Leggett & Platt, Incorporated (LEG) Q1 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the Leggett & Platt First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David DeSonier, Senior Vice President of Strategy and Investor Relations for Leggett & Platt Incorporated. Thank you. Mr. DeSonier, you may begin.

Good morning, and thank you for taking part in Leggett & Platt's First Quarter Conference Call. With me this morning are the following: Dave Haffner, our CEO; Karl Glassman, our Chief Operating Officer; Matt Flanagan, our CFO; and Susan McCoy, our Staff VP of Investor Relations. The agenda for our 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 will provide operating highlights, Dave will then address our outlook for 2012, and finally, the group will answer any questions you have. This conference is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed, recorded or broadcast without our expressed permission. A replay is available from the IR portion of our website. We posted to the IR portion of the website yesterday a set of PowerPoint slides that contain summary of financial information. 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'll now turn the call over to Dave Haffner.

Good morning, and thank you for participating in our call. We were pleased with the first quarter results we reported yesterday. First quarter same-location sales increased 4.5% versus a relatively strong first quarter of 2011, reflecting a combination of unit volume growth and raw material related price inflation. Volume trends were mixed across our businesses. We saw volume gains in automotive and office components, as well as in U.S. Spring, adjustable beds and other parts of the Residential segment. The most notable volume declines occurred in store fixtures, furniture hardware and commercial vehicle products. Earnings per share for the quarter were $0.30, unchanged from the first quarter of 2011. In last year's first quarter, we had a $0.03 per share benefit from unusual items including gains from building sales that did not recur in 2012. Current quarter earnings benefited from higher unit volumes. We are also realizing the expected earnings benefits from the restructuring activities we initiated in late 2011. The strategically attractive Western Pneumatic Tube acquisition that we completed in January is exceeding in our expectation for strong operating performance. In the first half of this year, we will recognize $6 million of charges, half of this in the first quarter from an acquisition-related fair value adjustment to inventory. These charges will not repeat in the back half of this year, so we expect Western's earnings to improve as the year progresses. Our operating folks continue to do an excellent job of closely managing working capital reflecting our focus on return optimization. We ended the quarter with working capital at 12.3% of annualized sales. Current liabilities include approximately $28 million, associated with an interest rate swap that we entered in 2010. If you exclude that item, working capital was 13% of annualized sales, still well below our 15% target. Cash from operations was strong during the quarter at $65 million. We expect operating cash for the full year of over $325 million, which should once again comfortably exceed the amount required to fund capital expenditures and dividends. Capital expenditures should be approximately $100 million this year and dividends should require about $160 million. We have maintained our strong financial base and ended the first quarter with net debt at 34% of net capital, which is within our long-term targeted range of 30% to 40%. In February, we declared a quarterly dividend of $0.28 per share and extended to 41 years our record of consecutive annual dividend increases. At yesterday's closing price of $23.67, the current dividend yield is 4.7%. Given the cash outlay to acquire Western Pneumatic Tube, we did not complete any open market purchases of our stock during the first quarter. However, consistent with our stated priorities for use of excess cash flow, we expect eventually to resume buying back our stock subject to the outlook to the outlook for the economy, our level of cash generation and other potential opportunities to grow the company. For the full year, with strong cash generation, we expect to repurchase some number of our shares but have established no specific repurchase commitment or timetable. We have a standing authorization from our Board to repurchase up to 10 million shares each year. We assess our overall performance by comparing our total shareholder return to that of peer companies on a rolling 3-year basis. Our target is to achieve TSR in the top 1/3 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 3-year period that began January 1, 2010, we have so far generated TSR of 12% per year on average, which matches the return of the S&P 500 index over that same time period. So with those comments, I'll turn the call over to Karl Glassman who will provide some operating highlights. Karl?

