Interface, Inc.
Q4 2013 Earnings Call Transcript

Published: 20 Feb 2014

[Operator:]

Good day ladies and gentlemen and welcome to the Fourth Quarter 2013 Interface Incorporated Earnings Conference Call. My name is Benita and I will be your operator for today. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. David Foshee, Vice President. Please proceed.

[David Foshee:]

Thank you, operator. Good morning and welcome to Interface's Conference Call regarding fourth quarter 2013 results. Joining us from the Company are Dan Hendrix, Chairman and Chief Executive Officer; and Patrick Lynch, Senior 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 financial results. We will then open the call for Q&A. A copy of the earnings release can be downloaded off the Investor Relations section of Interface's website. An archived version of this conference call will also be available through that website. Before we begin the formal remarks, please note that during today's conference call Management's comments regarding Interface's business, which are not historical information, are forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements, including risks and uncertainties associated with the economic conditions in the commercial interiors industry, as well as the risks and uncertainties discussed under the heading Risk Factors in Item 1A of the Company's annual report on Form 10-K for the fiscal year ended December 30, 2012, which has been 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. Management's remarks during this call refer to certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most comparable GAAP measures contained in the Company's results release in Form 8-K filed with the SEC yesterday. These documents can be found on the Investor Relations portion of the Company's website, www.interfaceglobal.com. Lastly, please note that this call is being recorded and broadcasted for Interface. It contains copyrighted material and may not be rerecorded or rebroadcast without Interface's expressed permission. Your participation on the call confirms your consent to the Company's taping and broadcasting of it. Now, I'd like to turn the call over to Dan Hendrix. Please go ahead, sir.

[Dan Hendrix:]

Good morning everyone. The top line in the fourth quarter came in just ahead of last year, which is about what we expected at the time of our last conference call. The biggest news of the quarter was the progression in Europe where sales pulled even year over year in local currency and were up 4% as reported in U.S. dollars. It’s been eight quarters since we last reported a year-over-year sales increase in Europe, so this is welcome news and the continuation of improving trends we have seen over the last few quarters. The Americas business continued with a steady growth generally in line with the broader economy and we believe we are outperforming the commercial carpet industry in the U.S. The corporate office market was the biggest growth in dollars where the residential business had the highest percentage gain year-over-year followed by the hospitality segment. The residential growth was mostly driven by FLOR stores. We also had a nice increase in FLOR sales on the web. We now have a total of 21 FLOR stores open with same store sales up 44% during the fourth quarter. The aggregate on a standalone basis, the stores were breakeven in the fourth quarter and turned a small profit for the year. Our Asia Pacific business continued to feel the effects of last year’s fire in Australia as well as the softer macroeconomic conditions and currency impacts, with sales down 13% year-over-year. Pat will speak more about the currency impact in a little bit. The good news is that we closed our insurance claim related to the fire which resulted in a gain and we started up our new plant outside of Sydney in the first week of January. I'm very pleased with the expansion of our gross margin during the fourth quarter which is up 240 basis points year-over-year, a 40 basis point sequentially versus the third quarter. This improvement is a reflection of the progress in our lean manufacturing initiatives as well as streamlining our supply chain in Asia Pacific throughout the year. On this note, I should point out that we do expect some negative margin impact in our Asia Pacific business during the first part of 2014 as we ramp up our new plant in Australia and rebalance production among the three plants in the region. We expect margins to normalize by the third quarter. Our expansion of gross margin was partially offset by increased SG&A expenses as we enhanced our sales and marketing initiatives at FLOR and higher incentive based compensation. We believe that this increased expense will continue to yield sales growth and efficiency benefits. We are also keeping a close watch on SG&A in the early months of 2014, to keep them in check relative to our top line. I feel like we are on a solid footing as we begin 2014 with my main concern being the early year softness we have seen in the Asia Pacific business. Order activity in U.S. and Europe has been good but Australia has been soft in the first six weeks. And China also had a slow start due to the early Chinese new year holiday. Even in the U.S. we have had some setbacks from bad weather in the Midwest and East Coast. As you know, the first quarter is typically our seasonally lightest quarter. That being said, we still feel good about our prospects for the year. Leading indicators in the U.S. are moving in the right direction and project activity within the AB [ph] community has been firming up nicely. While we expect the pace of the economic recovery in the U.S. to remain gradual but modest during the year we believe that we have upside to take share and outperform the rest of the industry. Like most retailer stores that are affected by weather during the first six weeks of the year, with stores in warm weather cities doing much better compared to stores in cold weather cities. We remain focused on balancing sales growth and achieving profitability at the FLOR during the year. The outlook for Europe has brightened over the past six months with consistent evidence that its economic downturn is subsiding, with France being the exception as it trails the rest of the region. We see very good order activity in the UK, Germany, and Holland and we expect this trend to continue throughout the year. In Australia, the overall market is soft in the early going but I do think we are poised to regain market share, as delivery times and service levels significantly improve with the ramp up of the new plant. The prospects for the rest of Asia are mixed bag with our success to be determined by our ability to improve service level, regain market share, rebalance production among our facilities, penetrate non-office segments and lead in design and sustainability. We also need to see how the civil unrest in Thailand plays out. As earlier said, we will keep a close watch on SG&A. We will be looking to grow our current SG&A level as the year progresses. But I also will not hesitate to stringently tighten up these expenses if our top line doesn’t grow as expected. I will now turn over to Patrick for some financial highlights.

