Interface Inc (TILE) 2005 Q3 法說會逐字稿

Good afternoon. My name is Janice, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Interface Incorporated Third Quarter 2005 Earnings 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 "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. Thank you.

Mr. Jim Olecki of Financial Dynamics, you may begin your conference.

Thank you, operator. Good afternoon and welcome to Interface's conference call regarding third-quarter 2005 results.

Joining us from the Company are Dan Hendrix, President and Chief Executive Officer, and Patrick Lynch, Vice President and Chief Financial Officer. 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 the 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 today 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 An archived version of this conference call will also be available through that website.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 "Safe Harbor Compliance Statement for Forward-Looking Statements" in Item 1 of the Company's most recent Annual Report on Form 10-K filed with the Securities & Exchange Commission. We direct all listeners to that document.

Any such forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995. The Company assumes no responsibility to update or revise forward-looking statements made during this call and cautions listeners not to place undue reliance on any such forward-looking statements. Lastly, please note that this call is begin recorded for Interface. It contains copyrighted material. It may not be rerecorded or rebroadcast without Interface's expressed 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, and good afternoon to everyone. We are very pleased with our results for the third quarter, as each of our business units made significant profitability contributions. As you saw on our press release, our worldwide modular business remained our primary driver of growth, but we also feel very good about the contributions made from our fabrics and broadloom businesses. During the quarter, we saw a strong evidence of leverage we have in our Company, as the operating income increased a healthy 29% on a 9% increase in revenues.

Importantly, gross profit margins also continued to improve year-over-year, increasing 200 basis points, and we posted a very welcomed net income. All of this was accomplished in the face of driving energy prices and increased raw material costs, caused in part by hurricanes Katrina and Rita. We also spent an additional $3 million on sales and marketing efforts in the third quarter compared with the prior year, as we added sales and marketing personnel, initiated new branding activities, and introduced more new products.

These investments in our future are essential to execute our aggressive growth plans and will help us expand market share in established and new market segments and enhance the profitability across our business. Going forward, we look to hold SG&A steady at the current dollar levels, while driving it down as a percentage of sales as sales increase. Our worldwide modular business performed well across all geographic regions, primarily due to the ongoing success of our marketing segmentation strategy, the improving conditions in the corporate office market, and the growing popularity of carpet tiles.

Sales were up double-digits in the US. Asia-Pacific had a great quarter, and Europe had its best quarter in 5 years. Overall, the modular business achieved a double-digit growth rate. As I said it earlier, we were particularly encouraged with the performance of our fabrics business in the third quarter. Revenues increased 7%, driven by the continuing recovery of the corporate office market. Marketing segmentation is alive, our fabric business as well, as we're approaching the new areas like automotive.

In our traditional OEM furniture, customers continue to see positive trends, while orders for our products remain healthy. Bentley Prince Street also turned in another profitable quarter on a slight uptick in sales. This was the fifth consecutive quarter of profitability for this business and its best sales quarter in 4 years. Our cost-cutting initiatives and improvements in manufacturing efficiencies have given us the leverage needed to take advantage of the future topline growth, and we expect to see further improvement in profitability. Going forward, we will continue to expand our leadership position in our modular carpet business and capitalize on improvements we've made in our fabrics and broadloom businesses.

You've all probably heard me say before that Interface is leading and shaping the growth of the modular carpet market. To help illustrate this, I'd like to share with you the results of this year's survey of the top 250 design firms in the United States, which is conducted annually by the trade publication, Floor Focus Magazine. It is the only survey of its kind in our industry and has a -- and is a good measure of how we're meeting the needs of our principal customers. I am proud to say that Interface modular took first place in every single category for carpet manufacturers. This is the first time ever that any company has accomplished a first place suite in this survey.

This means that Interface was voted number one in the categories of service, quality, design, performance and value. In addition, for the second year in a row, Interface was rated number one in the category of best overall business experience.

Thanks to our sustainability efforts, we also achieved a "First Place" by a 3-to-1 margin in Green Leaders categories. And our recycled content and random installation carpet were voted number one in the Green Kudos category. Finally, for the seventh year in a row, carpet tile was voted the number one products, which gives an idea of the growing popularity of this product category.

These are truly outstanding survey results for our company and impressive enough for any company, and they are indicative of the superior performance, the environmental stewardship of Interface that we have come to be known by. They also demonstrate the strong momentum of carpet tile, as it continues to take market share and is becoming the floor covering of choice in most segments.