Thank you, Dave. Good morning. In my comments, I'll discuss a few segment highlights. You will find segment details in yesterday's press release and in the slide presentation on our website. First quarter, same location sales in Residential Furnishings segment increased 7% from a combination of unit volume growth and raw material related price inflation. In our U.S. Spring business, innerspring unit volumes increased 3% and boxspring units were flat. In our Furniture Hardware business, unit volume decreased 10% versus the prior year. Again this quarter, we had significant growth in adjustable beds with unit shipments of 48%. Sales also grew in carpet underlay, Geo Components and consumer products. EBIT and EBIT margins in the segment decreased versus the first quarter last year, primarily from the absence of a gain from a building sale that occurred in early 2011. The earnings benefit from slightly higher unit volumes in the current quarter was partially offset by raw material inflation and a less favorable sales mix. In the Commercial Fixturing & Components segment, first quarter same location sales decreased 8% from lower Fixture & Display volume. This decrease resulted in a large part from lower spending by a single large value-oriented retailer. Sales in Office Furniture components increased slightly during the quarter. Volume in this business continues to generally track the overall recovery in the office furniture industry. EBIT and EBIT margins in the segment decreased slightly versus first quarter of 2011, primarily from the absence of a gain from a building sale that occurred early last year. The earnings impact from lower sales in the current quarter was more than offset by a gain from the sale of our U.K. based Point of Purchase business in January, benefits from restructuring activity and other cost savings. In the Industrial Materials segment, first quarter same location sales increased 6% with growth from steel-related price inflation slightly offset by union volume declines. Overall unit volumes were lower, led by a decrease in shipments of wire and rod. EBIT decreased in the quarter primarily due to a $3 million acquisition-related fair value adjustment to inventory. Earnings benefits from the recently completed acquisition and the plant consolidations announced in late 2011 were largely offset in the quarter by lower unit volumes and unusually high workers compensation expense. EBIT margins were further compressed by the inflation driven sales increase as this revenue growth brought little incremental profit. As Dave mentioned earlier, the Western Pneumatic Tube acquisition, which resides in the Industrial Materials segment, is exceeding our performance expectations. We continue to expect this business to produce full-year 2012 margins greater than the company average. First and second quarter's results will reflect approximately $3 million of charges from acquisition-related fair value adjustments. Since those charges do not repeat, segment margin should improve appreciably in the back half of the year. In the Specialized Products segment, first quarter sales increased 6% entirely from growth in automotive. Machinery sales were down slightly in the quarter and commercial vehicle product sales were up significantly compared to first quarter of last year. EBIT was flat and EBIT margins decreased during the quarter. Higher sales and the non-recurrence of last year's impairment charges contributed favorably to EBIT, but these improvements were offset by several items including higher raw material cost, litigation reserves, less favorable sales mix and higher R&D spending. Automotive industry forecasts anticipate continued growth in global production rates in 2012. But the outlook varies by geography. North America and Asia are both expected to have meaningful production growth, but European forecasts are negative as economic concerns linger. With those comments, I'll turn the call back over to Dave.

Thank you, Karl. We're pleased that certain economic factors have improved modestly in recent months. With first quarter results ahead of our internal forecast, we are increasing our full-year 2012 guidance modestly to a range of $1.25 to $1.45 per share, up from our previous range of $1.20 to $1.40 per share. We are also increasing our full-year guidance, sales guidance, that is, to $3.65 billion to $3.85 billion, which is up from our previous range of $3.6 billion to $3.8 billion. We continue to expect the restructuring related activities that we initiated in 2011, in total, to add $0.07 to $0.10 per share to our 2012 earnings. We also anticipate the Western Pneumatic Tube acquisition to be modestly accretive to the full year's earnings here in its first year. These improvements are largely offset by a higher anticipated full-year effective tax rate and interest expense, which negatively impact earnings by approximately $0.10 per share, $0.08 of that for the tax rate and $0.02 for interest. Now with those comments, I'll turn the call back over to Dave DeSonier.

That concludes our prepared remarks. We thank you for your attention and we'll now try to answer any questions. In order to allow everyone an opportunity to participate, as we typically do, we request that you ask your single best question and then voluntarily yield to the next participant. If you have additional questions, please re-enter the queue. Melissa, we're ready to begin the Q&A.

