Knoll, Inc.
Q4 2007 Earnings Call Transcript

Published: 10 Feb 2008

[Operator:]

Good morning, everyone, and welcome to the Knoll Inc. fourth quarter and full year 2007 earnings release conference Call. This call is being webcast at knoll.com. Presentation slides accompany the webcast. In addition, this call may offer statements that are forward-looking. These forward-looking statements are based largely on the company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the company's control. Actual results could differ materially from the forward-looking statements as a result of many factors, including the factors and risks identified and described in Knoll's annual report on Form 10-K and its other filings with the Securities and Exchange Commission. The call today will also include references to non-GAAP financial measures. Reconciliations of these measures to the most comparable GAAP financial measures are included in the company's earnings release dated February 6, 2008 and presentation slides that accompany the webcast. Now, let me turn it over to Mr. Barry McCabe, the CFO of Knoll.

[Barry McCabe:]

On behalf of Andrew Cogan and myself, welcome to our fourth quarter and full year 2007 earnings call. This quarter we reported our highest quarterly sales earnings per share, gross and operating margins since our 2004 IPO. On $281.8 million of sales, an increase of 3.2% we generated 35.1% gross margins, 14% operating margins and $0.42 of EPS and, in fact, this quarter we had two months where we generated over 15% operating margins, a target that we are continuing to work to achieve on a mid-term basis. But the full year's sales exceeded $1 billion and full year adjusted EPS grew 25.6% from a $1.17 to a $0.47. Gross margins in spite of continued inflation and foreign exchange pressures, improved by 210 basis points from 32.5% to 34.6% and operating margins increased from 11.9% to 13.5%. Operating profits grew from a $116.9 million to a $142.2 million, an increase of $25.3 million or 21.6% and adjusted EBITDA, which includes depreciation and amortization, non-cash stock-based compensation and the trailing four-quarter historical Edelman EBITDA increased by 18.9% to $170.9 million. In 2007, we grew faster overall than industry data suggests to market groove. We made our first specialty acquisition of Edelman Leather, expanded the mix of our revenue outside of North America, bought back 2.261 million shares, negotiated a new bank facility expanding our borrowing capacity to $500 million or simultaneously reducing our borrowing cost. And even after giving effect to the stock buybacks, Edelman purchased a 9% increase in our dividend. We reduced our leverage ratio from 2.46 to 2.18, as absolute, that increased by only $18 million from the end of 2006. Our team is enormously proud of these results, which could not have been achieved without the support and hard work of our associates and dealers. Looking at our fourth quarter and year-to-date results. In the fourth quarter, we continued our top line growth and operating margins expansion. Net sales for the fourth quarter were $281.8 million, an increase of 3.2% over the prior year period which had been a very strong shipment quarter for comparison purposes. Growth in the quarter was led by specialty cells. Our growth initiatives which include new products, targeted acquisitions, and product category diversification are working. In a quarter, we also saw an increase in client visits and mock-up requests over the prior year which indicates the project activity is continuing. Backlog for the fourth quarter was $190.7 million, a 13.7% increase over prior year. This increase was across all our businesses, North American office, international, and our specialties, which demonstrates the broad-based success of our strategy. Gross margin for the quarter was 35.1%, 250 basis points better than the 32.6% reported a year ago. Additional volume, better pricing, moderating inflation, global sourcing and improved factory performance, all contributed to this improvement. Thus, despite the Canadian dollar appreciating over 15% and negating additional margin expansion. We are aggressively pursuing and evaluating strategies to reduce our exposure to the Canadian dollar. Gross margin dollars increased from $89.1 million a year ago to $99.0 million this quarter, an increase of $9.9 million. Operating expenses were $59.5 million or 21.1% of sales, compared to $53.5 million or 19.6% of sales a year ago, an increase of a 150 basis points in the fourth quarter of 2006. Actual spending was up $6 million due to incremental operating cost resulting from the Edelman Leather acquisition and increased marketing and sales spending to support our new product and growth initiatives. Operating income as a percent of sales was 14% for the quarter, 100 basis points better than the 13% earned in the fourth quarter last year. This increase