UniFirst Corp (UNF) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the UniFirst Corporation fourth-quarter earnings results conference call.

(Operator Instructions).

I would now like to turn the conference over to John Bartlett, Chief Financial Officer.

Please go ahead.

Thank you and welcome to UniFirst's conference call to review our fourth-quarter and year-end operating results for fiscal 2008 and to discuss our expectations going forward.

My name is John Bartlett, and I am the Chief Financial Officer.

Joining me are Ronald Croatti, UniFirst's President and CEO, and Steve Sintros, our Corporate Controller.

This call will be on a listen-only mode until we complete our prepared remarks.

Last evening we released results for the fourth quarter and 53 weeks ended in August of 2008.

Our revenues increased 13.4% to over $1 billion, and our net income increased 34.9% to $61 million or $3.15 per share.

Ronald Croatti and Steve Sintros will provide additional details regarding these results, but I can say that we are very pleased with our performance in a difficult economy.

We had targeted the $1 billion sales milestone for several years, and it was very satisfying to achieve it this year.

Our relentless focus to increase our operating margins is yielding results, and we're particularly pleased with improvement at locations performing below our standards.

Now before I turn the call over to Ronald Croatti, I would like to give a brief disclaimer.

This call may contain forward-looking statements that reflect the Company's current views with respect to future events and financial performance.

These forward-looking statements are subject to certain risks and uncertainties.

The words anticipate, believe, and other expressions that indicate future events and trends identify forward-looking statements.

Actual future results may differ materially from those anticipated depending on a variety of factors, including but not limited to, the continued availability of credit and the performance of the capital markets; performance of acquisitions; fluctuations in the cost of materials; fuel and labor; economic and other developments associated with the ongoing war on terrorism; and the upcoming of pending and future litigation in environmental matters.

Now I will turn the call over to Ron Croatti for his comments.

Thank you, John, and welcome to all those who are joining us for the review of our fourth-quarter and full fiscal year 2008 results.

Our numbers were released yesterday evening, and I'm happy to report that they showed another year of record revenues and profits.

Most important, it was a year that saw us past the milestone $1 billion revenue mark, a key event for our Company and one that was especially meaningful given the tough conditions we face during most of the year.

This milestone makes us the third largest provider in North America.

I want to thank the entire management team and our thousands of dedicated team partners throughout North America and in Europe who worked so hard to make it happen.

For the full year, revenues were $1.023 billion or a 13.4% increase over last year's $902 million.

Net income was $61 million or $3.15 per diluted common share, a 34.9% increase from the $45.2 million or $2.34 per diluted common share reported in fiscal 2007.

These results, which benefited from an extra revenue week in fiscal 2008 as compared to fiscal 2007, were in line with our expectations and consistent with the guidance updates we provided during the year.

Our core laundry operations led the way with a 13.9% revenue increase over the previous year.

Most of the improvement was the result of internal growth in price increases with acquisitions accounting for 2.9% of the advance.

The 53-week revenue week of fiscal 2008 accounted for approximately 2% of the increase.

This was a solid performance in light of the challenging market conditions and once again serves as a testimony to our solidarity and resilience of our uniform rental business.

Our Specialty Garments business, our nuclear decontamination agent and cleanroom specialists continue the improvements we saw in fiscal 2007 and delivered a 14% revenue increase for the year.

Our First Aid business saw an essentially flat performance because they were more affected by the overall economic slowdown and the consequent belt tightening of small and midsize businesses.

For the fourth quarter, the Company revenue rose -- revenues were $251 million, a 10.3% increase over the same period in fiscal 2007.

Net income was $12.3 million or $0.63 per diluted common share, a 13.7% increase over the comparable period last year.

These results reflect the increasing difficult market conditions we experience in the latter part of the year and are consistent with the business drop-off we predicted for the fourth quarter.

For the full year, net income was impacted favorably by lower merchandise amortization and by lower production payroll as a percent of revenue.

The payroll benefit was due primarily to higher product throughput in our laundries and resulting in improvements in production efficiencies.