[Patrick Lynch:]

Thank you and good morning everyone. I will now take a few minutes to walk through the financial highlights for the fourth quarter. Sales for the fourth quarter of 2013 were up slightly to $251.7 million compared with $249.6 million in the fourth quarter 2012. On a consolidated basis, there was not a significant currency impact for the quarter. So we are very much encouraged by the continued expansion of gross margin in 2013. We saw an improvement of gross margin of 240 basis points to 36.5% versus 34.1% in the fourth quarter of 2012 and a sequential improvement of 40 basis points versus the third quarter of 2013. We attribute this improved performance to continued implementation of our lean manufacturing initiatives worldwide and streamlining of our supply chain in the Asia-Pacific region. Our material prices were effectively flat in the fourth quarter of 2013 versus the same period in 2012. While we are anticipating gross margin headwinds with the realignment of our manufacturing activities in Asia-Pacific region in the first quarter, we are excited about the impact of a newly commissioned facility will have in our operations as we continue throughout 2014. In the Americas we saw sales increased approximately 3% largely due to the strength of the corporate office market and residential market segments. We stand at 21 FLOR stores now and we continue to see healthy sales growth in that business. The remainder of our market segments in the Americas remained relatively flat year-over-year with the exception of a decline in the education segment. As Dan mentioned, we’re optimistic about the prospects in Europe over the results of the fourth quarter. Sales were essentially flat in local currency and up 4% in US dollars. We saw the majority of the increase in Europe in our corporate office segment and we also experienced gross margin and operating increase versus the fourth quarter of 2012. Turning to the Asia-Pacific region, we experienced decline in sales of approximately 13% due largely to Australia, which experienced a US dollar decline of 18%. Currency was the significant factor as the sales decline in Australia was only 7%. We also experienced smaller declines across South-East Asia and China. The decline in Asia-Pacific was primarily within the corporate office segment which provides the majority of its net sales. We did see some strong sales performance however in the retail and government market segments. Despite the top line decline we still generated respectable profits in the region and believe there’s plenty of organic growth and share gains to be realized. As previously discussed, we recently commissioned our new plant in Australia and once the manufacturing picture has been rebalanced we look forward to strong contributions from this new facility. On the topic of Australia, we’re pleased to have settled our insurance claim related to the fire, received a final payment of $22.3 million from our insurer in December of 2013 bringing the total cash proceeds from the claim received during 2012 and 2013 to $76.7 million. The $7 million gain we recorded in the fourth quarter represents the excess cash received or the amount we have recorded as receivable with regard to this claim. In the fourth quarter of 2013, SG&A increased to $66.8 million from $63.2 million last year. As a percentage of sales, SG&A increased 230 basis points to 26.6%, compared with 25.3% a year ago. These increases are due to our continued selling and marketing initiatives centered on our growth areas namely FLOR stores and sales personnel additions. We believe these investments will continue to yield top-line growth in future periods. We also saw increased incentive compensation cost compared with the prior period. We continue to keep a sharp focus on SG&A expenses and generally limit spending in areas with a significant return. Operating income in the fourth quarter 2013 was $32 million or 12.7% of sales. This includes a gain of $7 million on the settlement of our fire insurance. Excluding this gain, operating income was $25 million or 10% of sales. This compares with operating income of 2012 fourth quarter of $21.9 million or 8.8% of sales excluding the charges of $2.3 million related to restructuring expenses. Interest expense in the fourth quarter of 2013 was $5.4 million, compared with $5.9 million in fourth quarter 2012. Depreciation and amortization was $8.9 million in the fourth quarter of 2013 compared with $7.6 million in the fourth quarter of 2012. Turning to the balance sheet, we exited the quarter with $72.9 million, compared with $90.5 million at the end of 2012. Inventories were $149.6 million at the end of 2013, compared with $141.2 million at the end of 2012. With that, I'll open up the call for questions. Operator?