was the result of the gross margin improvement from a year ago. Operating income dollars increased from $35.6 million last year to $39.5 million this quarter, an increase of $3.9 million. Interest expense was $6 million, a decrease of $0.9 million from prior year due to lower borrowing costs, offsetting the $18 million of higher debt. Other expense was $0.7 million in the fourth quarter, an increase of $1 million from other income of $0.3 million last year due to foreign exchange losses resulting primarily from the appreciation of the Canadian dollar. Our tax rate for the quarter was 36.8%, compared to a rate of 37.9% a year ago. The rate decrease resulted from the mix of income between countries. Going forward, we expect an average tax rate of approximately 38.5%. All this resulted in fourth quarter net income of $20.7 million, 7.3% of sales and an EPS of $0.42, which is an improvement over net income of $18 million, 6.6% of sales and an EPS of $0.37 a year ago. In the quarter under our share buyback program, we purchased 1,042,766 shares at an average price of $16.58 a share. This reduced our outstanding shares before dilution to 47,553,402 shares at year end and, with dilution to an approximate average of 48.1 million shares at January 1st. In addition, we increased our quarterly dividend to $0.12 and paid over $5.7 million in dividends to our shareholders. Between the dividend and the share buyback, we returned over $23 million to our share holders. Year-to-date net cash provided by operations was a $102.2 million. Of which a $104.9 million was provided from net income plus non-cash amortizations offset by $2.7 million of unfavorable changes in assets and liabilities, primarily due to our higher sales, increased production and Edelman Leather acquisition. Capital expenditures were $16.3 million, which compares with a $13.3 million a year ago. Investing activities also included $70.8 million for the acquisition of Edelman Leather. Financing activities used $16.7 million, which included net borrowings of $18.2, $48.1 million of common stock purchases, $21.7 million of dividend payments and $2.6 million of refinancing fees, offset by $29 million of stock option proceeds and $8.6 million of related tax benefits. If we look at liquidity, we have $18 million in cash and a $128.5 million available under our revolver. Our EBITDA continues to grow ending the year at a $170.9 million which includes approximately $28.6 million of depreciation, amortization and non-cash compensation. We are in compliance with all our debt covenants and our leverage ratio was 2.18. Our year end debt was $368 million and at current LIBOR rates, plus the 100 basis points added for keeping our leverage ratio between 2 and 2.5 times to 1. Our annual interest expense would be $16 million to $17 million in 2008. A brief recap of full year results show sales growth, significant operating margins expansion, and double-digit earnings and EPS improvements compared to a year ago, backlog up 13.7% from $167.7 million to $190.7 million. Net sales growth of 7.5% from $982.2 million to $1.056 billion, with all product categories and international growth. Gross margin expanding 210 basis points from 32.5% to 34.6%, from $319 million to $365.1 million despite inflationary pressures and the strengthening Canadian dollar. Operating income expanding a 160 basis points from 11.9% to 13.5%, from a $116.9 million to $142.2 million. Net income increased by 21.8% from $58.6 million to $71.4 million. Adjusted EPS grew 25.6% from a $1.17 to a $1.47. We are aggressively pursuing additional cost reduction and cost improvement opportunities. In Canada, we are working to offset the approximately $6 million of Canadian exchange rate headwinds facing us in 2008 by consolidating and eliminating shifts at our Canadian operations, increasing globally sourced components and moving as many Canadian cost into US dollar denominated currency as is possible. Both client visits and mock-up grew in the fourth quarter and now we are obviously aware of the general trends in a macroeconomic environment. We do not at this time believe the industry is facing anywhere near the conditions that were experienced from 2001 to 2003. For the first quarter of 2008, we expect sales to be in a range of $258 million to $265 million, an increase of 4.1% to 6.9% from the first quarter of 2007. We expect EPS to be $0.32 to $0.34, as we benefit from lower interest cost and reduced share count. Additionally, we believe that the first half of the year with unfavorable foreign exchange and transportation comparisons may be more challenging on the cost margin side versus prior year. But we would expect to benefit in the second half from year-over-year declines in transpiration and foreign exchange rates together with the positive impact of our recently announced price increase. Now, let me turn the call over to Andrew for some closing comments.