Offsetting this was the negative impact of hiring and fuel expenses that affected all our operations, most particularly challenging in our laundries, which are our biggest energy consumers.

Specialty Garments profits showed a slight unfavorable year-to-year comparison, mostly due to direct sales, which are lower margin than the rental sales, serving as a larger component of the overall growth.

First Aid and Safety saw a slight drop in profits as well, largely due to unpreventable account losses and service reductions caused by the slowing economic conditions.

Even though the market conditions were far from favorable, our uniform rental business showed steady growth throughout the year.

Professional field sales were up 9.8% versus fiscal 2007 with sales turnover holding pretty steady, but the average number of reps and total work weeks were up slightly.

Sales rep performance continued to show the positive effect of better local management, better training and support systems, consistent enhancement to our sales productivity systems and sharper focus on industry-specific sales programs.

Service sales showed an improvement as well with our stop value totals, a key measure of average route revenues, moving up slightly.

Route sales programs continue to improve with increased percentage of customers taking advantage of the new service offering route reps were making on a scheduled basis throughout the year.

For the year national accounts sales were up high single digits over fiscal 2007.

Balancing this we successfully renewed service contracts for the vast majority of our current customers who were up for renewal.

We were increasingly successful in selling (inaudible) products and services to customers who were primarily uniform users.

Both the Specialty Garments and First Aid business expanded its geographic coverage during the year, laying an improved foundation for future growth.

Both businesses continue to have excellent upside potential for Specialty Garments due to its unique technical expertise in the nuclear decontamination area, stands to realize substantial new opportunities as nuclear energy is once again favoring as a practical and cost-effective option to continue the use of fossil fuels.

And First Aid and Safety, due to its balance of direct to user service programs, wholesale medication business and contract pill packaging operations is positioned to serve a broader range of customers in more ways.

So both businesses are looking beyond the current downturn with justifiable optimism.

As we move forward in fiscal year 2009, we are being appropriately cautious.

Unemployment rates are over 6%.

The economy has already lost .75 million jobs, and there's a possibility of skyrocketing unemployment in the short-term.

And it seems clear the recessionary conditions will prevail throughout the year and possibly longer.

Overall economic conditions are unsettled as many of us have seen in our lifetime, and the experts are cautioning us not to expect a quick fix or turnaround.

This means we will be facing some of the biggest business challenges any of us have run up against.

The fact of the matter is we will not be able to avoid some unemployment in reductions, even business payers in our current customer base.

That is simply out of our control.

So we will be concentrating on these factors we can control and which do the most to buffer losses and give us the opportunity to regain growth even in hard times.

The focus in all our business segments will be on one, keeping customers through service excellence and delivering of cost savings and advantages; selling aggressively into the market areas from the most resilient and least likely suffering business downturns; and three, affecting stringent cost control measures to allow for business development to eliminate all the nonessential spending.

In all of this, we are buoyed by our belief in ourselves and our business.

UniFirst has been around for over 70 years, and in that time it has weathered many economic downturns.

Throughout the resilience of our basic business model has enabled us to continue moving forward when others have faltered.

So though the current conditions may be some of the most challenging in our history, we're confident in our ability to weather the storm.

We have products and services that are needed in the marketplace and represent cost-effective solutions to real business needs and that deliver genuine value to the end-user.

In addition, we have the UniFirst family of team partners, operations, managers, production workers, sales month and service personnel, technicians and administrators, who have proven time and time again their ability to get the job done no matter what the challenge.

So we're ready for what the year holds in store for us.

We're looking forward to reporting to you on the Company's progress in the quarters ahead.

Now I would like to turn the call over to Steve.

Thanks, Ron.

As Ron discussed earlier, we're pleased to report the best full-year results we have ever achieved.

We did not originally project that we would reach $1 billion milestone in fiscal 2008, and we have achieved this despite challenging economic conditions while at the same time exceeding our profit goals.

Our full-year revenues increased 13.4% to $1.023 billion compared to fiscal 2007.

Fiscal 2008 was a 53-week year for the Company; however, even excluding the effect of the extra week, our revenues would still have broken the $1 billion plateau and grown over 11%.

