for you -- this Q1. I notice crude expenses are pretty dramatically down. I was wondering if there was anything extraordinary.

I can answer that one pretty easily. That’s a $20 million interest payment that we make in the 1st and the 3rd quarter. That’s the way our bond interest payments fall.

Robert Manowitz, UBS.

In your fabrics division, it looks like operating margin came in around 2 percent, last year. If I’m doing the math right, it was a little north of that -- around 3 percent. First, I guess I’d like just to understand the movement there, in contrast to your remarks about the improvement in the business.

Then secondly, maybe as you’ve outlined in your goals -- maybe you could help us understand the target margins that you’re looking for.

When you look at the fabrics business, w actually had a better 1st half last year than we did in the 2nd half. Part of that, Sam alluded to on the manufacturing efficiencies side. We saw a big improvement 4th quarter to 1st quarter in the fabrics business -- operating income-wise. We’re continuing to see manufacturing efficiencies in that business improve.

We also have an improved market, if you follow the system -- furniture market and so forth. There’s an improving trend in the global statistics -- so I believe we can actually grow the top line, as well. Our targeted margin in that business is 8-9 percent.

8 to 9 -- then I misunderstood.

Go back to 2000. The margins in that business were [slow].

I misunderstood. I apologize. I thought you were saying year-over-year. You were saying sequentially.

Right.

On your cash flow statement, you’ve got a line item there -- $6.2 million from cash from business [inaudible] operations. Can you break that 6.2 up into the components? I imagine it incorporate working capital and proceeds?

There are little or no proceeds in that number -- but it’s principally probably like $13 or 12 or 11 million of working capital realization netted against the operating losses for that unit, of about $5 million.

Then the last question. If I’m doing the math right, you’ve got 2 more locations to address.

Correct.

What happens with those 2 locations?

Well, we’re currently in negotiations with those 2. They [are] likely to be sold, but I’ll leave my comments at that.

Understood.

John Baugh, Legg Mason.

Nice quarter! The first question I had is just on the 13-weeks versus 14. I mean that’s a 7 percent difference -- everything being equal. But is it right to look at either your shipments or your orders and add 7 percent? I don’t think it is -- but help me sort it.

If you look at the fabric business, that’s probably the right math. They’re a supplier of components to the OEMs. It’s just in time in that extra week. You either lose it or you gain it, based on that week.

If you look at the carpet business, it does impact it. There was an impact to it, but it’s probably not 7 percent. Because you’re able to ship the orders and the backlog a lot more on your schedule -- not the OEM’s schedule.

Maybe -- not to put a number in your mouth -- but 2 or 3 percent consolidated, maybe, in impact?

Yes. I would actually put it maybe a little higher than that -- a little more.

Bentley Prince Street. Help me a little bit. Are you running more units of broadloom through your facility? Is the pickup in residential and being done somewhere else? Is it tile? Just help me a little bit with the small revenue increase -- with the dynamics, there -- as well as both on the operating income line [inaudible]

It’s not residential. It’s commercial. That’s where the growth came from. And it’s in segments, as well as the office market, where the growth is. The tile piece is fairly small.

So did you run more units of broadloom through your West Coast facility?

Yes.

Then getting back to the SG&A number -- I mean, excuse me -- gross profit, overall. Are you… I think you said you were down whatever it was, year-over-year -- in your base points. But…

Actually, we were up. In real dollars in raw material.

Are you getting, as you look at numbers… Are you getting a benefit from better plant utilization throughout the corporation, but therefore the raw material offset is even more than that? Is that accurate?

We’re getting a benefit in the plant’s efficiency benefits. We also obviously -- when you run more units, you get benefit from more production.

So would it be true that essentially the raw material is in a lag involved in getting pricing through versus cost is more than offsetting that?

I wouldn’t say “more than” offsetting it, but it’s offsetting it. I think Patrick quantified it at about $0.01 with [PD]

I believe your OEMs in the fabric -- your customers -- have a lot of February year-end. Therefore, didn’t want to show a lot of inventory, I assume. Was March better? What are the trends in March and April in [inaudible]

Yes. March and April actually -- you’re right -- March and April are better than February.

What in the modular segment US -- any numbers -- in the past you’ve given us how much is commercial, how much is sort of -- excuse me -- corporate, and then how much is sort of segmented, as a percentage of total?

In the US, it’s still.. It was 49/51 -- corporate / non-corporate in the US modular.

49 percent corporate. 51 percent non-corporate.

Right.