[Andrew Cogan:]

Thank you, Barry. We are entering the fourth year of Knoll as a public entity and the 70th year of our founding in 1938. In fact for 70 years now, we have been fulfilling the vision of our founders by using our commitment to modern design to connect people with their work, their lives and their world. Since our IPO in December 2004, we have grown our top line by almost 50% versus 27% growth for the industry. We have doubled our operating profit from $71.3 million to $142.1 million, increased our still industry leading operating margins by 340 basis points, ending the fourth quarter with a 14% operating margin and delivered a 123% increase in our adjusted EPS from $0.66 to a $1.47. Our debt is down and our leverage ratio is down even more. We have bought back over 8.5 million shares, including just over a 1 million in Q4 of '07 and we have grown our dividend by a 140% from $0.20 to $0.48 annually. We are pleased with our performance and the result that we have delivered for our share holders. But more importantly, we are excited about our future. Over the next 18 months, we'll introduce the most comprehensive portfolio of new products and coverings in the history of our company, as we expand our relevance for a new generation of office workers and consumers. We'll continue the expansion of our footprint geographically, building on our growing strength and profitability in Europe and beyond. Our unique high margin specialty businesses should comprise a record 22% of our revenues this year, up from 13% at the start of the decade. And we are not resting on our margin achievements as we remain committed to achieving our 15% mid-term operating goals as we work to expand our already industry leading levels of profitability. Furthermore, should our stock continue to offer the compelling value it does today, we would expect to continue to use our expanded board authorization to buy shares as we work every level we have to deliver value to our share holders. Now, let's open up the line to your questions.

[Operator:]

(Operator Instructions). Your first question comes from the line of Mr. Todd Schwartzman with Sidoti. Please proceed.

[Todd Schwartzman:]

Hi. Good morning, guys.

[Barry McCabe:]

Good morning.

[Todd Schwartzman:]

Barry, in your talk on CapEx, did you give the expectation for 2008 full year?

[Barry McCabe:]

No, I did not. We expect it to be up with our new product development and the other things we have going on, probably be in the range of $20 million to $25 million.

[Todd Schwartzman:]

All right. Thanks. What were Knoll North American sales for the fourth quarter?

[Barry McCabe:]

We really don't give that out.

[Todd Schwartzman:]

Okay.

[Barry McCabe:]

We would say that really though in the fourth quarter most of the sales were -- the increase was in North America and again you have timing on quarter-to-quarter due to projects and other things and the rest of the international is probably flat.

[Todd Schwartzman:]

Okay. What were the factors there that led to the flat result internationally?

[Andrew Cogan:]

This is Andrew. We had some large projects last year in Europe in the fourth quarter that kind of shipped out then. So I think it was more on a comparison basis with a handful of large projects. Their business continues to be very robust and grow. And our overall business internationally continues to do terrifically. In fact, I think we ended the year with the whole European international portion of our revenues close to 10% which is a significant increase from where we were at the start of the decade which was closer to about 7%. So we're really making good progress there and quite encouraged in terms of what we see there for this year.

[Todd Schwartzman:]

And overall globally mostly in North America, have you seen any cancellations of late anything in the fourth quarter or subsequent to quarter's end?

[Andrew Cogan:]

No, we've not seen any cancellations.

[Todd Schwartzman:]

Okay. And what about Edelman's bottom line contribution, was there any for Q4?

[Barry McCabe:]

Edelman, it was accretive in Q4 as we had anticipated it being. And I think it will be nicely accretive as move forward.

[Todd Schwartzman:]

I can't get you to quantify that, can I?

[Barry McCabe:]

No.

[Todd Schwartzman:]

Okay.

[Barry McCabe:]

It was accretive.

[Todd Schwartzman:]

All right. Is there any color you can give maybe slicing and dicing revenue performance in Q4 by geography, product category, client category?

[Barry McCabe:]

Sure. I think the strongest categories were obviously our specialty businesses. They continue to do very well. They are very diversified in terms of their clients and segments that they call on. And as you know, they are also our most profitable category. Now specialty benefited by the Edelman acquisition. So, if you took that out, I'd say organically we are relatively flat in the fourth quarter. But even within that number, you had strong growth in the specialty area. That was really the best performing category followed by our seating and storage. And I would just again remind everybody that we think we've got tremendous potential to continue to gain share in seating and storage. And those would all be areas as we move into '08 and beyond, we are very much focused on driving.

[Todd Schwartzman:]

How many seating products do you have on tap for new account this year?

[Barry McCabe:]

Well, I mean, I am not going to get into what our plans are for each trade show. I can tell you this that in our pipeline of new products, there are some very ambitious, really wonderful seating products in the pipeline for the next 18 month.

[Todd Schwartzman:]

Great. And also, if I heard correctly, looking at your expected interest expense reduction this year to a range of $16 million to $17 million full year, when should we start to see that positive impact begin?

[Barry McCabe:]

You will start to see that in the first quarter and even more so in the second because as we have said before, if you look at our financing facility, we pay LIBOR at plus or 100 basis points just when we stay between 2 and 2.5 times leverage. And LIBOR fell appreciably in recent weeks and is still forecasted to do so as we go into future. So we could even get future benefits and I will encourage you knowing that to just look at where LIBOR is on a quarter-to-quarter basis.

