Interface Inc (TILE) 2005 Q4 法說會逐字稿

Good afternoon. My name is Miles, and I will be your conference operator today. At this time, I would like to welcome everyone to the Interface fourth-quarter and full year 2005 results 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 session session. 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 and the number two. Thank you. Mr. Olecki, you may begin your conference.

Thank you, operator. Good afternoon and welcome to Interface's conference call regarding fourth quarter and full year 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 take time for any questions. If you have not yet received a copy of the results released 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 the Investor Relations section of Interface's website. An archived version this conference call can also be available through that website.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 One of the Company's most recent annual report on Form 10-K, filed with the Securities and 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 being recorded for Interface. It contains copyrighted material. It may not be rerecorded or rebroadcast without Interface's express permission. Your participation on this 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. 2005 was an excellent year for Interface by most any measure. In fact, I would say it was the most gratifying year of my 23 years at Interface, and that is saying a lot. We were able to meet or exceed most every goal that we set out for ourselves. I'm going to take you back a year ago to the call we had and review the goals and how we did against them. Number one was to expand our leadership position in the modular market. I'm happy to report that 2005 was our second year in a row in achieving record results in the U.S. and Asia Pacific, as we continued to outpace the overall industry. And we saw a welcome return to sales growth in Europe.

Two, further reduce our dependence on the office market through segmentation. Our sales into the non-corporate office segments increased $56 million during the year, which was our largest incremental increase to date, and we're not through yet. Three, broaden sales in broadloom and fabrics to improve profitability and absorb overhead. We realized a $7 million increase in operating income from these businesses through sales growth and operating efficiencies. Four, complete the exit of the resource service business. We complete the sale or closure of 15 dealer businesses without, more importantly -- without negatively impacting our mill sales. Six, capitalize on our leading position on sustainability. Through our 11-year sustainability journey, we've created a lot of goodwill in the marketplace, and our customers are rewarding us every day.

You know, the concepts of sustainability are now more visible, and we have a head start on every one in our industry. And last, pay down debt through cash flow. Through the year, we posted a $29 million net increase in cash, and we paid $2 million down in debt. Importantly, we achieved these goals while realizing additional operating efficiencies, controlling SG&A expenses and managing through an environment of rising raw material costs. The net result was exceptional operational performance and solid financial results. Now this is going to be a little redundant, but I want to talk a little bit about the fourth quarter. The fourth quarter was similar to what we reported throughout the year. Our modular business and market segmentation strategy continued to drive growth, and our fabric and broadloom businesses continued to enhance sales and profitability.

Within the modular business, our growth came mostly, again, in U.S. and Asia Pacific regions, each of which recorded record fourth-quarter results, as well. However, in addition, our modular business in Europe grew double digits, an otherwise down market, contributing to the overall growth of the modular business. Sales in our fabric business continued to grow during the quarter, leading to significant improvements in profitability for this segment, as it generated operating profits in the fourth quarter versus a loss a year ago. During the year, we penetrated the automotive fabrics market and received our first adoption in the fourth quarter. This adoption, by the way, is a direct result of our sustainability efforts, as we're offering 100% of recycled polyester products.

We are also very pleased with the progress at Bentley Prince Street, where our cost reduction initiatives combined with a healthy increase in sales in the fourth quarter, which substantially outpaced the market, resulted in another period of improved profitability for this business. During 2005, we worked very hard to minimize operating costs to ensure that we maximized the benefit of revenue growth. The result was that we were able to convert fourth-quarter sales increases of 12% into a 51% increase in operating income compared to a year ago. Needless to say, we are very pleased with this performance. Now while the first quarter is typically a seasonal low point for the commercial interiors industry, based on normal customer purchasing cycles, we believe we are in a good position to continue driving growth through market segmentation and through the ongoing recovery of the corporate office market.

As modular flooring continues to gain acceptance as the flooring of choice, I believe it will become the flooring of choice. We as the leaders in the modular marketplace will be able to leverage that opportunity wherever it exists. Additionally, our cost control actions within our fabrics and broadloom businesses will allow us an opportunity to take advantage of the ongoing sales growth we've seen in those businesses. With these steps, I believe that we will be able to build upon the success in 2005. Now with all that, I'll turn it over to Patrick for details about the quarter.

