Leggett & Platt, Incorporated (LEG) Q2 2015 Earnings Report, Transcript and Summary

Welcome to the Leggett & Platt Second Quarter 2015 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Dave DeSonier, Senior Vice President of Strategy and Investor Relations. Thank you. You may begin.

Good morning and thank you for taking part in Leggett & Platt's second quarter conference call. With me this morning are the following; Dave Haffner, our Board Chair and CEO; Karl Glassman, who is President and Chief Operating Officer; Matt Flanigan, our Executive VP and CFO; and Susan McCoy, our VP of Investor Relations. The agenda for the call this morning is as follows. Dave Haffner will start with a summary of the major statements we made in yesterday's press release. Karl Glassman will provide segment highlights. Matt Flanigan will discuss financial details and address our outlook for 2015. Finally, the group will answer any questions that you have. Dennis Park, who is Senior VP of the company and President of the Commercial Products segment, is also joining us this morning to participate in the Q&A. This conference is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed or recorded or broadcast without our express permission. A replay is available from the IR portion of Leggett's website. We posted to the IR portion of the website a set of PowerPoint slides that contain summary financial information along with segment details. Those slides supplement the information we discuss on this call, including non-GAAP reconciliations. I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties and the company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the section in our 10-K entitled forward-looking statements. I will now turn the call over to Dave Haffner.

Thank you, Dave. Good morning and thank you for participating in our call. Yesterday we reported record second quarter results from continuing operations and are very pleased to have extended our string of strong quarterly results that began in the second quarter of last year. Sales increased 4% in the quarter. Higher unit volume and acquisitions added 9% to year-over-year sales growth. These gains were partially offset by raw-material-related price decreases and currency translation impact which combined reduced sales by 5%. We continue to benefit from the shift in bedding to comfort core springs, new adjustable bed programs that ramped up last year and ongoing content gains and new program awards in automotive. Importantly, nearly all of our businesses experienced volume growth in the quarter versus strong prior-year comparisons with sales having grown 9% in the second quarter of last year. Earnings per share from continuing operations were also a second quarter record at $0.53 per share, up 10% from the $0.48 per share we earned in the second quarter of 2014. Earnings benefited primarily from higher unit volumes and pricing discipline, partially offset by a higher effective tax rate. EBIT increased 17% and EBIT margin improved to 12%, up 130 basis points over second quarter last year. This was the highest quarterly margin that we've achieved in 15 years and reflects the improvements that we have made to our business portfolio and cost structure, as well as the strong market positions of our current businesses. Since the recession in 2009, we have spoken about the earnings leverage from incremental volume produced, utilizing excess capacity. With market share gains and higher market demand, our capacity utilization has increased. The margin improvement that we have realized over the past few years reflects, in part, that higher utilization. We still have available capacity to accommodate additional volume in many of our businesses, but there's less today than just a few quarters ago. In certain of our businesses and product lines we have little to no capacity left and we're investing meaningful capital dollars to support continued growth. In automotive, we're expanding capacity to support new programs that will begin production in 2016 and later years. In bedding, we're investing rapidly in equipment that we build in our own Swiss operation to support the tremendous growth in comfort core which we expect to continue for the next few years. In Adjustable Bed which operated a single large location just a year ago, we're adding new locations to broaden our geographic scope and expect to be operating four facilities in North America by the end of this year. We're very pleased to be making these investments, since they are directly associated with our expectation for continued meaningful growth in some of our strongest-performing businesses. We assess our overall performance by comparing our total shareholder return to that of peer companies on a rolling three-year basis. Our target is to achieve TSR in the top one-third of the S&P 500 over the long term which we believe will require an average TSR of 12% to 15% per year. For the three-year period ended on December 31, 2015, we have so far generated compound annual TSR of 31% per year which places us in the top 20% of the S&P 500. Now I will turn the call over to Karl Glassman.