Our broadloom business, Bentley Prince Street, also did exceptionally well in this survey, finishing number two behind Interface in the categories of quality and design and number three in the categories of service, performance, value and best overall experience. These results demonstrate the revitalization of the strength of this brand and the great strides that Bentley Prince Street has made in the marketplace.

With that, I'll turn over to Patrick for more detail.

Thanks, Dan, and good afternoon, everyone. For the third quarter of 2005, sales increased 9.5% to $243.9 million versus $222.8 million in the third quarter of 2004, representing the 10th straight quarter of year-over-year improvement in sales. Currency changes had little or no impact on the sales in the third quarter of 2005.

Third quarter of 2005 gross profit margin was 31.4% compared with 29.4% in the year-ago period. The improvement in gross margin was a combination of increased sales levels, price increases passed through in recent periods, and our concentration on cost reductions.

SG&A expenses in the 2005 third quarter were $56 million, or 23% of sales, compared with $49.6 million, or 22.3% of sales, in the same quarter of last year. The increase is due primarily to higher cost related to the growth in overall sales and an incremental $3 million in sales and marketing expenses compared with the prior year.

Operating income during the third quarter 2005 rose 29.2% to $20.5 million, or 8.4% of sales versus $15.9 million or 7.1% of sales in the third quarter of last year. Interest expense is $11.4 million in the third quarter of '05, essentially flat versus the third quarter of last year.

Net income in the third quarter of 2005 was $5.1 million, or $0.10 per diluted share, compared with a net loss of $47.8 million, or $0.92 per diluted share, in the third quarter of '04. Please remember that in the 2004 period, we were reporting the results of operations for the owned resource dealer businesses as discontinued operations, as required by accounting standards.

Included in the results in the third quarter of 2004 is an operating loss of $4.1 million as well as write-downs for the impairment of assets and goodwill of $17.5 million and $29 million, respectively. Excluding these items, income from continuing operations was $2.4 million, or $0.05 per diluted share, in the third quarter of 2004.

Depreciation and amortization in the third quarter of 2005 was $7.1 million compared to $8.4 million in the third quarter last year. Third quarter of 2005, capital expenditures were $6.8 million versus $2 million in the year-ago period.

A few balance sheet items. At the end of 2005 third quarter, we had $32.2 million in cash and an additional $67 million of borrowing capacity under our revolving credit facility. Our average DSOs during the quarter of 2005 were 53.3 days versus 59.6 days that we recorded in the third quarter of 2004. And our inventory turns were up slightly to 4.8 times versus 4.7 in the third quarter of 2004.

Now, a few details from our individual business units. As Dan mentioned, our growth continues to be driven by our worldwide modular business. Sales in this segment grew 11.7% to $157.9 million from the $141.4 million a year ago.

Operating profits from this segment totaled $18.1 million, or 11.5% of sales, versus $17.2 million, or 12.2% of sales last year. The decline in operating income as a percentage of sales during the third quarter of 2005 was largely the result of increased sales and marketing costs of approximately $3 million during the quarter, which we have mentioned earlier.

Bentley Prince Street sales were up slightly in the third quarter, to $32.1 million versus $31.9 million in the year-ago period. This business generated an operating profit of $800,000 versus $700,000 in the third quarter of 2004. And finally, sales in our fabrics business increased 6.9% to $49.9 million versus sales of $46.7 million a year ago. As a result of the solid revenue growth we saw during the quarter and the benefits of some of our restructuring initiatives we've taken in the past, the operating income in our fabrics division was $1.9 million versus an operating loss of $1.5 million in the third quarter of last year.

And with that, we will open the call up for questions.

At this time, I would like to remind everyone, if you would like to ask a question, please press "star" then the number "one" on your telephone keypad.

Your first question comes from the line of Lee Brading of Wachovia Securities.

Hi, guys.

Hi.

Hey, Lee.

Yes. I wanted to see if you could -- you guys mentioned raw material and price increases. If you could talk a little bit in the quarter from a mix too from a price versus volume and if you could help me out a little bit by segment?

Well, we don't really give all that out by segment, Lee. I would say that we -- in the quarter of the 9% growth, it was probably 50-50. But I don't really have that, and that's just my sense of it. I didn't look at it that way. The modular business that we grew double-digits, that was where some of the good growth came from. That probably was 60-40, 60% volume and 40% price.