[Operator:]

(Operator Instructions). Your first question comes from the line of Mike Wood with Macquarie. Please proceed.

[Unidentified Analyst:]

Thanks for taking my call. It’s Ed [ph] in for Mike. Just a question on the Asia rebalancing impact on gross margins. Do you still expect about a 50 basis point impact in the first half?

[Patrick Lynch:]

In the first quarter we do, yes. We still expect gross margins to be up year-over-year in Q1, but the Australia startup will probably have a 50 basis point drag against really kind of where we will be as we start up the facility.

[Unidentified Analyst:]

Okay, great. And then how many stores you guys expect to open in 2014 for FLOR?

[Dan Hendrix:]

We’ve identified several locations. We probably have a couple that we will open this year, probably similar to last year. That will be in the back half of the year.

[Operator:]

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

[Keith Hughes:]

Two questions. One, what did you end up doing in revenue at FLOR during the year? I believe you said you made a little bit of, I guess, a cash profit in the year. And then number two, on the orders so far in Asia being weak, is there any way you can parse out how much the Chinese New Year, how much is just weakness in the region?

[Patrick Lynch:]

Last year, total sales for FLOR were right around $46 million for the full year and we did have an operating loss for the full year of about $3 million for the full year in that division. Asia, generally it’s been soft from the getgo for most of the quarter. Chinese New Year was a little bit earlier this year than last year, but still through the first seven weeks this year versus the first seven weeks last year, the Chinese New Year has fallen in both periods. So I think it’s mostly around just kind of the general economic conditions across Asia right now.

[Operator:]

Your next question comes from the line of Jose Borstein with Longbow Research. Please proceed.

[Josh Borstein:]

You had mentioned your intention to keep SG&A in check in 2014. I was just curious, as a percentage of sales what might that entail for the full year?

[Dan Hendrix:]

Well our goal is obviously to drive at more of 25%. We have an issue in Europe where it’s over 30%. We need to grow into that. We had not made a decision to restructure Europe but to allow the rebound in Europe and so we need to grow into that. And the other issue we have is FLOR as a very high SG&A. We need to grow into that as well.

[Josh Borstein:]

And just looking at the Asia Pacific region, as we know [ph] the top line this year what factors should we take into consideration that might be above and beyond what we think is the industry growth rate? I am thinking specifically of capacity that might be available this year that is freed up from the Australia plant coming online

[Dan Hendrix:]

There’s -- definitely we have service levels had gone from 10 to 12 weeks back down to 3 to 4 weeks. So we do have the capacity to take orders in that region. But we have to go out and regain share in Australia. That’s the biggest challenge that we have and I think Australia generally has a pretty weak economy going on today. I expect that other parts of Asia to grow throughout the year. If you look back I would expect that China and Asia will grow and the biggest question I had is Australia regaining share there and the economic conditions in that region.

[Josh Borstein:]

Will you have additional capacity outside Australia now that the capacity utilization rates they measured are coming down and some of the plants that were formally servicing Australia?

[Dan Hendrix:]

Yeah. If you look at Thailand, we obviously were servicing most of Australia’s business from Thailand, we run it 7 days 24x7. We are now running that plant 5 days. So you have excess capacity in Thailand, you also have excess capacity in China.

[Josh Borstein:]

Okay. And just for a modelling perspective, what should we be modelling for interest expense for the full year in 2014?

[Patrick Lynch:]

Probably around $21 million, $22 million for the full year.

[Josh Borstein:]

And then if I can just sneak one more in. I'm just curious what you've seen lately in terms of modular carpet formats. Has the proportion of square versus rectangular versus plank formats changed at all recently? And what might that say about trends that you're currently seeing?