Net income for the full year increased 34.9% to $61 million or $3.15 a share compared to $2.34 a share in fiscal 2007.

The full-year earnings of $3.15 were at the low end of the revised guidance we provided during our third-quarter earnings call.

Revenues were $251 million for the fourth quarter, an increase of 10.3% over 2007.

Fourth-quarter net income increased 13.7% to $12.3 million or $0.63 per diluted share compared to last fourth-quarter net income of $10.8 million or $0.56 per diluted share.

The growth in net income for the full year was achieved primarily through strong revenue growth and improved margins in our core laundry operations, which excludes our Specialty Garments and First Aid segments.

Our core laundry operation revenues grew 13.9% for the full year to $920 million.

Organic growth for our core laundry operation, which excludes acquisitions, the effect of the extra week in fiscal 2008, and fluctuations in the Canadian exchange rate, was 7.5% for the full year.

Income from operations from the core laundries for the full year increased 32.4% to $103.5 million compared to fiscal 2007.

The operating margin increased significantly to 11.3% in 2008 from 9.7% in 2007.

The full-year improvement was primarily the result of lower merchandise amortization, as well as lower payroll and payroll-related costs as a percentage of revenues.

In addition, the results in 2007 were affected by severance expense and increases to the Company's environmental reserves that decreased income from operations by $2.3 million.

These benefits were partially offset by higher achieve energy costs.

For the fourth quarter, revenues from the core laundry operations increased 10.7% in total and 6.6% organically.

The decrease in organic growth in the fourth quarter from previous quarters reflects an increasingly difficult economy that is resulting in higher wear reductions in our customer base, an increased number of financially distressed customers and a more difficult selling environment.

Fourth-quarter net income from operations from the core laundries increased 2.7% from $20.4 million in fiscal 2007 to $21 million in fiscal 2008.

Growth in operating income lagged the revenue growth in the quarter due to a decrease in operating margins of 10% in 2007 to 9.3% in 2008.

This drop in margin is due primarily to increases in the cost of energy and other commodities.

Both the cost of gasoline and natural gas increased sharply during the quarter to historically high levels.

Prices also increased related to other business input such as [tuners], which put additional pressure on the margin in the fourth quarter.

In addition, the benefit related to lower merchandise amortization as a percentage of revenues that we have been realizing throughout the year continued to benefit the fourth quarter but at a reduced level.

Health care claims also had grown at a rate lower than our revenue growth through the third quarter, but higher-fourth quarter claims reversed that trend and impacted our quarterly profitability.

For the full year, the revenues of our Specialty Garments segment were up 13.9%.

Income from operations, as Ron mentioned, however, decreased from $4.5 million in 2007 to $4.2 million in 2008.

For the full year, this segment's costs have increased as a percentage of revenues due to higher energy, payroll and other production and delivery-related costs.

In addition, overall merchandise costs were higher as a percentage of revenues.

Based on the seasonality of the power reactor business, the fourth quarter is historically weak for this segment.

However, it improved its fourth-quarter results from an operating loss of $0.8 million in 2007 to income from operations of $0.4 million in 2008.

This improvement was primarily due to strong revenue growth of 16.3%, as well as lower merchandise costs as a percentage of revenues compared to the fourth quarter of fiscal 2007.

Revenues from our First Aid segment were relatively flat year-to-date and fell 9.8% to $7.5 million in the fourth quarter of 2008.

Income from operations for the full year is down from $1.4 million in 2007 to $0.9 million in fiscal 2008, but was flat in the fourth quarter with both years showing income of $0.5 million.

The full-year decline in revenues was partially due to a product line that was discontinued in the second quarter of fiscal 2008.

In addition, this segment has clearly been hurt by economic conditions where companies are both looking for ways to cut costs, as well as being reluctant to add them.

Overall costs, including payroll and energy, have continued to grow causing margins to be squeezed.

We continue to invest in the training and growth of this segment sales organization to help facilitate the growth necessary to improve its profitability.