In our fabrics business, we really didn't have a price increase per se in the fabrics business, and we actually didn't have one in Europe. I'm sort of giving you the 60-40 in the United States. But overall the mix probably was 60% volume and 40% price, if you look at the total business.

Okay. That's helpful. So you haven't had much pushback mainly from a price standpoint?

Yes. We didn't have a price increase in the quarter. We actually increased prices in the fourth quarter already, in the second week in October, and we'll see if it holds. But typically, we've been able to pass that on and hold.

Okay.

So we really didn't have a price increase in the third quarter.

Could you give what was the timing of that from the Q4 standpoint?

It was the second week in October.

And then, from a standpoint on the balance sheet, you talked about, I guess, roughly, what, 30, $32 million in cash and, I think, you got like $14 million or so drawn on the revolver. Just if you could talk a little bit about you're going forward here from a debt reduction standpoint? I know you've talked about it in the past.

Yes. During the quarter, we built a little cash on the balance sheet, principally in Europe. We're still working through some hurdles for our repatriation efforts, coming back from certain portions of Europe. So we left some of that on the balance sheet, and as we work through that opportunity for us, we're still focused on debt reduction. We're anticipating still hitting our $25 million in free cash target for the full year. We generated 5 in the third just by paying nearly $20 million in interest payments in the third, which will not recur in the fourth. So we're still -- you know, year-to-date, I think we've borrowed about $5 million.

When you take the cash, change in cash and the change in the revolver, but the fourth-quarter inventories generally come down. We've done a good job on DSO management and receivables. So the $20 million in interest payments will not recur. So we still feel pretty good about what we can generate free cash, debt reduction, and for the full year.

Great. And a last item. From a CAPEX -- in your last call, you mentioned that would be about $20 million from a CAPEX standpoint for this year. Is that still about the same?

Yes. I think that's about right.

Okay. Thanks very much.

Your next question comes from the line of Bryan Krug of Waddell & Reed.

Hi. Good quarter, guys.

Thank you.

Can you talk to me about the magnitude of the price increase that you're putting -- that you put through a week or two ago?

About 7 to 8%.

7 to 8%. And if you get that through, will that catch up your gross margins after the increase in commodities?

Typically, you have a lag in the backlog, which is generally 7 to 8 weeks. And so you'll have to flush that through, and there will be a negative impact from that coming through. And last time, when we went through this process, it hurt us, I think, $0.01 or $0.02 a share, but we feel pretty good about our positioning. There was a lot of noise around being on allocations in raw materials and yarn and so forth.

And the high end part of the food chain on our nylon 6 and 6,6 we're not really seeing that happen. I think at the lower end of the food chain, you're actually seeing some of that, and the mill extruders are having a lot of complications around that, but not at the high end. And the people aren't vertically integrator have a better chance of not being hit by that.

Can you talk about, generally, the recent momentum you've seen in the corporate side? Have you seen people pull back at all?

I think we saw a little hesitation in the third quarter just because of the uncertainty around the hurricanes and what was happening there. And you also obviously had the Gulf Coast hit by that. Now, I will tell you that the activity in the last -- the first 3 weeks in the fourth quarter has been very active. We feel very good about the activity in the marketplace, particularly in the corporate office space, and we feel pretty good about where we are today.

And this is a specific comment. Have you guys seen the rate agencies, because your rating is clearly stale and you guys do deserve some credit for the progress you've made, and I guess it's something that (inaudible) thinks should be addressed.

We will take that under advisement.

Okay. Thanks.

Your next question comes from the line of Robert Manowitz from UBS.

Yes. Hi. Good afternoon. Great quarter. I apologize. I had to jump off for just a moment. So if I've missed this, just let me know and we could follow up afterwards. But I was wondering if you could talk a little bit about individual end markets? Do you feel you're picking up market share? Are you holding market share -- kind of, how you measure yourself against the (inaudible) market?

I would say, against the industry, Robert, I think, we are actually increasing share, particularly in the segmentation efforts that we have. There is no question that we're outpacing the industry in Europe and Asia and the United States. So from that standpoint, I think, we're taking share. And I think carpet tile obviously is penetrating the other segments beside the office market as well. So we're benefiting from that.

On the fabrics side, I think, we are holding our own or taking --

(TECHNICAL DIFFICULTY)

We need an operator on this.

Hello.

Hello.

Yes. I think we're okay now.

Okay. Yes. I think from -- on the fabrics side, we are holding our own, and we're actually getting into other segments. We've had some success in automotive and so forth. And then, on the broadloom business, I don't think the high end commercial broadloom business actually is growing. And I'm very pleased with the growth that we have there.