Thanks, Dan, and good afternoon, everyone. Net sales in the fourth quarter of 2005 rose 12% to $260.6 million from $232.6 million in the 2004 fourth quarter. This is the 11th consecutive quarter of year-over-year improvement in sales. Currency changes negatively impacted 2005 fourth-quarter sales by approximately $6 million. Gross profit in the fourth quarter of 2005 rose to 30.6% from 29.3 in the fourth quarter last year, reflecting increased sales levels, price increases passed through related to raw material price increases, and the benefits of our cost reduction initiatives. SG&A expenses in the fourth quarter of 2005 were $56.7 million compared with $52.9 million in the fourth quarter of 2004, reflecting the higher sales levels achieved in the period.

However, as a percentage of sales, SG&A declined to 21.8% in the fourth quarter of 2005 from the 22.7% a year ago. For the fourth quarter of 2005, the Company reported an operating income of $23.1 million or 8.9% net sales, an increase of 51% over operating income of $15.3 million or 6.6% of sales in 2004 fourth quarter. Interest expense in 2005 fourth quarter was $11.1 million, in line with interest of $11.3 million a year ago. As described in the press release, we repatriated $25.4 million of earnings from foreign subsidiaries during the fourth quarter 2005 to take advantage of the tax relief provided in the American Job Creation Act of 2004. Consequently, the Company recorded a tax charge of $1.8 million or t$0.03 per share in the fourth quarter related to the repatriation. Including the repatriation tax charge, net income for the fourth quarter 2005 was $5.7 million or $0.11 per diluted share, compared a net loss of $4.4 million or $0.08 per diluted share in the same period last year.

Please remember in the 2004 fourth quarter includes an after-tax loss of $2.7 million or $0.05 per share from discontinued operations related to our resource dealer business, as well as an after-tax loss of $3.5 million or $0.07 per diluted share related to the disposal of certain of those operations. Backing these items out, income from continuing operations in the 2004 fourth quarter was $1.9 million or $0.04 per diluted share. Appreciation and amortization in the 2005 fourth quarter totaled $8.2 million, compared to $7.1 million in the year-ago period. Capital expenditures in the 2005 fourth quarter were $12.9 versus $4.3 million in the 2004 fourth quarter. I'll go over a few key balance sheet items. At the end of 2005, we had $51.3 million in cash and $79.8 million of additional borrowing capacity under our revolving credit facility. Our DSOs during 2005 were 52 days versus 56 in 2004. And our overall inventory turns improved to 5.1 versus 4.6 a year ago.

A few details on our individual business units: The fourth quarter continued to see growth driven by our worldwide modular business, as sales in this segment rose 12.7% to $171 million from $151.8 million last year. Operating profits in the quarter from this segment totaled $21.4 million or 12.5% of its sales versus $19.2 million or 12.6% of sales last year, reflecting the effect of raw material pricing and higher sales and marketing costs offset by the higher sales level during the quarter. Sales at Bentley Prince Street increased 14.5% in the fourth quarter of 2005 to $35.5 million, from $31 million in the fourth quarter of '04. Operating profitability in this business expanded significantly as a result of the increased sales volume and our cost reduction initiatives, rising to $1.7 million in the fourth quarter 2005 from $341,000 in the year-ago period.

In our fabrics business, sales in 2005 fourth quarter were $51 million compared to $46.1 million in the year ago period, an increase of 10.6%. As with Bentley Prince Street, we saw substantial profitability improvement in this business in the fourth quarter, as the fabrics business generated operating profits of $1.3 million versus an operating loss of $1 million in the fourth quarter last year. With that, that concludes our remarks, and we'll open the call up now for questions.

At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. Star-one if you have a question at this time. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of David Horn with Perennial Investors.

Yes, hi, good afternoon, gentlemen. It's Chris Heintz. How are you?

Hi, Chris.

Nice work this quarter. Couple of questions. I noticed that the D&A was $10.5 million or so in the quarter. Does that sound about right?

No, in the quarter it was 8.3.

Oh, okay. And -- do you happen to have what it was during the third quarter of '05, most recent quarter before that?