Thank you, Dave and good morning. Most of our businesses continued to perform extremely well during the second quarter. In the Residential Furnishings segment, second quarter total sales increased 10%. Same-location sales increased 3% with 7% unit volume growth, partially offset by raw-material-related price decreases and currency translation impact. Sales trends for the major businesses and product categories, excluding acquisitions, deflation and currency, were as follows. U.S. Spring component dollar sales increased 15%. Innerspring unit volume grew 17%, with comfort core up 71% during the quarter. Box spring unit volume increased 7%. International Spring sales grew 6%. Furniture component sales increased 2%, with sales in the seating and sofa sleeper businesses up 6% and motion hardware unit volume up 2%. Sales also increased in Fabric Converting and Geo Components, while volume was down slightly in Carpet Cushion. Segment EBIT increased slightly in the quarter, but EBIT margin declined with the benefit from higher unit volume largely offset by other factors, including increased performance-based compensation expense. EBIT margin also reflects the impact of higher Adjustable Bed pass-through sales and acquired facilities, both of which have lower-than-segment average margins. In the Commercial Product segment, second quarter total sales increased 28%. Same-location sales increased 18%, primarily from continued strong demand in Adjustable Bed. Unit volume in that business increased 81% during the quarter. Fashion Bed sales grew 12%. Work Furniture same-location sales decreased 5% in the second quarter, reflecting currency translation impact, lower volume in our Chinese operation and a less favorable product mix. Unit volume in North America was up slightly. In early March we acquired a European private-label manufacturer of high-end upholstered furniture for office, commercial and other settings. This business is complementary to our North American private-label operation and allows us to support our Work Furniture customers as they expand globally. This acquisition added 10% to the segment's sales growth during the second quarter. The segment's EBIT and EBIT margin increased in the second quarter, primarily due to higher sales. As Dave mentioned, we're rapidly expanding production capacity in our Adjustable Bed business to support continued strong demand in that category. In the Industrial Materials segment, second quarter sales decreased 9%, entirely from steel-related price reductions. Unit volumes were roughly flat with growth in Drawn Wire driven by strong bedding demand, offset by lower trade sales from our rod mill. A soft, softer steel market and scheduled equipment upgrades at the rod mill resulted in fewer trade shipments, as was expected during versus the second quarter of last year. EBIT and EBIT margin increased significantly during the quarter, primarily due to cost reductions and pricing disciplines. In the Specialized Product segment, second quarter sales were flat with an approximate 5% volume improvement offset by currency translation impact. Excluding currency changes, Automotive sales increased 11%, Aerospace sales grew 10% and Machinery sales were up 13% during the quarter. These sales gains were partially offset by very soft demand in CVP, with second quarter volume in that business down 20%, largely due to an industry change related to marketing programs for four commercial vehicles. The segment's EBIT and EBIT margin grew slightly with the benefit from higher volume largely offset by increased performance-based compensation expense and several smaller factors. I will now turn the call over to Matt Flanigan, who will discuss some additional financial details along with our outlook for the full year.

Thanks, Karl and good morning, everyone. Consistent with our normal seasonality and our internal forecast, operating cash flow in the second quarter was $95 million, down slightly from the same quarter last year. For the six months of the year, operating cash flow increased $44 million or 52%, to $127 million, due to higher earnings and a smaller increase in working capital which was primarily related to accounts receivable. Adjusted working capital as a percentage of sales was 9.9% at the end of the second quarter. Excluding the foam litigation accruals which are included in current liabilities, working capital was a more seasonally normal 11.6% of annualized sales. In May, we declared a quarterly dividend of $0.31 per share. 2015 marks our 44th consecutive annual dividend increase at a compound annual growth rate of 13%. At yesterday's closing price of $50.22, the current yield is 2.5%. We repurchased 1.2 million shares of our stock in the second quarter at an average price of $48.04 and issued 200,000 shares, largely for employee benefit plans and option exercises. Our financial base remains very strong and this gives us considerable flexibility when making capital and investment decisions. We ended the quarter with net debt to net capital at 36%, comfortably within our long-standing targeted range of 30% to 40%. We also monitor debt to EBITDA which is another typical financial metric and at the end of the second quarter debt was 1.9 times our trailing 12 months adjusted EBITDA. For the full year 2015, we continue to expect strong unit volume growth and margin improvement which should lead to another year of record earnings per share from continuing operations. As we announced yesterday, we increased our guidance and now anticipate 2015 earnings from continuing operations of $2 to $2.15 per share. Our prior EPS range was $1.95 to $2.10. We also increased the low-end of our prior sales guidance and now expect full year sales of $3.95 billion to $4.1 billion. This revised sales range represents a 4% to 8% increase over 2014 and includes an approximate 5% impact from raw-material-related price deflation and currency translation. Based upon this guidance, we now anticipate a full year EBIT margin between 11.3% and 11.6% which would be our highest EBIT margin level since the year 2000. We again expect operating cash flow to exceed $350 million in 2015. Dividend should require about $170 million of cash and capital expenditures should approximate $120 million for the year. As has been our practice, after funding dividends and capital expenditures, remaining cash flow will be prioritized toward competitively advantaged acquisitions. Potential acquisitions must meet stringent, strategic and financial criteria. Should no acquisitions come to fruition and if excess cash flow is available, we have a standing authorization from the Board to repurchase up to 10 million shares each year. No specific repurchase commitment or timetable has been established. However, we currently expect to repurchase between 3 million and 5 million shares in 2015 and issue approximately 2.5 million shares, primarily for employee benefit plans and option exercises. With those comments, I'll now turn the call back over to Dave Haffner.