Okay. So if I had to sort of back through some rough ballpark numbers, I think I heard you say earlier kind of roughly half your sales growth of -- call it 10% -- was volume.

I said, I think, on a blended rate -- that was on United States -- on a blended rate, I would say, it's probably 60% volume and 40% price.

Okay. So let's say, 6% growth in volume. What would you think kind of on that same metric the overall industry has done? Would it be 2 to 3%?

In Europe, I would say, the market actually is down.

Okay.

I would say, in the United States, the markets -- I haven't seen the numbers, but I heard they were not that exciting that came out of carpet and rug. I'm actually -- we're in Europe. We had a board meeting in London. So I haven't seen those numbers. But I would say that we outpaced the market there as well, that it's maybe 4 or 5%, but I'm not sure. I haven't seen the numbers.

All right. Okay. I appreciate it. Thank you very much.

Thank you.

Your next question comes from the line of Keith Hughes of SunTrust.

Yes. I had a couple of questions. I guess, first on Bentley Prince Street, you had mentioned a good showing in the trade publication rankings. What's it going to take there to get the revenue growth going a little faster and a little more in line with what's happening in broadloom because you have a good reputation in the market.

Yes. I would -- you know, Keith, I would say that there is a couple of things that we've done to try and grow that business that we're just now having an opportunity to see. And that is we've stretched the price points in the marketplace.

Typically, the average selling price of the Bentley Prince Street business is $20 or more a yard. And we've introduced products at new account that were in the $15, $16 a yard range. So we need to play more in the middle market.

The office market rebound will -- if that continues, we'll benefit from that as well. And we've got a lot of new products that we are introducing. We have a new design effort going on, and I think we're going to benefit from a design as well.

But are these going to be '06 initiatives and that (inaudible)?

Well, I would say that the -- yes, you'll probably see more of an impact in the first half of '06. But obviously, it will impact the fourth quarter as well. We're seeing some pretty good order activity coming through that business in the fourth quarter.

Are you going to -- are you looking at a nylon price increase in November?

We actually don't believe we'll have one.

Okay. And, Patrick, I believe, you said earlier there was $3 million of marketing expenses. Is that referring to modular?

Principally, in the modular group. That's correct.

In marketing and sales. Yes.

So the fact is that now the margins are up year-over-year. So did you have any real impact on -- with nylon prices in the third quarter in modular?

We had a little bit of issues on pass-through on the commodity side. That is the non-nylon side. We've seen that continue to increase, but it was not significant.

Is that latex and stuff like that?

It is (inaudible).

Yes. But we should see somewhat of a drag in modular margin in the fourth quarter from all this pricing activity. Is that fair to say?

Maybe a little bit. But I don't think we are going to see as much as some people anticipate.

Okay. And have you had any problems with availability?

None.

That's all for me. Thank you.

Thank you, Keith.

Your next question comes from the line of Sam Darkatsh.

Hello, Dan. Hello, Patrick.

Hi.

Most of my questions have been answered, but there's a couple of little housekeeping items. The $3 million in marketing expenses or the discretionary expenses, Pat, is that -- what's that on a sequential basis instead of a year-over-year basis in terms of incremental?

It was about $1.5 million on a sequential basis.

Okay. And does that continue to ramp, as we look at it sequentially, or have we found a run rate where the sales leverage will begin to take over?

Excuse me, Sam.

No. I think those costs are at the level that they are going to be at for the foreseeable future.

Okay. Second question. Assets are still on the balance sheet held for sale. Are those still the resourced assets or are there other assets that are for sale?

No. That represents principally the work in process that was there and the receivables that have yet to be collected.

So at what point, does that, say, wind down?

That's -- we'll probably carry some of those assets into the first part of '06. Some of those receivables are fairly new, and that would be collectible in 60 to 90 days. So they will wind down through the first part of '06.

Okay.

Some of that, Sam, is retention that you have with GCs (ph).

Correct.

And that's (multiple speakers)

Be collected.

Got you. Last question. And you kind of touched on it, Dan. I'm guessing -- I'm looking at your orders at, what, $252 million or so at the end of the quarter. But the end of the quarter would have been right after the two hurricanes. So I'm guessing that would have been somewhat artificially low, since you're looking at it on a snapshot basis. If we were to look at that now, 3, 4 weeks into October, that I'm guessing would be a larger number?