[Dan Hendrix:]

I would say that one of the biggest growth areas that we’ve seen related to the shape is in the skinny planks, that’s increasing significantly particularly in the US. So I think the plank format will grow for us as a platform that we think is it really changes the look of the square, the carpet tile. So I think the plank category is going to be a significant category for us going forward.

[Josh Borstein:]

Are those going into any particular right markets or is it pretty varied?

[Dan Hendrix:]

It’s pretty varied. Hospitality plays really well in hospitality.

[Josh Borstein:]

Okay. Is there any margin difference profile between the formats?

[Dan Hendrix:]

No. Planks, we are actually charging little bit more for planks to keep the same margin profile.

[Operator:]

Your next question comes from the line of Stephen Kim with Barclays. Please proceed.

[Stephen Kim:]

Thanks very much. Guys, I wanted to ask you a little bit about the orders. It looks like in the first three month -- three quarters of last year orders were generally flattish, it was up very slightly, and then in the fourth quarter looks like they are up pretty nicely, I think you have 10%. Just curious as to if you could comment a little bit about that, and particularly if there's anything unusual, in that number that may make the increase look more promising than maybe you feel about it.

[Patrick Lynch:]

Well I mean, yeah, I mean you’re right. We did have year-over-year, we were flat to the first three quarters and the fourth quarter was up 10%, largely driven by our European business which was up 15%. The U.S. business and Americas business was up 11. Still headwinds in Asia-Pacific started in Q4. But the comps in the fourth quarter last year was 230 million which was probably a pretty weak quarter last year, so the comp looks a little bit better this year, in Q4 versus last year.

[Stephen Kim:]

And if we were to look at that, the order increase, can you give us a sense for maybe how it trended by month and also, can you talk about whether or not there was any impact or benefit from the Australian plant sort of getting back up and running?

[Dan Hendrix:]

Yeah, none of that really impacted the order trend. The Australia facility didn’t – wasn’t commissioned until early part of January here in 2014. But the trend through the quarter, October was up 12%, November was up 6, and then December was up 14%. A little choppy there in Q4.

[Stephen Kim:]

Yeah, okay. That’s helpful. And then if we could talk a little bit about the gross margin, which exceeded our expectations. Was curious if you could talk a little bit about maybe what you thought some of the puts and takes were on the gross margin side. You mentioned the lean initiative and the productivity initiatives which you’ve been working on. But I wanted to see if you could maybe break that out for us a little bit in terms of like what the components were and then also on gross margin, you talked about being weaker in the first quarter particularly and I think first half of next year. If you could maybe be a little more specific about what you think that could be.

[Dan Hendrix:]

Yeah, it’s difficult to parse out the gross margin impact of what lean in particular versus just kind of our continued process improvement in gross margin expansion in the fourth quarter in particular. I mean it was the continuation of the general efforts that we’ve had ongoing now for probably like the better part of the last two years. The only highlight that I might identify really in Q4 was some risk that we have been expecting across our European division which has our highest incremental contribution margins with some decent top line numbers. We start to see a decent amount of lift of gross margin expansion in that particular division. So couple that top line improvement, coupled with the lean initiatives that we’ve had ongoing really led to most of the gross margin improvement. As it relates to Q1 and the headwinds, yeah, rebalancing that facility probably as we’ve identified is about a 50 basis point drag versus where we think we ought to be when it gets up to normalized production levels. However, we still think that gross margin on a consolidated basis should be up on a year-over-year basis as a group, but just not up to the level we will be at once we get up to full production levels.

[Stephen Kim:]

Okay, that’s helpful. Thanks very much. And then one last question, if I could about the SG&A. I think in the past you sort of talked about in generalized terms we should be thinking about SG&A on a kind of a 10% incremental basis. Was curious if you could talk a little bit about – did we hear that right? Is that kind of where you think the long-term SG&A profile is and maybe talk about anything that may have influenced recent results there.

[Dan Hendrix:]

Yeah, I’m not sure about the 10%. Steve, I’m not sure how that translates.

[Stephen Kim:]

Yeah, maybe we misheard it, but our sense was that in general, long term, if we think about growth in top line that we could generally expect the SG&A to grow on a 10% kind of rate incrementally. Maybe we misheard that, but if we did…

[Dan Hendrix:]

My overall objective is to drive SG&A closer to the 23% with the growth. We got to that sort of those levels in 2008 where we saw that growth. If we can get to the double-digit growth that we expect, we’ll see the rebound in Europe and the U.S. then we’ll drive SG&A down.