Thanks, Matt. As I mentioned last quarter, we believe 2015 will be a very noteworthy year and the second quarter results certainly support that belief. Our teams are finding ways to gain market share and content and improve efficiencies by critically controlling throughput, quality and cost. We're listening carefully to our customers and are dedicated to developing and manufacturing what they need, while delivering when and where they need it. We continue to be excited about the benefits our shareholders have recently experienced and those that lie ahead. Thanks to all for participating in our discussion today and I will now turn the call back over to Dave DeSonier.

That concludes our prepared remarks. We thank you for your attention and we will be glad to answer your questions. In order to allow everyone an opportunity to participate, we request that you ask only one question and then yield to the next participant. If you have additional questions, you are welcome to reenter the queue and we will answer those questions as well. Jessi, we're ready to begin the Q&A.

[Operator Instructions]. Our first question comes from the line of Keith Hughes with SunTrust. Please proceed with your question.

First question on the steel deflation, where are you in the cycle of that? Your guidance would imply that things are about to get better, but any details of what you think is coming in the future would help.

Our forecast has changed a little bit in the last 30 days. 30 days we would've told you that based on about a $15 a ton inflation in scrap from April through May, that we would see continued price reinflation. In the market there was a $15 to $25 a ton increase in wire and rod announced for June 1 and then another $25 for July 1. And actually, from a market perspective, there's probably $40 of those increases were obtained. Now the current forecast, based on some softening prices in iron ore which is highly correlated to scrap or I should say vice versa, scrap is highly correlated to iron ore pricing -- that we expect some scrap deflation in August probably in the range of $15 a ton. So I thought we were at bottom of deflationary cycle; starting to see some recovery. That doesn't look to be the case. All that commentary was on long products. On flat products, we believe that we will see another maybe 10% deflation during the third quarter as compared to second quarter, though we're uncertain.

Okay. If we see the deflation in scrap on both sides, will we see some of those increases come down or will there be a spread there for you to maintain for a period of time?

Once we stabilize, the spread will be enhanced. Once we reinflate, there will be a little bit of a lag in our ability then to pass through. There's always an ability to retain deflation on the downside and then a little bit of slowness in recovery on the upside. But if there is a period of steady-state, we will see a reinflation of our spread at the raw material level. Now I will complement our people. They've done a wonderful job at the wire and the component level of holding on to that pricing and showing really significant pricing discipline.

Second question, shifting to adjustables. I think you had said you have four facilities now or you will have four facilities in the future. Just an update on capacity there.

We currently have three facilities, two of which have been added since the first of the year. The fourth facility that is mentioned in the release will be online by the fourth quarter and all four units will be fully operational by year-end.

The driver for filling up that capacity; is that going to be primarily new customer wins for your adjustable products or will it just be growth of the existing base?

Combination of both, but we're continuing to see new customers come on board in 2015. We have just recently signed two major programs in the last 60 days, so it's really being driven by both.

Your new program wins, are they coming at the higher end of your price spectrum or the lower end of your price spectrum?

I would say that, again, both, but probably would see a little more on the lower end from a price standpoint, because we're seeing an increase there in terms of the attachment rate on the more middle price point programs.

When you say low middle, can you kind of translate that roughly to a retail price point in round numbers?

Well, the primary activity continues to be in that $1699 price point, so if you went down to that next level it would be growth in that $1200 to $1400 price level.

The next question is coming from the line of Josh Borstein with Longbow Research. Please proceed with your question.

Just a question, Karl, on the innerspring unit growth, the 17%, that's the highest I can find in my model, so great quarter there. Can you give a little sense of how that trended during the quarter and maybe what you guys are seeing so far in the business or here in the third quarter?

Josh, I would be happy to. April we were up 22%; May was up 14%; June was up 15%, so that is an aggregation of the 17%. To date, through the first three shipping weeks of July, we're up 9%. We feel good about those trends. We continue to pick up some market share and, fortunately, the market demand is very robust.