Yes. Hang on a second. Like seven -- 7.1. Sorry, it was 8.2 I believe in the fourth quarter of '05 and 7.1 in the third quarter.

Okay. The -- I noticed that sequentially the sales were up, I think it was $13 million, and, you know, which is terrific. And the EBIT was up about $3 million.

In modular carpet -- about 3.4.

Yes. So I was under the impression that the contribution margin was higher; that a $13 million increase would cause a higher operating profit increase. Is there --

I think we've been actually telling -- the model people have it about a 25% increase.

Okay. Which is about what it turned out to be, huh, I guess? So we shouldn't expect higher than that going forward?

We had some raw material price increases that we had to work through during the fourth quarter. And that business was impacted by some pretty interesting price increases that we raised prices, as well. There's a time lag between raising prices and when you realize those price increases that -- you know, 25% is, I think, is a pretty healthy contribution rate.

Can you -- finally, can you give us some sense for forward-looking cash flow?

We actually don't do that. I'm sorry.

You've done it in the past every quarter for seven quarters, I believe.

I think the estimates out there are 20 to 25, I'm not sure. I haven't seen them. I just remember that from some models.

Okay. In the past, you -- you had. You had --

We try and -- you know, we don't like to give, we don't give forward-looking forecasts.

Okay. How will you utilize the cash that you generate?

Pay down debt.

Okay, thanks, guys.

Thank you.

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

Hi, actually this is [Jean Merritt] for Keith Hughes. And he was just [INAUDIBLE] if you've seen any more increases in raw materials costs or has that kind or stabilized or still kind of volatile?

We haven't seen them to date. Obviously, oil prices make it volatile, but we have not seen them to date.

Okay. And how has the demand been for commercial nationalities? Has that gotten really strong or what's your outlook for that?

I think in '06 we're going to see the, particularly, commercial offense continue to rebound. And we're expecting some pretty good things happening in the office market. And we obviously have the segmentation strategy, and I think we'll continue to take share.

Okay, great, thank you.

Thanks.

Your next question comes from the line of John Baught with Stifle Nicholas.

Great quarter, guys. The -- I hate to pick out something negative, there's so much positive here. But the fabric op margin, I believe, went down third quarter to fourth quarter. Is there a seasonal thing there, any explanation for why there wasn't more leverage with the revenue increase there?

Yes. Actually had to do with reduced inventories in the business, John.

And we had the fixed charge [INAUDIBLE] you didn't get.

Okay. So you didn't reduce internally?

Right. Right. As much as we should.

Okay. Why -- why was that? Or --

Well, we're trying to continue to work on inventory reduction.

Yes, the inventory number looked great. My impression is demand in that business is picking up.

Yes. I think the business -- it's the statistics are forecasting it to be 7% to 8%. And I think 13% for last year. So yes. Pretty good market.

I haven't had a chance to go back and look at the backlog either from the last quarter or year over year. I guess what I've been driving is, you know, what were the incoming order rates like in the fourth quarter year over year?

Incoming orders in the fourth quarter were about $268 million versus $247.7 in the fourth quarter last year.

Okay. Is that having the same currency impact that you alluded to, Patrick?

Yes, definitely.

Okay. The -- the European performance in carpet tile, I think you mentioned you thought the market there was flat or something. Can you describe what's driving your business there and give us a flavor for how much the operating profit performance improved there?

Well, the -- we took share, particularly in the U.K. and through the segmentation strategy in Europe. We did -- I don't know if you follow the commercial market in Europe, but it really has not been a growth market for a while. We're about two years behind in the segmentation initiative in Europe. And we saw the benefits in '05 of that segmentation effort, particularly in hospitality and education and health care. And then we -- we saw the office market, in the U.K., particularly, pick up in the fourth quarter.

Okay. And was there a lot of leverage to the operating margin there? And if so, was it offset sort of by the raw material situation we had in the United States?

Some of that happened, yes.

Okay, all right. And let's see. I guess the last thing was just -- this [INAUDIBLE], is this sort of one-time thing? I mean, we won't see this --

Right. We just took advantage of it in '05. And unfortunately, it's not available to us going forward.

Okay.

It was actually a great deal.