On a consolidated basis, depreciation and amortization declined as a percentage of revenues from 5.4% to 5.3% for the full year and from 5.6% to 5.5% for the fourth quarter.

Net interest expense for the full year decreased from $10.8 million in fiscal 2007 to $9.8 million in fiscal 2008 and from $2.7 million to $2 million in the comparable fourth quarters.

These decreases relate to lower interest rates, which more than offset the higher average debt balances we were carrying as a result of the acquisitions we completed during the year.

We also wanted to bring your attention to the fact that effective this quarter we have begun to show the impact of foreign exchange gains or losses as a component of other expense in the face of the income statement.

Previously these amounts were included in selling and administrative expenses and had not been very significant.

As these amounts are becoming larger due to the recent volatility of the US dollar, we feel that breaking out these gains or losses help to show a clearer picture of our operating results.

During the fourth quarter of fiscal 2008, we recognized foreign exchange losses totaling $0.6 million compared to a small gain in the fourth quarter of 2007.

For the fourth quarter, our effective tax rate was 36.2% compared to 38.4% last year.

For the full year, our effective tax rate decreased from 38.5% in 2007 to 38.2% in fiscal 2008.

The lower rate in the fourth quarter and full year was primarily due to a reduction of tax reserves no longer required.

On an ongoing basis, we expect our income tax rate will be between 39% and 39.5%.

Our capital structure and cash flows continue to be very strong.

Our cash flows from operations increased approximately 40% to $119.5 million due to strong net income growth, as well as good controls over our working capital needs.

The increases in our supply inventory and merchandising service compared to prior year-end were 4.2% and 7.2% respectively.

Based on our overall revenue growth of 13.4%, these increases were modest and the control over the growth in these areas contributed to the improvement in our operating cash flow.

Total debt was $235.5 million as of year-end, a 14.3% increase from the $206 million outstanding a year ago.

The increase in debt is primarily related to the funding of $61 million in acquisitions during the year.

The majority of the dollars expended related to these acquisitions were the acquisitions of Western Uniform & Towel Service, which was completed in September of 2007, and Quality Linen and Towel Supply Company in May 2008.

Western Uniform was headquartered in Wichita, Kansas, but also expanded our presence in Kansas City, Tulsa and Oklahoma City.

Quality Linen was based in Salt Lake City and has giving us a stronger presence in this attractive market.

We continued to invest in our infrastructure during fiscal 2008 with capital spending totaling $73.8 million.

In addition to the normal capital outlay for replacement vehicles and other equipment, the Company undertook a number of new plant and plant expansion projects during the year.

Several of these projects are still ongoing, but we do expect our overall level of capital expenditures to be lower in fiscal 2009 at approximately $55 million.

Total debt as a percentage of capital increased slightly from 29.3% at the end of fiscal 2007 to 29.7% at the end of fiscal 2008.

We are currently well in compliance with all of our financial covenants under our debt agreements, and we don't have any significant debt that matures before 2011.

Given the current economic landscape, including the tightening of the credit markets, we continue to approach all investments during these uncertain times with the appropriate amount of caution.

However, based on our overall financial strength, we're well-positioned to continue to invest in the business, as well as pursue strategic acquisitions.

Finally, we would like to give some preliminary guidance for fiscal 2009.

We project that our revenues for fiscal 2009 will be between $1.015 billion and $1.045 billion, and that income per diluted common share will be between $3.05 and $3.25.

Both the revenue guidance and earnings guidance reflect one less week of operations as fiscal 2008 with a 53-week year for the Company, and fiscal year 2009 will be a 52-week year.

The effect of one less work week equates to a reduction in our revenues of approximately 2%.

We are also reflecting in these estimates a declining in our consolidated revenues of approximately 1.7% based on the current strengthening of the US dollar.

In addition, the earnings guidance assumes an effective tax rate ranging from 39% to 39.5%.

The guidance that we have provided is highly dependent on certain conditions that have recently been very volatile and largely out of the Company's control.

These conditions include overall unemployment rates, the cost of energy and other commodities, exchange rate fluctuations, as well as the cost of capital.