How would that compare, Patrick, to the year-prior number? That’s US-modular, right?

Yes. That’s almost right in line with last year, on the segmentation split.

One thing that we’re seeing, John, is we’re seeing the office market actually starting to contribute.

Yes.

I know you can’t predict that you’ll be selling these 2 units by June, necessarily, in the discontinued ops -- but any feel for how much loss builds in this 3rd quarter? Or is it all [inaudible]

Yes. I suspect [inaudible] May.

I’m sorry. What?

We’ll have completed those 2 locations by the end of May.

So as far as the 3rd quarter’s concerned, we shouldn’t see…

We’re trying to reduce that to as close to zero as possible.

Got it. Great. Thanks. Good luck!

Thank you.

[David Horne], Perennial Investors.

This is actually [Chris Hines]. Couple of just clarifying questions. On the cash flow statement, cash provided by financing activities -- [of I believe ]$1 million or so -- what was that?

Just borrowings under the revolver.

So that’s how you funded the negative cash flow for the quarter -- it was just adding them over?

That’s correct.

Second question is, could you help me understand the [margin for the operating income for the quarter [inaudible] sequentially?

Yes. That really is front-end loaded to marketing costs. There’s about a $2.7 million sequential decline. We invested about $1.8 million in marketing costs on a sequential basis. About $1 million in the US, about $500,000 in Europe, and then about $300,000 in our residential business -- 4th and 1st. A lot of those programs are front-end loaded. That was the primary contributor to the decline in profitability on a sequential basis.

You also had a $1.8 million increase in [sales].

In what?

Selling expense.

Selling expense. Okay. Is that somehow seasonal, also? Or…?

No, that’s actually adding salespeople, and so forth.

But there’s nothing… Part of… One of the suppositions we have -- at least we believe -- is that as you grow sales, more and more of that is attributed to the bottom line.

That’s obviously our model, too.

So I shouldn’t read too much into that.

No.

Another clarifying question on the cash flow target for the year. Can you just go through the [inaudible] at the midpoint. Just use the midpoint of the 20-25. Kind of just using that as a guide. What do you expect your working capital to be?

I think it’ll be slightly negative for the year.

So a source of cash?

Use of cash.

Oh. Use.

Based on the order trends and the sales growth. To keep inventories flat for the full year, I think it’ll be tough.

To keep it flat, we’ll increase the terms, obviously.

So you said before, it was kind of 0 to minus 5. Right?

Right. That’s our target.

Okay. So we’ll just use kind of the midpoint.

Dispositions, you said before, it was going to be a source of 10-15?

Correct.

So if we use 12.5, just again -- Capex around 20? Ish?

Right. Yes. $20 million-ish.

And D&A is 32-33?

33. The only other source of cash would be net income.

Right. You’re going to have to draw your own conclusions, there. I’m just giving you some ballpark.

Right. But if you just add those things up, do you get the cash flow? So that’s basically no contribution from net income.

We’ll see how it plays out during the course of the year.

And we hope we have an upside.

I see. I guess there is, but there are some conservatives hopefully built into the [inaudible]

No doubt.

I ask this question every quarter on the call, and I have to ask it again. That is, we have such high interest expense payments -- 70 percent of our EBIT is consumed this quarter by paying interest. You read all this stuff about the economy slowing down, and so forth. Why is it the prudent thing…? I know we’re trying to divest non-core businesses and raise cash and pay down debt. The paying down of 22.5 or hopefully more of a large debt-load is really not taking a huge chunk out.

Doesn’t it make sense to raise some equity, pay off some debt and take a little bit of the downside risk out of the Company? I mean, if we’re right and everything goes as planned, it’s all going to work out great, anyway. But if the economy slows down and we go back into some sort of horrible thing, there’s not… There’s really not a lot of wiggle room, here.

Don’t we for the sake of just sort of being prudent, need to delever this company at a higher rate than we’re currently doing it?

I don’t philosophically think you’re going to get any opposition for Dan or me on your comments. I think delevering is certainly something that is clearly prudent, and we’re considering all of our options, all the time. I take your comments and [inaudible]

We generally agree with you, and we’re going to continue to look at all of our options through the remainder of the year.

Saying that, we actually have a strategic plan that we’ve been executing the last 3 years. We’re starting to see an expansion of operating income through that plan. The commercial market generally lags the residential market. Now we’re seeing an improving commercial market. I think we’re going to be able to grow the profitability in this business through the next -- through this year and further on.