You had mentioned some market share gains. Just how do you feel about the underlying consumer right now? Certainly speaks to maybe some greater confidence on there. Was that what you see?

Yes, Josh, as we've spoke in the past, bedding is primarily driven by a competent consumer. So job formations, wage inflation, all of those things, because of the replacement nature of the product, while all of those macroeconomic statistics are choppy, they are all trending in the right direction. So it is highly correlated to consumer confidence, somewhat assisted by housing moves.

Our next question is coming from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Perhaps just if you could update us on where estimated penetration is of comfort core is today and how high you expect that or you think that can go over the next several years.

At the end of the first quarter it was 25% of our total U.S. mattress unit sales. At the end of the second quarter it was 28%. I believe we will be at a 30% or greater run rate by the end of the year. I certainly think that the market has capacity for the mid-30%s as a core itself, but there is also upward demand in toppers using micro coils as a replacement for foams. It gives the consumer the benefit of reduced body impression. So, we're not near the end of the growth potential for that category.

And given the expectations of your capacity builds across multiple lines, should we expect a flattening or perhaps modest step back in margins over the next few quarters or will that capacity build be entirely in the CapEx line?

The product is a high-margin product; significantly higher margin than the product that it replaces. The margin in dollars and as a percentage are better than the product that it replaces. But to your point, we're adding capacity. I don't see the margin profile changing in that business, there's just too much demand. The machines come online very, very quickly. Our people are wonderfully talented at innovation around that category that allows us and the mattress manufacturer and the retailer to differentiate themselves. So we feel very good about the margin profiles as they exist today and expect long-term expansion.

And other fixed costs that aren't depreciation are more -- are absorbed over a broader base which certainly helps maintain or improve that margin, as Karl said.

Lastly and I will jump out. You continue to take share in auto obviously, but just talk more generally about the trends you are seeing. We're seeing sort of into the summer months very mixed trends by geography. Any data points or observations you can provide would be very helpful.

Dan, it's important, I wouldn't say that we're gaining share, because our shares are large. What we're gaining is content within each vehicle. It's not that we're selling into more OEMs or more platforms; it's just those platforms are more robust from a content perspective. Demand is good. North American demand continues to be strong. Read a study last night that the average passenger vehicle is on the road in North America for 11.5 years which begs replacement. So the demand trends are expected to continue to be strong. We're seeing some recovery in Europe which is a good thing; year-on-year growth. There certainly is a little bit of a step back in China, but that has been primarily in passenger cars. The SUV demand continues to grow. We have significantly more demand in each SUV than we do in the passenger car side of things. So the Chinese growth is choppy, but it still is growing at a faster rate than any of the other large geographies.

Our next question is coming from the line of Budd Bugatch with Raymond James. Please proceed with your question.

I guess the question I would like to just parse on is to parse out the difference between currency impact and pricing impact. And not only for this quarter but, Karl, you talked a little bit about steel. It has had an impact in other areas too. Can you give us a feel of where that is going to happen; what your crystal ball tells you about going forward? And also maybe the impact on the LIFO for the year as well?

In the second quarter, you might remember in the first quarter currency and price combined to about a 3% impact. That was much larger currency at that point than price, probably a 2-1 split. In this most recent quarter, currency still is about a 2% hit, prices starting to approach 3%. Going forward we said, for the full year we think we've got a combined impact that is about 5% of a downdraft on sales. That suggests that we will have a little bit more combined effect in the third quarter which lines up with expectations relative to price adjustments that are indexed that will kick in in the third quarter. So that 3-2 split in the second quarter, while we probably will see a similar effect on currency, assuming that both the euro and Canadian dollars don't move much, pricing will be somewhat more negative in the third quarter.

Okay. And for the year then LIFO or is that -- any change in your thoughts on that?

We're still forecasting $20 million for the full year based on what we know right now.

Okay. And what about price givebacks? That's the last side of that. Your customers are aware of what's going on in pricing as well.

Budd, at this point we think that there will be some price givebacks that impact us, to Susan's point, in the third quarter. I believe we will be through that in the fourth quarter, and it's so sensitive, as you said, to what happens from a raw material perspective. At this point we don't know if we're going to see a bottoming out in 4Q or start to see some reinflation. If we see reinflation, we will announce price increases pretty quickly.

Those were very important elements of our thought process, Budd, as we came forward with a revised and upward EPS forecast. Certainly, as Karl said, crystal ball isn't clear on some of those elements, but those are our best judgments.