A significant change in any of these factors could have a significant impact on the guidance that we have provided.

We will closely be monitoring these factors and aggressively taking actions necessary for the Company to stay on target with not only our current year goals but also our long-term strategic objectives.

Although we are beginning the fiscal year in an economy surrounded by as much uncertainty as we have seen in recent history, we're confident in the strength of our overall financial position, as well as our ability to weather the economic cycle that we are currently facing.

This concludes our prepared remarks, and we will be now pleased to answer any questions you may have.

(Operator Instructions).

Andrea Wirth, Robert Baird.

I wondered if you could first just talk a little bit about your '09 assumptions just in terms of what you're looking for, the core rental business in terms of growth rates?

It looks like just from your guidance that it assumes that growth rates do come down pretty hard but probably still stay positive, probably around 2% to 3%.

Does that seem to make sense to you?

That is correct.

Yes, I think the range kind of assuming the reduction related to the extra week, as well as the impacts on Canada of the exchange rate, I think the range assumes about a 2% to 4% core organic growth, excluding all those factors.

Got it, got it.

Great.

And then I just wondered if you could address a little bit what you have seen essentially since the end of your quarter, your quarter ended in August, and obviously a little bit before we started seeing things fall apart in mid-September.

I was just wondering given the growth rates are expected now to come down to 2% to 4%, are you seeing a significant tailoff already?

Meaning, will you probably start getting down into that range of 2% to 4% already in the fiscal first quarter?

Or are things holding up still fairly well, and we only see kind of a slight deceleration in the first quarter?

We have seen a continuation of the shrinkage of our wearer base.

Last year it was over 5.5% of our wearer base.

That has continued.

Our new business for the first eight weeks has slowed, and we're down about 5% in new business.

And the other businesses and small businesses has continued pretty much at the same pace that it was in the fourth quarter.

So we are cautiously optimistic here.

Kind of to add to that a little bit, we have gotten our September numbers.

Next week we will get our October numbers, and quite frankly, they were pretty good.

So we are cautiously optimistic, and then I think the recent changes in the financial markets and so forth do not seem to have affected our business yet.

That is not suggesting they will not, and I think we're seeing some favorable things in the energy costs.

I mean everyone knows the cost of gasoline has come down dramatically, and natural gas has come down since the last few months.

So we have actually seen a couple of positive things.

I think when you look at that guidance, you're right.

I think that it will not be as sharp of a decrease in the first quarter, but over the course of the year, as these conditions continue, we will fall down into that range, and we expect that range for the full year.

Got it, got it.

And just to clarify a couple of things.

Ron, when you mentioned that new business was down 5%, is that year-over-year or sequentially?

That is year-over-year.

It is just -- people are less likely to spend right now the last eight weeks.

I mean companies are tightening up all the way along the line.

We have some good programs, and we're focusing towards businesses that have to have uniforms.

But it's getting a little more difficult in the selling environment.

Sure.

And then just one question, some of your peers are already starting to really go after their cost base, taking some facilities off-line.

I was just wondering if you have taken a look at your cost structure at this point and if you feel like there's any kind of (multiple speakers) major moves that need to be done?

We are in no position to take any facility off-line.

We are tightening our cost structure, making sure that what we spend makes good business sense.

As we go through our whole acquisition program and acquire companies, we on an ongoing basis we have closed facilities and duplicate plants or whatever.

But we're certainly not looking in any of our facilities today and say we're going to close it and consolidate it.

In fact, we actually have just opened one or two.

We just opened two.

Got it.

Great.

Thank so much, guys.

John Healy, FTN Midwest Research.

A question just conceptually on how you guys look at yourself and how you look at the industry.

For a number of quarters and for the whole fiscal year for you guys, you have outperformed the industry.

Your organic growth rates are much higher than what peers are reporting and probably much higher than what is taking place in the industry.

Just from your vantage point and you see yourself operating in the field, what are you guys doing differently that the industry is doing different relative to the industry?

I mean I look at your organic growth numbers, and they continue to amazing us.