[Todd Schwartzman:]

And assuming the status quo then by Q4, that seems to suggest that you could approximately $4 million for the quarter in interest expense?

[Andrew Cogan:]

I think that's a little low for the first quarter.

[Todd Schwartzman:]

For the fourth quarter, December quarter.

[Andrew Cogan:]

Right.

[Barry McCabe:]

I mean if it stays where it is and we are saying $16 million to $17 million for the year depending on what we do with our free cash. Yes.

[Todd Schwartzman:]

With respect to the guidance what is your assumption for the Canadian dollar for the first quarter?

[Barry McCabe:]

Par.

[Todd Schwartzman:]

Okay. Thanks

[Andrew Cogan:]

Thanks Todd.

[Operator:]

Your next question comes from the line of Matt McCall with BB&T Capital Markets. Please proceed.

[Matt McCall:]

Thanks. Good morning every body.

[Barry McCabe:]

Good morning Matt.

[Matt McCall:]

Just to clarify one of the last statements. I think you said organically, you would have been relatively flat in Q4 with Edelman, was that in specialty, or was that overall?

[Barry McCabe:]

Overall.

[Matt McCall:]

Okay. And so that seems to be a little bit better than the initial guidance, if you just back out, I think you gave a full year guidance last quarter and back out the Q4 number, it implied down 3% to down 10%. Did trends get better, I know you have got, right now we have got a pretty good picture what Q1 is going to look like. What occurred in Q4 to lead to the organic flat versus the initial guidance you gave?

[Barry McCabe:]

Again, I think the day-to-day activity was a little stronger than we had anticipated. And I think that was helpful. And then you had some projects that shipped a little sooner and I think was that kind of blend of things that helped us.

[Matt McCall:]

Okay.

[Barry McCabe:]

It was not any one dramatic thing.

[Matt McCall:]

Okay. But Edelman was not included in the guidance, correct, previous guidance?

[Barry McCabe:]

Edelman was included in the guidance because we closed Edelman on October 1st.

[Matt McCall:]

I am sorry. I had the date wrong. Here we go. Okay. I think everything else is answered, Thank you guys.

[Barry McCabe:]

Thanks Matt.

[Andrew Cogan:]

Thanks Matt.

[Operator:]

Your next question comes from the line of Mr. Michael Rehaut with JP Morgan. Please proceed.

[Barry McCabe:]

Michael?

[Operator:]

Mr. Rehaut, please proceed.

[Andrew Cogan:]

Why don't you go to the next question? May be his line is down.

[Operator:]

Your next question comes from the line of Chris Agnew with Goldman Sachs. Please proceed.

[Pete Wahlstrom:]

Good morning. This is Pete Wahlstrom on behalf of Chris Agnew.

[Barry McCabe:]

Good morning.

[Pete Wahlstrom:]

When you were on the third quarter conference call you mentioned that it would be reasonable to see flat to modest single-digit growth for the industry in 2008. And bearing in mind that was before business projection was lowered, do you still see that as a reasonable goal for '08?

[Barry McCabe:]

I think the industry could be flat to modestly down in 2008. I think there is no doubt that pressures in certain sectors of the economy and clearly financial services are going to result in less activity in those sectors of the economy. And I think financial services aren't just an important part of our business, but they are important part of the overall industry's business. So I think it's likely that you will see down demand in some of those sectors this year. I think that in our case we've got a good chance of offsetting some of that, with initiatives we have in a whole range of other sectors, that are really going quite nicely from our international expansion, from our strong leadership in the government sector which continues to do well, our increased focus on education, healthcare and pharmaceutical. I think those are all areas where we see some nice project opportunity as we look at 2008 and some nice growth potential. So I think you will have, I think the risks are little more to the down side than to the upside right now.

[Pete Wahlstrom:]

Okay. Is there anything that you're seeing right now in the market that could get you incrementally more constructive outside of the items that you just mentioned?

[Barry McCabe:]

No, I think, if we saw, we've been in the process going through with all our regions kind of their outlook for the year. And I think the encouraging part is they all see a good pool of activity. But if you start breaking out geographically, and if you start breaking it out by customer segment, you do see real downside pressure in the financial service sector which I think is going to result in less demand for furniture in that sector. Again that said, we've got other sectors that we were really pleased to see the opportunities and the growth potential in, in 2008. So I think there is room to offset a lot of that, if not all of it, but it will, I think that sector will cause some challenge overall to the industry.