Okay. And what -- is that part of the money that was the cash flow, or help me understand, Patrick, what -- you know, you brought that money back.

Right.

What do you do with it?

Well, we invested most of that. We tried to buy back some bonds, but we put most that on the balance sheet at the end of the year, in the cash.

It was cash sitting in bank accounts around the world, John. We just brought it back.

You brought it back to the U.S. And there was no consolidated change in the cash, correct? You just brought it back here where you could use it towards if you bought back bonds, whereas sitting over in a foreign bank account, you couldn't do that. Is that the -- basically the way to look at that?

That's right.

Okay. And the working cap, I mean both your inventories receivables were just tremendous. I assume going forward we got to see -- you know, if we're looking at, I don't know, 10% pipeline something -- 9% or 10% -- that that's got to expand some from here --

Always expands in the first quarter.

Always the seasonality part of it.

Okay. I'll defer to others. Thanks.

Thank you.

Your next question comes from the line of Lee Braiding with Wachovia Securities.

Hi, guys.

Hi, Lee.

Hey, Lee.

Just following up on the cash question, you know, the $51 million. How much of that is now in the US? How much do you still have overseas?

Probably 2/3 still sits here in the U.S. and 1/3 remains overseas.

Okay. And from the buying back bonds, you made a comment, is that the -- you were successful to buy back $10 million in bonds? Is that what I gather from the press release?

That's right.

Which ones were those?

730s.

Okay. And from the CAPEX, did I hear right, did you guys spend $12.9 during the quarter?

That's right.

I think that seems higher than what I was expecting. I don't know if that's what you guys had guided to. I thought --- I was looking more for like for a 20 for the year. I think you finished about 25. Just wondering if there was anything in particular.

Nothing in particular. Just additional backing capacity in the modular business, and a few [INAUDIBLE] machines, most of that hitting, obviously, in the fourth quarter.

Okay. For -- could you give any guidance in '06 from a CAPEX standpoint?

Probably about the same.

Okay.

Lee, I don't know if you remember, we referred to the fact we were expanding capacity in Asia and then the United States for modular.

Right. Right, I was just -- okay.

As a result of that -- those capital expenditures.

Okay. And then on SG&A, you know, nice job there, especially when you look at, you know, leveraging that. And I think I've asked this in the past, but should we continue to look at that kind of on the absolute dollar basis in this ballpark?

That's our goal is to minimize it. You'll see some increases as -- as sales pick up. But we're going to -- we're going to try and hold the line on SG&A costs.

All right. Great. Thank you very much.

Thanks.

Your next question comes from the line of Sam Darkatsh with Raymond James.

Good afternoon, Dan, good afternoon, Patrick. Very well done. A couple of quick questions; many of my questions have already been answered. But the orders were up 8% -- this may have been also asked, and I apologize if I missed it. The orders were up 8% and receivables were down. Does that imply that business at the end of the quarter slowed down a little bit, or is there something else in that that I'm missing?

No.

No meaning they did not slow down at the end of the quarter?

It did not.

That's probably a function of compensation or bonuses tied to cash flow targets, Sam. Our business units did a great job in kind of bringing the cash [INAUDIBLE].

Okay. Second question. The inventories down 5% on a year-over-year basis, sales up 12. If we parceled out finished goods versus materials versus whip, where did the majority of the draw-down occur?

I'd say the most of it came through -- in finished goods. We did -- we built a little bit in raw materials early in the quarter. But most of it came through from finished goods.

Do you have the finished goods number for the -- for the quarter?

I don't have it.

Just curious as to how much underabsorption you had in the quarter from the inventory draw-down and -- just curious.

I don't have the number, [INAUDIBLE].

So it was down more than the 5% is what you're getting at? Because you drew up, or you -- you picked up on the raw material side?

A little bit.

On the raw goods side?

Correct.

Okay. And then just two or three more quickies. Gross margin sequentially was down, I guess that's a function also of the inventory draw-down?

And raw material prices, correct.

Okay. And a clarification on your very first questioner. Your modular contribution margin, I'm guessing, is lower than your fabrics and your broadloom, is that correct?

In the quarter, yes.

Also naturally, too. Because the utilization rates are different?

Right -- yes. It's sales growth at a business that we're actually cutting costs in to try and realize that leverage.