[Operator Instructions]. Our next question is coming from the line of John Baugh with Stifel. Please proceed with your question.

I would like to delve into the CapEx. It's great you are growing, that's a high-class problem. You mentioned some areas where capacity gets tight. So CapEx, just kind of curious -- and maybe this is more a 2016 question than 2015 -- but how we see CapEx relative to, say, D&A over the next 18, 24 months.

John, D&A should be in the $113 million, $114 million range. At this point, while it's early, I would expect capital spending in 2016 to be in that $120 million range again. We're continuing to be fortunate enough to continue to get new automotive awards that allow us to reinvest in those long-term programs. As I said earlier in the answer to Dan, I don't believe we're near the end of the cycle from a comfort core expansion perspective. The category of adjustable beds, to Dennis's point, the category is growing 30%, independent of program wins. So we're really bullish. As long as the economy stays strong, we're ready and willing to invest. There is about a $30 million annual call on just maintenance capital, so that's a given. It's hard to forecast, but we love those investments. Our people do a great job of getting a return on that.

Then as a follow-up to that and then one additional, you've talked in the past about having several hundred million dollars of excess capacity. I'm wondering if you could sort of update us today where that number sits and sort of what areas it's in. And then, secondly, just on the Sealy plants you bought, here again high-class problem, volumes are good. But you probably haven't been able to address the consolidation or margins on those or update me on where you are on that process in light of those strong volumes? Thank you.

You broke all of DeSonier's rules. From an available capacity perspective, as you know, as you made reference, we used to talk in terms of $400 million. Today we believe that number is south of $200 million, probably in the range of $150 million. We're going to update that analysis internally. The areas of available capacity at this point are primarily in places like Work Furniture. There is a little bit available capacity in some of our International Spring. I assure you there's capacity in Brazil today. Some available capacity in our home furniture components business. We'll always have some capacity there because there's always a trade-off between Asian demand and North American demand. Those would be the biggest areas. CVP is a place that there's a lot of capacity; some of that we're taking offline now. So the answer to the Sealy plants is we have been fortunate in that the demand has been greater than the pro forma that our people developed and we just anniversaried the acquisition of those component facilities. The growth of unit demand and then their switch to comfort core has put us in a position where we're continuing to run the vast majority of those assets. We just don't know. We expect that demand will continue to hold. We're ahead of our financial pro forma pretty significantly. Our people are doing a great job of executing in a demand environment where we're so pushed for capacity that we probably push some of our people to their elastic limit, so we need to continue to bring on capacity. But we're pleased with that acquisition. But back to the point of my prepared remarks, it is dilutive to Residential margins as we originally forecasted.

John, we're anticipating at least two of those consolidations and there will be a one-time cost associated with consolidation when we get to that point, but we've have built into our forecast as well.

Our next question is coming from the line of Herb Hardt with Moness, Crespi, Hardt. Please proceed with your question.

I would also add my congratulations for a great quarter, you folks. And the question is about Aerospace. You haven't spoken much about it lately. If you could give us an update, particularly in Europe, where I believe a lot of the facilities are now?

We don't speak a lot about it. It's relatively small, but, boy, are we pleased. Our people are doing a great job of executing on what was a challenged acquisition in France. As you will remember, it wasn't performing well. They are really doing a great job. The throughput through that facility has increased significantly. The business is well-managed. It is significantly exceeding all the pro formas that we developed at the time of acquisition. There is a facility in the UK that performs very, very well. It also exceeds all our pro formas. We're pleased with Aerospace and expect that we will continue to be. Thanks again for the opportunity to speak about that. It is well-managed, well-executed business.

Herb, while there isn't anything at all imminent, as I think you know, we continue to see that as a growth opportunity through niche-type acquisitions. So we continue to look at opportunities to add to the facilities that we currently have.

Our next question is coming from the line of Josh Borstein with Longbow. Please proceed with your question.

Just a follow-up on the microcoils that you touched upon. Is that included in comfort cores?

Yes.

What inning are you in this conversion of those toppers from foam to microcoils? Is this something relatively new?

Probably the first inning. You will see more product developed and placed in lines at the January Las Vegas furniture market. More mature in Europe than it is in North America.

And so this would be in addition to the comfort coils that are in the center of the bed. How much additional content might this add to a typical bed?