[Pete Wahlstrom:]

Okay.

[Andrew Cogan:]

The other thing we have, I will add is, is our specialty businesses which are less prone, if you will, to any of the sectors of the general economy.

[Pete Wahlstrom:]

Okay. And third quarter is, your seasonally strongest for specialty, correct?

[Barry McCabe:]

It usually is, yeah.

[Pete Wahlstrom:]

Okay. And I guess lastly, looking into international growth and potential for acquisition even there, are you looking more in terms of geographic expansion or you still focused primarily on Europe?

[Barry McCabe:]

Yeah. We are focused on both. In Europe clearly we had a terrific year in Europe last year. Great growth in Europe both on the top line. Great gross on the operating profit line. So, our team there has done a really good job. We are starting now to push out harder into the Middle East. We more than doubled our business there last year. We've got great opportunity and including some breakout opportunity there, this year we are opening a sales office in Dubai. We are adding more of our own sales people over there. We are broadening our distribution. And that's the region I think we can play very well in. So, we are very focused in that part of the world as well, as well as expanding our distribution outside of Europe, in eastern Europe, northern and southern Europe, Russia, market likes that where we think there is a very strong demand for our kind of products and that we can serve out of our factories in Europe and North America.

[Pete Wahlstrom:]

Okay. Do you have an internal timeline as to when you see those actually really moving the earnings needle? Or is it too early to tell at this point?

[Barry McCabe:]

Europe is already moving the earning needle. I mean, Europe doubled their operating profit, it was a meaningful increase. So, they have started to move it already. On the outside of Europe front, I think we are still in the investment phase. So, I think it's another year or two before we start to see real benefit on the operating profit line from that because we are still on the investment mode. But I am very excited about both the short-term and the long-term opportunities over there.

[Pete Wahlstrom:]

Okay. Thank you.

[Barry McCabe:]

Okay, thanks.

[Operator:]

Your next question comes from the line of Mr. Michael Rehaut with J.P. Morgan. Please proceed.

[Ray Huang:]

Hi, guys this is actually Ray Huang for Mike. Can you guys here me?

[Barry McCabe:]

Hi, Ray, yes, we can.

[Ray Huang:]

Hi, congratulation on a nice quarter. A couple of questions. You mentioned you got better pricing in the quarter. Can you remind me how many price increases you guys have had for the past year?

[Barry McCabe:]

We have one price increase in February of '06 and we saw some good realization from that and we have announced another increase effective the middle of this month of a comparable 4% to 5% amount. Again we wouldn't really expect to see a lot of benefit from that until the back half of '08. And I think that's one of the reasons why we were somewhat cautious on margin in the first half of the year on a year-over-year basis because I do think we are going have pressures both on the foreign exchange line and on the transportation line in particular in the first quarter and the first half of the year and until some of those additional price initiatives kick in. I wouldn’t expect the year-over-year margin improvement to the extent we've had it in the past.

[Ray Huang:]

Okay. So the February '06 one, it's not going to have too much of a positive impact?

[Barry McCabe:]

You will get a little bit of carryover, but I wouldn't expect a ton. I really think that the new increase is what we are counting on to drive price next year, this year I mean.

[Andrew Cogan:]

You will see some on the day-to-day business but not really on the project business.

[Ray Huang:]

Okay. Then I guess also on the margin, I guess SG&A is usually higher in the first half of the year because of the NeoCon, is that correct?

[Barry McCabe:]

Two things on, it's a little higher in the first half of the year, so we do get ready for NeoCon especially on new product kind of initiatives. And secondly, and I didn't say this with the Edelman acquisition where we have generally been 20% to 21% sort of a goal of SG&A will probably be closer to 21% to 22% on a go forward basis.

[Ray Huang:]

Okay. What's the SG&A on the Edelman?

[Barry McCabe:]

I am not going get into it outside of that again with their commission sales and others things will increase, as a percent, our SG&A.

[Ray Huang:]

Okay. And then just lastly, what percentage of your components cost are in force globally right now and how high could that actually get?

[Barry McCabe:]

We've said all long, we're still at around 16%, 17% kind of level. We believed we can get it upward to 33%.

[Ray Huang:]

Do you expect to do that by the end of the year, or?

[Barry McCabe:]

No, we expect to do that over time as in terms of quality, quantity and other factors, it takes a little longer than one year.