The last time we came out of this economic downturn commercially, the commercial market grew significantly for 7 or 8 years. So I’m really bullish about the opportunity to grow our profitability in this business, and I think our strategy is right on to improve the shareholder value of this company.

And philosophically, we would agree with you. We like in some ways having leverage to upsize the turnaround. But if we’re wrong, we’re just not leaving ourselves very much kind of margin for error.

We obviously look every day how to delever the Company, and our capital structure. We visit that as a management team all the time. This call is not obviously the place to talk about some of these strategies that you’re referring to. But we have it in [inaudible] and we’re dealing with it as a management team as prudently as we can.

Mike Kender, Citigroup

My question has been answered. Thank you.

Keith Hogan, Egan Vance

Most of my questions have been answered, as well. Just one balance sheet question. The $51.1 million of availability. Can you break out what was drawn on revolver and what you have on the letters of credit?

Yes. Drawn was the $16.8 or $17 million. I think we have about $18 million or so in letters of credit outstanding, right now -- from memory.

Next question. Your Capex guidance -- you had a low 1st quarter. You said that was part of your reason why you dropped your [inaudible] roughly 5 -- a little bit more than $5 million. Were there any strategic changes in terms of the Capex plan? Less growth Capex? Less maintenance Capex? Or is it just refining?

Just refining the target.

The last one -- the “big picture” question. I had to go back to my model to the last year -- before you started reporting discontinued operations. Historically, the 1st quarter is a weak quarter. It doesn’t look -- if you looked at last year -- like it was a really strong improvement in the 1st quarter to the 2nd quarter -- both in revenue and EBITDA. Is it fair to say that we’re looking at an easier 2nd quarter comp this year than the 1st quarter comp?

I would say that if you look at the seasonality of our business in the commercial market that we play in, typically the 1st half is weaker than the second half with comps. Our order rate was $260 million. That’s 10 percent over the 1st quarter of last year. I think we’re going to see some continued improvements in the order rate.

But if the trends don’t improve, it doesn’t mean that you shouldn’t see a bigger profit in the 2nd quarter, vis-à-vis a weaker comp, prior-year?

We don’t comment on forecasts, and so forth.

So it’s just back to the prior question. You wouldn’t define the 2nd quarter you got last year as any weaker than any of the other quarters of last year?

Right.

Thank you. That’s all I had.

Jeff Kobylarz, Salomon Brothers Asset Management.

Can you comment about the carpet tile sales through home-improvement retailers? How’s that progressing?

It’s progressing nicely, Jeff. I’m really encouraged by the… I’ll call it the “residential Interface floor business.” We have not seen the Lowe's kick in yet, but it’s improving every week and every month. The catalogue sales are doing very well. We’re going to be on Oprah Monday at 4.00, if anybody wants to tune in. We’re getting a lot of press with it. There’s a lot of crossover -- what I call, “main street” from the Interface floor business. It’s very encouraging, and I’m very encouraged about the prospects of building a residential business.

Do you consider it still at a [inaudible] run rate?

Still investing in it. We’ve invested $1.5 million. We lost $1.5 million, if you look at it on a stand-alone basis, in the 1st quarter. I’d expect to get it to breakeven by the 4th.

As you’ve closed your dealer networks, can you comment about the sales impact in those markets on your products?

We haven’t seen any negative impact at all, in closing those dealers and moving it to an aligned strategy. We typically have seen, when we do that, actually sales increase in those markets. Because you’re not competing with the other dealers in that marketplace. So from managing that part of it, we haven’t really lost sales, at all.

And in Europe, did you say order trends were up in April?

Yes.

So that’s in contrast to the 1st quarter experience.

Correct. They were flat in the 1st quarter, Jeff, a little bit.

Can you comment at all about the education market? What do you see for this summer’s kind of activity?

Well, the buying season’s now. And I think we’ll see continued expansion of the education market with our products. I’m very encouraged about the whole segmentation strategy -- the retail space -- the hospitality -- the education and so forth. We’re going to continue to grow that part of the market. Carpet tile is taking share in that space, as well.

Once again, I would like to remind everyone, if you would like to ask a question, please press * and number 1 on your telephone keypad.

[Marilyn Hodges, Strengthen] Capital Management.

My question has been answered. I just had a quick follow-up with respect to your credit agreement. Does it currently allow you the flexibility to use excess cash to purchase bonds [if you want]?

Yes. We have a basket to do that.

How much flexibility do you have there?

A $25 million basket, without having looked at it, recently.

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

Thank you for listening in, and can’t wait to talk to you next quarter! Bye.

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