Yes. That would have moved up nicely based on the first 3 weeks in October.

Could you help us with the quantification or directionally how the order is going to be booked on a year-over-year basis, if we look at it now?

Yes. We've had three very good weeks in orders. And this week looks like it's going to be a good week as well. So our run rate would be close to the second quarter, not the third.

Closer to the second quarter in terms of shipments or in terms of orders?

Orders.

Okay.

And probably shipments too actually.

Excellent. Thank you very much.

Thank you.

Your next question comes from the line of David Horn of Perennial Investors.

Yes. Hi, gentlemen. Excuse me. This is Chris Heintz. How are you?

Fine. And you?

Good. Thank you. Could you explain the bump-up in profitability at (inaudible) group?

Sure. I mean, on a sequential basis, if you remember from the call last time, we brought inventory levels down a little too low, couldn't meet demand, and had some manufacturing inefficiencies in the second quarter. In third quarter, we righted that situation. Production levels were up, even though inventories were probably ended up being flat on a sequential basis from the end of the second to the end of the third. And the order activity has picked up in this business nicely from our OEM customers are seeing some pretty healthy demand in the marketplace. And so they benefited from increased production levels as well as increasing shipment activity.

And we've introduced or undertaken a lot of initiatives over the last 2 years to consolidate several plants in this facility and significant headcount reductions in this facility and reorganized the management team and really introduce them, operational and manufacturing discipline at our manufacturing facilities. They have really started to deliver some results that we've been expecting.

I guess my question is in the last quarter, you had roughly the same amount of sales, but $100,000 of operating income versus $1.9 million. And I was wondering what's between that sequential bump?

Yes. That's -- it was principally in the margin area associated with the fixed manufacturing absorption. You know, there was a significant under absorption in the second quarter due to the declined and depressed volumes or lower volumes.

Even though the revenues were the same?

That's right. Production, there was inefficiencies in the mill in the second quarter overtime, expedited shipments, and several manufacturing inefficiencies that did not recur in the third.

And we also saw a little bit of a mix change where we had the OEM business kick in, which is a good -- a very good business for the fabric business, and that actually started increasing in the third quarter as well.

What was CAPEX in the quarter?

Around 6.

6 to 8.

Should we expect -- and that's roughly equal to depreciation -- should we expect that to continue for a while?

We've targeted around $20 million for this year, and that's probably a level that we'll probably continue to spend at, going forward.

So you're saying that the depreciation would exceed CAPEX in '06 by a modest amount.

I would say, in that $10 million range.

Okay. I didn't hear the answer. The price increase that was initiated recently, how large was that?

It was 7 to 8%

Okay. Thanks, gentlemen.

Thank you.

Your next question comes from the line of John Baugh of Legg Mason.

Good afternoon or evening (inaudible).

Hey, John.

You made a comment, you're sitting there in Europe, in the UK, but you made a comment that modular had the best performance in Europe in 5 years. Was that a sales, EBIT or both? Help me with where that business is.

Well, it's actually sales. It was pretty good sales, one of the best sales quarters as well as from a profitability standpoint, had some very good flow through.

Is that still though between Asia and the Americas and just the lowest margin piece of your business?

Yes.

Yes.

What's sort of your sense where that's heading over the next year, Dan?

You know, our goal is to get this business back to double digits, John. And we've given it 24 months kind of timeframe to do that. It's surely running right around 6.5 to 7%.

Okay.

We spent 3 days in Europe. And I will tell you that the markets aren't very good here, but our execution is very good. We're one of the few businesses that are growing. And we're really going after the segmentation strategy in Europe, and I think it's got a lot of opportunity to add to the topline.

Sure. I know you don't like talking about divisions and in detail. But when we look at gross margin in the third quarter for modular, what's -- give me a sense of what gross margin -- obviously, it looks like gross margin in fabric was up pretty dramatically, both sequentially and year-over-year. But what does the gross margin do in carpet tile, either year-over-year or sequentially?

We just don't give that out, John. I'm sorry.

Okay.

I'd say that it was -- I'm going to try and give it you without giving our numbers, but it was on the flattish part for that curve.

Okay. We already on touched on the orders and the leveraging of SG&A. Is D&A going to run at $7 million a quarter? I think there was a pretty good drop in them.

Yes. It will be about that level.

Okay. And then so the comment in your release about margins expanding in the fourth quarter, was that a reference to year-over-year or sequential or both?