[Stephen Kim:]

Okay, that’s very helpful.

[Dan Hendrix:]

There’s a lot of leverage in the SG&A line for growth, particularly in Europe.

[Operator:]

Your next question comes from the line of Kathryn Thompson with Thompson. Please proceed.

[Kathryn Thompson:]

Hi, thanks for taking my questions today. A two part question, first is focusing on the Americas in particular your U.S. results which really don’t support the feedback from the industry that we have received throughout the quarter. And was curious if you could give a little bit more clarity on what trends were intra-quarter in the U.S. and what are you seeing early into 2014? I know that weather can be a impact for manufacturing but it shouldn’t have to do with the main impact for orders, but at least with the check if we don’t. So basically more clarity on your U.S. business in the quarter.

[Dan Hendrix:]

Can you clarify what piece of it doesn’t reconcile with your –

[Kathryn Thompson:]

It’s just the volume – yeah, the volume trends are a little lighter than what we would have expected.

[Dan Hendrix:]

Okay. Well, I mean we did identify in the last conference call that we did have some softness in our order pattern in August-September timeframe which led to the softness in our Q4 business in the Americas from a top line perspective. If you want to drill down into kind of the order pattern in particular in Q4, October was up 6% in orders, November was up 15% in orders and then December was up right at 10%. So for the full quarter, they were up 11% in the order pattern. But we weren’t terribly surprised by the top line performance of the Americas business due to what we had flagged earlier on the softness in the orders in August and September.

[Patrick Lynch:]

And Kathryn, if you look at the commercial market overall in the fourth quarter, it was pretty flat from an industry standpoint. I’m not sure your channel checks where that’s coming from.

[Kathryn Thompson:]

Yeah, no, it’s really more on the flooring side, but helpful. In power, how has weather impacted your order trends, the drought?

[Dan Hendrix:]

Well we’ve lost 10 selling days in the hot weather in the East Coast and the Midwest with our sales force and we’ve actually had our plant shut down with rains for 5 days. So we’ve had a negative impact related to selling as well as production.

[Kathryn Thompson:]

Sure.

[Dan Hendrix:]

But despite that, in the first seven weeks, the Americas business is up 6% through the first seven weeks in orders, so haven’t fallen off altogether, it’s hanging around mid single digits kind of order pattern.

[Kathryn Thompson:]

Okay, that’s helpful. And then finally, if you could discuss just how you’re managing around rising energy costs and just clarifying what percent of cost of goods sold is related to energy, both when you think about your raw materials and the energy that’s used to run the plants?

[Dan Hendrix:]

Sure. Our energy consumption from a manufacturing perspective is not significant. We’ve done a lot over the last 10 or 15 years to lessen our dependence on our energy input costs and have found alternatives. So from a manufacturing perspective, our total cost of sales of energy is probably less than 10%. What is the exposure is the embedded energy related to our nylon, our raw material inputs. To date, we haven’t seen any price increases. I’m aware of one that’s been done I believe on nylon 6 in other parts of the industry hasn’t impacted us currently. But again, we haven’t had a price increase now in almost two years in raw materials. So we’ve done a good job over the past 10 or 15 years managing around our energy consumption from a manufacturing perspective and we are cognizant of the – some of the inputs into our raw material costs are trending. But at this time, we don’t have a raw material price increase coming through.

[Kathryn Thompson:]

Okay, and just a final question. Do you hedge your energy?

[Dan Hendrix:]

We do not.

[Kathryn Thompson:]

Okay. Great. Thank you so much.

[Dan Hendrix:]

Thank you.

[Operator:]

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

[Sam Darkatsh:]

Good morning Dan, good morning Patrick, how are you?

[Dan Hendrix:]

Hey Sam.

[Patrick Lynch:]

Hey Sam.

[Sam Darkatsh:]

Most of my questions have been asked and answered. But my math back of the envelope Patrick, it looks like incremental margins this year should be somewhere around 20% or so and I’m guessing in the out years it should be something similar. Am I far off on that?

[Dan Hendrix:]

No, that’s generally where we try internally to build our businesses around.

[Sam Darkatsh:]

Okay, thank you. And then the inventory levels looked a little high. Is that accurate? Where is it and I know a lot of us understand that you have a largely a make to order model. So how do you look at that inventory with a make to order model?