The average unit selling price of one of those toppers is in the range of $60 to $80 depending on the number of coils and the height of the coils, so it is a great opportunity for us. And, to your point, it's all share gains. We're replacing a combination of viscoelastic or latex and, in some cases, just standard polyurethane foams, little bit of fiber.

So even in the case where that topper goes in there, there will still be -- likely be some sort of comfort product, viscoelastic or latex on top of it, but significantly less of it, Josh.

And then just ,in Work Furniture could you break out the Chinese operation? Just trying to get a sense for the underlying trends you are seeing in office furniture right now.

Yes, Josh, this is Dennis. Are you speaking about the year-over-year comparisons as it relates to the Chinese operation?

Right. So the Chinese operation that is included in your office furniture segment, right?

Yes, we have an operation in China and that is one, as we have previously reported, that we're dealing with some issues there that we feel that we're close to finally getting our hands around. But it has been an ongoing issue from us and has to do with operating control of the business.

Apart from that business, Dennis can speak to what he feels is a reasonably decent volume in our North American traditional seating business which is the case.

That's correct. And really looking at the second quarter, our unit growth in the U.S.-based operations was very much in line with the BIFMA numbers. We feel very good about current number of projects that we have. That's been an area of focus for the team. Our actual project list is 2 times larger than it was just two years ago and we're experiencing a much higher hit ratio on those projects, because they are directly aligned with customer programs. As opposed to us developing programs and then taking that to the customer base, we're actually engaging them sooner in the process and so it has given us a much higher hit ratio.

Okay, great. That's exactly what I was looking for. Just for seating in general, is that a category that you guys are seeing growing this year at all? My sense maybe is seating hasn't been as strong this year as it has been in years past.

It is growing, not quite at the level as other parts of the business, but definitely seeing overall unit growth and expect that to continue.

Our next question is coming from the line of Budd Bugatch with Raymond James. Please proceed with your question.

I guess just kind of a cleanup question for me in terms of some of the other issues that have been hanging fire for a while there. You took some charges for some legal expenses and there were still a few items left on that I think. Can you talk a little bit about what the cash impact has been and maybe if there's anything left to clean up on that in terms of those foam lawsuits?

Budd, as you recall that total accrual as of the end of last year was about $89 million. Through the second quarter end we had spent about or had unleashed about $20 million of that. Between now and 12 months from now we will have basically cut loose all of that. But if you just look in calendar 2015, we think we will probably have another $30 million to $40 million of that accrual that is already on the books paid out is our best guess right now. And as we sit here today, we certainly feel very good about the appropriateness of that accrual level and where it stands and don't anticipate needing to bolster it anymore. Albeit we all know things change, but that's certainly what we feel like today confidently.

Are all those suits now settled, Karl? Is everything done on that particular issue?

No, they are not all settled. The big ones are in settle mode and just putting final closure on those, but we have several smaller ones that are still trending along and in discussions, but I would not call them settled yet. Again, the magnitude of those exposures is much more modest than the big cases that we've described as direct and indirect.

Our next question is coming from the line of Fred Speece with Speece Thorson Capital Group. Please proceed with your question.

I think we can all remember when you put out the $2 number and we finally got there. Your yield is 2.5% today and it was at almost 9% once, so congratulations on the five years. Has there been any structural change in the company because it is different than it was five years ago -- that would cause you to change the metrics that got you to the $2 number?

I obviously didn't expect the economy to do what it did when I made that statement and it was basic algebra. I thought it might take us to $4.2 billion to get back to $2 and so we were able to get there a little bit earlier on revenue. But there has been such fundamental change in the portfolio mix over the last few years and in that process we have become -- I know you have read and have heard us say this, we've become a lot more definitive on how we spend our capital, our shareholders' capital. And going forward, we still have a couple of businesses, they are not significant problems at this point, but a couple of businesses such as the mechanical tubing and the CVP portion of our business that are likely to find their way to somebody else's ownership. But going forward we intend to use the same techniques that we have used in the last seven or eight years to grow. We may grow a little quicker than we had anticipated as things pick up, but our margins will continue to go up. Don't know what the end-all there in margins is. I think it would be very difficult to get to 14%, because of the mix of businesses, but certainly we have line of sight through 13%. So we have got outstanding people running each of our business units. We're stronger today than we have been in really 15 or 20 years and I think the operating and strategic protocol that we put together will serve us well for the next several years.

Thank you. It appears there are no additional questions at this time. So I would like to turn the floor back over to management for any additional concluding comments.

We will just say thank you. We appreciate your attention and we will talk to you again next quarter.