That was in reference to our broadloom business.

It was. Okay. So that's just pertaining to broadloom?

Right. I expect that business to continued its proven profitability.

Okay. And as pertaining to broadloom, you'd expect it to improve both sequentially as well as year-over-year --

Yes.

-- in the fourth quarter. Okay. That's all the questions. Thanks.

Thank you.

Your next question comes from the line of Mike Kender of Citigroup.

Yes. Most of my questions have been answered. Just one clarification on the incremental selling and marketing expenses of $3 million. When does that stop anniversarying year-over-year in terms of increase? Is that in fourth quarter or some time next year?

I would say that we're at this level of around $56 million in SG&A, Mike, and our goal is to try and keep it at that level and let the topline grow the percentage.

And in terms of raw material, you said you guys didn't have any disruptions. Did any of your major competitors have disruptions that you were able to take advantage of, do you think?

No. I don't think so. I think the noise of the disruption is actually around the residential part of the business and people that are in the mill extrusion. They were impacted pretty quick by input, the people that have inventory levels and are part of the food chain at the very end. Really, I don't think it really saw any impact. And I don't think the commercial market saw the impact that the residential market did.

Okay. Then, on the CAPEX of $20 million for next year, anymajor projects in there or what's the --

Yes. We're expanding Asia, and we're expanding the US modular business as well in capacity. Those are the two bottlenecks that we are continuing to try and get ahead of the growth curve.

Okay. That's all I had. Thank you.

Thank you.

Your next question comes from the line of Jeff Kobylarz of Citigroup.

Hi, guys. I just was curious, just one thing about the price increase you mentioned of 7 to 8% for mid-October. How do you think the industry is going to respond to that price increase?

I think everybody has gone up in prices, Jeff. You know, when you have a 7 or 8%, you never hold the whole thing because you're always trying to get a little bit more, but I think the whole industry has gone up and everybody understands it's pretty extraordinary circumstances and we've been able to so far pass it on. They may change their budgets and go down to different [faceway] product or so forth, but from our standpoint, that typically has the same kind of margins.

So you're saying all your peers' average prices --

I would say that it's a pretty general consensus that the industry is raising prices.

Okay. And on the demand side, do you think the customer will just kind of trade down if they can have that?

That's what historically has happened in a lot of situations in the past.

All right. That's it. Thanks very much.

Thank you.

Your next question comes from the line of Heather June of Independent United Capital.

Yes. Hi. It's actually Cheryl VanWinkle. I just wanted to find out -- you've mentioned on the nylon that on the low end, it did come through; on the upper end, it didn't come through. Now, how much were those price increases on the low end that came through?

I'm not sure. We don't play in that raw material game.

I see. So your nylon is all the 6,6.

We actually do not do extrude now and we're not vertically integrated, and we're -- nylon 6 and 6,6.

All right. I'm sorry. I guess what I really meant was what kind of nylon price increase for the nylon fibers that you purchase?

We don't give that out.

Okay.

That's all negotiated with our suppliers, and we don't really give that out.

I guess just generally, the fibers that you're using or your suppliers are using the low end or the high end nylon?

Our suppliers supplies the high end nylon. And there was price increases on the high end nylon. There just wasn't a shortage of that input.

Okay. Okay. And but you don't know what price increases were for the raw material high end nylon?

We just don't give that out.

No. I'm sorry. I didn't mean yours, I meant what your suppliers --

The industry announcements were anywhere from 5 to 6%, and there were two price increases that happened almost back to back.

And is it your impression that those went through?

They're all negotiated. We just don't talk about what goes through to us.

No. I don't mean through to you. I mean, is it your impression from talking to your suppliers that those price increases (inaudible)?

They announced those prices increases publicly. So, yes, they put in price increases.

Okay. Thank you.

Thank you.

Once again, if you would like to ask a question, please press "star" then the number "one" on your telephone keypad.

Your next question comes from the line of Keith Hughes of SunTrust Robinson Humphrey.

Yes. Dan, I just wanted to clarify one thing. You said earlier, kind of the 60-40 split between units and price overall to the Company. Would that apply equally in the (inaudible) and fabrics?

Yes. Probably so.

Okay. Thanks.

At this time, I would like to turn today's conference back over to the management.

Well, thank you for listening to our conference call, and we look forward to the fourth quarter and finishing the year on a very upbeat strong note. Thank you.

Thank you.

And ladies and gentlemen, that concludes today's conference call. You may now disconnect.