Right. Very good job, again. Thanks, folks.

Thank you.

Your next question comes from the line of Jeff Engle with JP Morgan Asset Management.

Hey, guys, thanks. Just wanted to -- I had one question and then a follow-up after. If you look at sales growth of 12%, either sort of consolidated or by business group, you know, what do you attribute of that 12% growth to pricing increases?

It's probably 30%, 40% of it. I don't actually have it off the top of my head. But I would say that typically it's been running at.

Okay. And then --

We started getting the price increases last year in the fourth quarter, as well.

Okay. And then, I mean, kind of being in a rising cost environment for a while now, and, you know, at this point, probably don't have much history to look at in terms of potential, you know, easing of those costs relative to how much they've scaled up. But what's your sense for, you know, the pricing environment, let's say, if we had a phase of a quarter or two where you actually had a reduction in your raw material costs, etc.? I mean, is it going to be a competitive decision at this point? Or how do you view that?

If you have a softening of say, oil prices, and they trend down to $50 a barrel, which is, mean, hopeful, we will see some of that come through in the softening of the raw material prices that we deal with.

How about in terms of your translation of that to end market pricing? Is it going to vary by business segment depending on the competitive positioning, etc.? Or --

Depend on supplier and the competitive position we have with that supplier. We are able to play off suppliers.

Okay, great. Thanks.

Thanks.

Your next question comes from the line of Eva Yun with Independence United Capital.

Yes, hi, it's Cheryl VanWinkel, actually. First question. So overall in terms of price increases in the fourth quarter, what amount of price increase was there in the -- in your main market?

If you look at the fourth quarter, we didn't really realize a lot that price increase because it actually occurred in the fourth quarter and you have a backlog that flushes through and so forth. We might have realized a small part of it. We did have price increases during the year, and that's the -- that was the 40% that I gave the last questioner.

I'm sorry.

On a sequential basis, third to fourth.

Okay. I think I must have missed what you said to him. You said --

He asked how much of 12% was related to the price increase and I gave my number at 40% of that.

Okay. So 40% of the move from the third quarter to the fourth quarter. Okay. But you're also saying that -- that that was a -- excuse me. Small --

In the fourth quarter, there was a small impact on what we actually shipped of that price increase. We had a price increase in the fourth quarter, but we had a lot of backlog that you have to flush through that you don't get the benefit of that price increase.

Okay. So -- I'm sorry. So you're saying that there was about a 5% price increase, but you didn't -- most of that really didn't show up in your income statement?

Related to the fourth quarter price increase. We also had price increases during the year.

Oh, oh. Okay. So that 40% you're talking about, the price increases during the year --

Right.

-- from earlier. And so you're saying from the third quarter to the fourth quarter what did show up was about a 5% increase. But then what you're also saying is we're going to see some more increases from the first quarter because--

We have the full effect of the price increase.

Okay. So are we talking about then somewhere close to 10%?

No, no, no -- 3% to 4%.

3% to 4%. Okay, okay. Okay. And they're haven't -- I assume there have not been any more price increases --

No, we have not announced another price increase.

Okay. Okay.

Since October --

And just a detailed question. How many LCs do you have outstanding?

I think we're down to about 13 million from memory.

13 million.

It may have come down. It may be around 10 or 11, but 13 sticks out.

Okay, okay. And what did total debt end up?

Total debt was 458.

Okay. And now you had great numbers. You keep doing wonderful, wonderful things. So -- when's the last time you talked to the rating agencies?

We got a rating upgrade from Moody's around the -- October-November timeframe from memory. And that's the last conversation that we had.

Okay. They didn't upgrade the subordinated debt, did they?

I believe they did across the board.

Yes. S&P did not move.

S&P didn't move.

So is the Moody's ratings -- the Moody's rating is still Triple C, though, right?

S&P, yes.

Okay. So -- so --

They moved up to the S&P ratings.

Moved up to the S&P. Okay. Okay. And so that -- you had had a conversation with them. They upgraded you in October-November. And then S&P, have you had any recent conversations with them?

We have not.

Okay. Okay. And nothing's scheduled that -- at this point?

Correct.