So I'm just trying to get a better understanding of how you guys continue to do so much better than the overall marketplace?

I think it goes back to our restructuring of our sales organization about three years ago and changing the mentality and the focus and the training and the tools.

Like I said before, we basically turned over everything.

And then it is getting that in position, getting the people trained.

And a lot has to do with the location managers.

We've changed the mentality of the location manager that he has to be not only a location manager but a sales manager, and that is a constant thing -- we're not there yet where we want to be.

But that is really the difference.

It's the basics on blocking and tackling.

No, that is great.

They are hard sales focused.

That is great.

I guess when you guys look at the guidance you have provided here of 305 to 325, I was hoping you could try to give us a little bit of color, John or Steve, just high you guys look at margins for the year?

It looks like they are kind of going to be similar, maybe down a little bit if I do back of the math envelope.

But I'm just trying to think how we should expect those to kind of trend as the year goes on?

Well, I don't think we have ever been in as difficult an environment as we're looking at.

I mean we just face I think more uncertainty than we have in the past.

I think the one thing that has benefited us this past year, probably the biggest thing, is the merchandise costs, and we do not anticipate we're going to have, you know, the same kind of favorable year-over-year benefit as we go forward.

I think we're just concerned that with the cost pressure that we might have a squeeze on our margins in general, and our goal is to do as well as we can.

But I think we're really looking at, we had a 34% jump this year.

It is pretty optimistic that we certainly cannot do that again, and it does not seem unreasonable from where we sit that we might be flat next year.

So we have kind of given us a range of kind of a plus or minus over the current year, and that is I think how we see it at this point.

Steve, do you want to add a little bit to that?

Well, I think a couple of items.

We talked about the exchange rates in Canada, and our Canadian operation had a huge year this year.

They were benefited by the exchange rates.

Where the rate stands today, I mentioned that that is going to have an impact on our overall revenue of about 1.7% and probably a little bigger percent than that impact on our profit.

We're baking in a higher tax rate as well.

And although fuel has come down, a number of our other vendors, I mentioned hangers in the fourth quarter and some of the other vendors that we deal with, have put through price increases that we're dealing with as well.

So although I think energy will have a benefit over time at the current level, there are some things working against us.

So like John said, given the market, I think flat would be a solid improvement.

Okay.

Great.

And just another big picture question.

So many pressures taking place in the economy right now.

I have got to imagine the uniform industry is going to feel it from a topline standpoint.

But when you look at some of your smaller competitors out there, when you look at the pressures in the economy, do you think this is going to force the hand of some of your smaller competitors to begin to look to sell their businesses, and would you anticipate that the softened economy is going to push the envelope more towards consolidation in the industry, and maybe how do you guys see yourself pursuing potential acquisitions in a tough environment?

Well, I think we have seen actually more activity from the smaller people already.

I don't think it's just the economy.

I think they are looking at the government situation, and they are expecting that tax rates are probably -- maybe they will not go up too much, but they are not going to go down is how they are looking at it.

And they are looking at this as maybe a good opportunity to get out.

I don't think the economy is going to force -- I'm not aware of really anyone in our industry that has been forced out of business.

It is more usually a family or a kind of decision that they do not have children come along that want to run the business than economics that usually forces it.

But clearly if they do not make as much money as they did the year before and they are trying to divide up the pie to two or three families rather than one, it kind of forces their hand or it makes them think a little bit harder about it.

But I think, as Steve said in his comments, we're going to look aggressively at acquisitions that make sense, but at the same time, we realize how precious cash is.

And so we have actually walked away from a couple of acquisitions in the last couple of months.

(Operator Instructions).

Ashwin Shirvaikar, Citigroup.

I guess my first question is, is it possible as you look at the year-over-year margin improvement that you can break out the various pieces?

I think we can give you some high-level ideas.

I don't think we want to get down to the actual percentages for each piece.

But, as we have talked about throughout the year, the biggest pieces of the margin improvement obviously have been the merchandise, and I think that was the biggest piece clearly.