[Dan Hendrix:]

Sure. Inventory in Q4 was a little high. We tried to bring down production levels consistent with kind of the demand levels and came up a little bit short in Q4. Anticipate normalizing production levels headed into 2014 and for the full year, it should be a relatively small use of cash, if any, on the inventory level for the full year.

[Sam Darkatsh:]

So bringing production down a little bit in Q1 and then normalizing in Q2 and then going forward?

[Dan Hendrix:]

Well I mean production levels will be up on a year-over-year basis and production will be up sequentially Q1 through – versus Q4 which is generally pretty soft. So when we kind of ramped through the first half of the year, and then bring it down in the back half of the year. But I would imagine based on the demand level that our production levels will be higher in Q1 2014 versus Q1 2013. But for the full year, our inventories will hopefully be flat, if not just up slightly, slight use of cash for the full year.

[Sam Darkatsh:]

Very good, very helpful. Thank you much.

[Dan Hendrix:]

Thank you.

[Patrick Lynch:]

Thank you.

[Operator:]

Your next question comes from the line of Philip Volpicelli with Deutsche Bank. Please proceed.

[Philip Volpicelli:]

Good morning. I just wanted to look at the composition of your balance sheet. I believe in November that the 11-3/8% notes were mature – did you retire those?

[Dan Hendrix:]

Yes.

[Philip Volpicelli:]

And then obviously you took out – okay, and that’s why you have the revolver borrowings of about 26.3 million at the end of the year?

[Dan Hendrix:]

Yeah, there was a final -- of about $8 million that we addressed earlier in 2013. But then we also did a repayment on our 7-5/8% senior notes, taking advantage of some call protection that we had and redeemed that and effectively moved that $25 million of borrowing under our global credit facility, saving about 300 basis points, 350 basis points and getting some local borrowings and local jurisdictions for tax efficiency.

[Philip Volpicelli:]

Yeah, great. And so what is the availability as of the end of the year on the revolving credit facility?

[Dan Hendrix:]

It’s somewhere in the $150 million-$175 million range.

[Philip Volpicelli:]

Okay, you expanded it?

[Dan Hendrix:]

That’s right.

[Philip Volpicelli:]

And then is the plan, the remainder of the 7-5/8% are callable at the end of 2014, is the plan to call those and then refinance them with the accordion feature on the revolver?

[Dan Hendrix:]

That’s certainly a possibility. We’re looking at all options right now but that is certainly one of the scenarios. We haven’t made our final decision on that yet.

[Philip Volpicelli:]

Okay, last one from me. CapEx in the fourth quarter and then CapEx expectations for 2014?

[Dan Hendrix:]

Yeah, CapEx in Q4 was high, it was little over $40 million but that was 26 million of that related to the manufacturing facility that we purchased in Australia. And I would say CapEx for 2014 will be in the $40 million to $45 million range.

[Philip Volpicelli:]

Great. Thank you very much.

[Dan Hendrix:]

Thank you.

[Operator:]

Your next question is a follow up from the line of Josh Borstein with Longbow Research. Please proceed.

[Josh Borstein:]

Hi, you had mentioned in the non-corporate office was generally flat. Does that include hospitality as well?

[Dan Hendrix:]

Yes. The hospitality business was actually up. We’re getting hurt in the government side of that business.

[Josh Borstein:]

Okay, and then on the GSA side, because I know you had been making inroads. Is it more a matter of just lapping difficult comps or was there something else going on in the quarter?

[Dan Hendrix:]

I’m not aware of any particular difficult comps in the quarter.

[Josh Borstein:]

Okay. And then just a last one, you had talked about expanding production in the U.S., is that still the plan and what kind of capital might that require?

[Dan Hendrix:]

Sure. I mean we’re always looking at opportunities to expand. Right now we -- plans have not been finalized on that but when and if we decide to do that, it could be an incremental $25 million or $30 million in CapEx, only a small portion of that is currently contemplated in the 2014 CapEx requirements in the $40 million to $45 million that I just referenced. But we have not authorized a full-scale increase in manufacturing capacity in our Americas business yet.

[Operator:]

And at this time we have no further questions. I would now like to turn the call back over to Mr. Dan Hendrix for any closing remarks.

[Dan Hendrix:]

Well, thank for listening to our conference call. And I will speak to you next quarter.

[Operator:]

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.