[Ray Huang:]

Okay, good. Thanks.

[Operator:]

(Operator Instructions). Our next question comes from the line of Chad Bolen. Please proceed.

[Chad Bolen:]

Good morning, Andrew. Good morning, Barry. This is Chad filling in for Budd. Couple of quick questions. Inventory was up sequentially and year-over-year. And did I hear you correct that the difference was essentially Edelman?

[Andrew Cogan:]

You didn't hear that, but that is essentially the reason why it is up.

[Chad Bolen:]

Okay. And obviously the December data from BIFMA saw a little bit of a slowdown versus say October and November. Could you give us a little bit of essence of the progression of business through the quarter for you guys and anything notably you're seeing in January?

[Andrew Cogan:]

Well, I mean, this is Andrew. We already get into the monthly stuff because the BIFMA stuff can really be all over the board. What I would say is we have a very strong December. So, we do not see what BIFMA stuff. But that said, I must say January was not a particularly strong month in terms of order entry pace. Now we've seen an improvement in February, but I do think January was another and not great month in terms of the industry performance.

[Chad Bolen:]

Okay.

[Andrew Cogan:]

That would be my guess.

[Chad Bolen:]

And Barry, would you be willing to, you gave us kind of the puts and takes on the gross margin improvement year-over-year. Would you be willing to kind of quantify or parse any of that for us as far as the contribution from volume, pricing versus foreign exchange.

[Barry McCabe:]

No, just to say that we have a lot of initiatives and they all contributed. And again really the only negative out there to some extent that was a headwind for us was the foreign exchange. Outside of that everything else was positive.

[Chad Bolen:]

All right. Thanks very much

[Operator:]

You have a follow-up question from the line of Mr. Matt McCall with BB&T Capital Markets. Please proceed.

[Matt McCall:]

Thank you. Barry, you provided a little bit detail on the impact of Edelman on the SG&A line. Do I remember, I think on the last call you talked about the profitability being comparable overall, I can't remember if it's EBIT or BITDA. What about the gross margin impact from Edelman, I'm assuming they'll have a little bit higher gross margins.

[Barry McCabe:]

Yes, that's correct. And we've said in the investor meetings and other stuff, that the specialty businesses from a gross margin standpoint generally contribute anywhere from 45% to 55%.

[Matt McCall:]

And Edelman is consistent with that. Okay. Thank you all.

[Operator:]

(Operator Instructions). At this time, we do not have any more questions in queue.

[Andrew Cogan:]

Great. Well, this is Andrew. I want to make a couple of closing comments and address somethings that may be weren't asked that we expected to be asked. One most clearly is people are assuming right now that we are heading into a 2001 to 2003 style recession. We clearly have seen that reflected in our stock price and in some of the comments and concerns. I just want to reiterate that obviously we can't forecast what the future holds, but I can tell you the company is fundamentally better positioned than we were back in 2000. When you go back to 2000, you can look and see that our office systems were close to 70% of our revenue mix and close to 70% of our gross margin mix. As we ended 2007, office systems were close to a little over 50% of our revenue mix and they were below 50% of our margin mix. So our strategy that we have been pursuing of really aggressively growing our complementary products with seating and storage, which are now 19%, up from 12% at the start of the decade. Our specialty products which we estimate this year will be closer to 22%, were 13% at the start of the decade. International, ex-North America was 7%. Today, it's 10%. So, we've really worked hard over the last four, five, six years to really diversify our revenue base and I feel we are in much stronger shape as a result of that. We have also worked very hard to diversify our customer base. We get much more business today day-to-day coming in from our dealers. We have really strengthened our day-to-day Knoll essential dealer marketing programs. We are doing a much better job in sectors from education to healthcare, accounting, legal, government, are all sectors which are a bigger part of our business today and all have very positive outlook than they were in 2000. So I think this is a fundamentally stronger company. We have moved our leveraged down. We have moved our debt down. So I think we have got a tremendously more liquidity and financial flexibility that we had going into the last downturn. So we are very optimistic that whatever the year brings, and I do think it will a year of challenge for the industry that we can continue to outperform on the top line and that our journey towards moving our margins higher is not depend on any one single action. But I think as you saw at the end of the year, is a result of a series of incremental actions which all I can do is promise you that our team is as dedicated to continue that method of continuous improvement in every single line of our spending as we have ever been. So, I want to thank you for your continued interest and wish everybody the best for 2008. Thank you.

[Operator:]

Thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect. Good day.