Okay. Okay. And then just on -- on your debt in terms of repurchase of bonds, are you able to repurchase any of the three bonds that you, you know, choose to?

Yes.

Okay. Okay. And is there something special about the 7.3s that caused you to focus on those --

This is my earliest maturity.

Earliest maturity. Okay. Okay. Okay, well great. Thank you very much.

Thank you.

Once again, ladies and gentlemen, as a reminder, if you would like to ask a question, please press star and the number one on your telephone keypad. Star-one if you would like to ask a question at this time. We now go back to the line of David Horn with Perennial Investors.

It's Chris again. A couple of follow-up items on the 12 months cash flow statement. The $11.8 million accounts payable source of cash, can you comment on what that was?

Just -- nothing unusual, just accounts payable management; I don't recall anything in particular that sticks out that was unusual in accounts payable.

Is that something that we can expect to continue to benefit from or should we consider that a neutral or a --

You can consider it a neutral. We'll continue to manage working capital as best we can going forward.

Okay. And then $12 million came from cash provided from discontinued operations or operating activities of discontinued operations?

That's right.

How should we --

Very little going forward.

Okay. So that -- can you articulate for me what -- what that $12 million represents? Or --

That was the closure of our resource distribution channel and the realization of the working capital associated with that shutdown, primarily.

Okay. And then as far as --

We also had discontinued losses that offset them, though.

I'm sorry? I couldn't hear you. Repeat that.

Yes. It -- it's primarily from the resource distribution channel.

Okay. And then going forward, do you expect capital expenditures and depreciation to more or less offset each other?

I think we'll be under D&A going forward. I see us in the $25 million range again for CAPEX and D&A will be 32, 33 range.

Okay. And the kind of things you'll spend your CAPEX budget on?

Additional capacity, globally; principally in the modular business, but additional capacity expansion. 8 to 12 of it is maintenance. But additional backing capacity in Asia, tufting machines. And some, you know, technology assets to help, you know, realize some efficiencies in the -- as it relates to the complexities that have been brought on to business due to segmentation, etc.

So to summarize, in terms of cash available to pay debt in '06, there's a $7 million-ish advantage between D&A and CAPEX, working capital should be roughly neutral, it sounds like, and then whatever net income is? Are there any other -- first of all, does that sound about right? And are there any other big sources of uses --

That sounds about right. I know you're trying to get us to give you the 2006 net income, but we're --

No, no.

That's not going to do it.

I wouldn't attempt to try that, gentlemen. But -- but I want to make sure also that with the exception of the net income, which we have to sort of estimate ourselves, are there any other big sources and uses such as -- such as discontinued operations or --

No, I think we're hopefully done with that.

Okay. Thank you.

Thank you.

Again, ladies and gentlemen, if you would like to ask a question, press star-one. Star-one if you want to ask a question at this time. We now go to the line of Sam Darkatsh with Raymond James.

I have one more if I could. I recall, I believe the last couple of quarters you took some -- you expended some higher discretionary spending and some things -- marketing costs and some startup costs. What were those apples to marketing costs Q4 versus Q3?

I would say they're very comparable, Sam. We're still investing in segmentation of our business. We haven't really pulled away from that.

So from a sequential basis in dollar terms, they're essentially the same?

Yes. I would say they're -- they're very close.

And then going forward, how would you view that? Is it -- is it an ad hock kind of -- as the case may be? Or do you believe that it's going to eventually get levered?

I think it will get levered in '06. We are going to add more salespeople in '06. And obviously, they're commissioned salespeople. And they pay for themselves and there's -- there's a time lag between that. But we're -- we've got some new salespeople budgeted, particularly going after certain segments.

So Q1, Q2, how should we look at that line? Pretty -- pretty similar to Q4 in terms of the marketing expense?

Yes. I would say about the same. We're not going to back off.

Thanks much.

We're investing in the future.

And at this time, I have no further questions. I'll turn the call back to management for closing remarks.

Thank you for listening to the call. And thank you for staying with us in '05. And I hope we'll have a great '06. Thank you.

Thank you, sir. Ladies and gentlemen, we appreciate your joining us today for our Interface fourth quarter and full-year 2005 results conference call. This call is now concluded, and you may now disconnect.