And that was in the neighborhood of a 1% increase year-over-year.

Payroll and payroll-related costs are next in line as the biggest improvement.

And there were a number of other small things that contributed to it as well.

And then those were offset by the energy.

Some of those items flipped around in the fourth quarter.

Energy became a much larger negative.

For the fourth quarter, energy was -- it hurt our margin 1.5 % over the fourth quarter of the prior year.

And for the entire year, it hurt our margin about 7/10 of a percent.

So you can see how much it accelerated in the fourth quarter.

Okay.

And on the topic of energy, can you go through how the mechanics of the fuel surcharge work?

Do they roll off automatically as the fuel price declines?

No, basically it is a percentage of the invoice, and we look pretty hard at what UPS does, how they tie it.

And based on what UPS does, we probably adjust it semi-annually.

Okay.

Okay.

So it's not really a --?

It is not adjusted every week like UPS.

Okay.

And it is not negotiated?

It is just --?

Well, it is always negotiated.

Okay.

What is your CapEx for fiscal '09?

I missed that.

Well, we expect about $55 million.

And could you go into sort of the big parts of the CapEx?

About $22 million goes for trucks and computers, and the difference would go into -- we've got continued construction of a plant in England, which is costing us a lot more than what we anticipated.

And additions and improvements and further sortation, automation in the plants.

Okay.

So basically you're spending on short-term ROI kind of things that really see immediate benefit?

That is pretty much it.

Okay.

Anyway you could -- you know you have not in the past, but anyway you could get into your end market exposure by verticals how that looks?

I'm not sure what you're suggesting.

We're looking at each other here.

I mean with regard to your next quarter or two, what percent is construction and what percent is maybe travel, that kind of thing?

I do not have my hearing aide, so I --

I guess I'm still unclear where your end market -- what -- you are talking about customers?

Yes, customer exposure by industry.

I do not believe we have any major customer.

We pretty much go across the board.

We do not have much manufacturing.

Probably the single biggest segment is the automobile-related, which is not just dealers and not really the manufacturer.

It is more the auto repair shops, the mechanics, the things like that, and traditionally we have catered more to the smaller businesses.

There is no question some of those are going to reduce men and some go out of business.

But I think in this environment where people are not buying new cars, they are going to continue to have to have their cars serviced and repaired.

We have some grocery store business.

I mean that is going -- I don't think -- we are not really into the high-end type of restaurants or anything like that.

No question we're going to have some exposure, but we have over 200,000 customers, and we think we're pretty -- we're spread all over the United States.

Andrea Wirth, Robert Baird.

Just a follow-up on energy costs.

In the quarter, was it about 6% of sales?

Is that about right?

Yes, let me grab that for you.

Between natural gas and gasoline, it was 5.9% and then add another percent for electric.

And another percent for electric, okay, so all-in.

All-in about 6.9 (multiple speakers) per quarter.

Right.

And then what is essentially baked into your guidance of that $3.05 to $3.25?

What essentially percent of sales or essentially what is your outlook for energy for that guidance range?

It really depends on whether it was $3.05 or $3.25.

I think we are optimistic that the energy prices are going to maybe ratchet up a little bit, but not dramatically the way they did a year ago.

So we are hopeful that they will not see the dramatic changes that we have had last year is what we are contemplating in that range.

So -- (multiple speakers)

If the things stay low and we could be maybe towards the higher end and if they ratchet up, we will be at the lower end.

That is one factor obviously.

There are other factors that come in, but there are other things.

You know, the unemployment, if it stays where it is, we will do better, and if it goes up significantly, we're probably not going to do as well.

That is why it is just so hard to predict the next year.

Sure.

So it is probably fair to say that the high-end of your range assumes energy costs essentially stay where they outright are at right now?

Yes, that is correct.

(Operator Instructions).

There are no further questions at this time.

I will now turn the call back over to you.

Please continue with your presentation or closing remarks.

Well, I want to thank you all for coming to our webcast in our best year ever.

We certainly will stand fast and meet the challenges of the coming year, and we look forward to talking to you in next quarter.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.