[Operator Instructions] Our first question comes from the line of Leah Villalobos with Longbow Research.

I was hoping you could talk a little bit about the U.S. Springs business. I know [indiscernible] is the sample, it was just a sample of the overall industry, but I was wondering if you feel like your performance in the quarter is more representative of kind of what you're seeing in the overall industry or if there's some other things kind of going on there?

Good morning, Leah. This is Karl. As you inferred, that ISPA the quarterly results were released not before last. And while we believe that the ISPA results are a good barometer of change from a sequential movement standpoint, that as you infer, that they only captured 65% of the industry units. So I believe, we believe, that the January and February results were probably overstated and the March results were a catch up. As are -- as we state, that our innerspring units were up 3%, we think that, that is an appropriate reflection of the industry. The ISPA statistics show that March innersprings were up 9.4% in units, our experience was a couple percent off. We believe that as a better barometer of the macro industry. So I don't think investors should view the March ISPA results as falling off a cliff, we know that, that in fact didn't happen. But we do think that it's a normalization of stronger than probably, was accurate January and February results. Now, I want to make it clear, I am not in any way, taking issue with ISPA. They are just reporting the data that's given to them so.

That's really helpful. Would you be willing to comment on kind of just what you're seeing here so far through April?

Yes. Actually, Leah, why don't I want to walk you back, and this will help a little bit, that from our first quarter, that we saw really abnormal strength in innerspring unit sales in January and February. With January up 6%, February up about 6% also, and as I said, off a couple points in March. And through the 15 shipping days of April, we're seeing about flat units which would correlate to what we heard at the High Point Market this last weekend, where it feels like things have moderated from a demand perspective as things typically do. This is -- all we're doing is experiencing normal seasonality.

Okay. That's really helpful. And then so your outlook I guess, for the year then, doesn't change as it relates to the bedding business?

No, I will note that ISPA recently increased their 2012 forecast for -- they originally had forecasted units up 1%, now they're at 3.5% up. We think that, that's probably a pretty good indicator of what we should expect for the full-year.

Our next question comes from the line of Keith Hughes with SunTrust.

Back on residential, on margins. If I back out that building gain, it's kind of flattish year-over-year in margins. If you continue this sort of revenue pace, would we start to see the margins expand this year? And if so, what kind of what time period would that start to occur?

Keith, the answer is yes. You should see an expansion in margins that we had an abnormally weak mix in the first quarter with Furniture Hardware sales off 10%. And if you'll allow me, I'd like to speak to that very issue for just a second. That from a headline perspective, that may look pretty negative as it does, but our first quarter experience was pretty choppy and that the December sales of furniture hardware were actually up 7.5%. They were up 12% from our international locations. We believe there was a significant pull forward by our customers because of an unusually early Chinese New Year, so we saw a pull forward into December of 2011. The January of 2012 experience was particularly negative with units off 30%, remembering that Chinese New Year was in January this year, February last, and sort through the whole thing, and we ended up in experiencing units down 10%. Oddly, or I guess appreciatively, that unit sales were up 3% in March. So it wasn't a train wreck. From a full disclosure perspective, I do want to make comment that we have lost a little bit of market share in Furniture Hardware to a Chinese-based finished furniture manufacturer that does make some of their own lower value mechanisms. We believe that, that is completed, all -- or that exposure is behind us, all the pickup in March. So that mix of negative hardware is negative to us in the first quarter while we very much appreciate a pick up in carpet units, which was up about 6% to 7%. And a pickup in Geo Components sales, those 2 have lower contribution margins than Furniture in total. So certainly, a negative mix in the first quarter that we don't expect to continue. In addition, we're in the process of passing through some price increases, particularly in the U.S. Spring market based on some inflation, some January steel inflation that ran through the quarter. And obviously, some inflation in fuel costs. So we believe the second quarter will have a good bit of that through the system and be fully through the system by the first day of the third quarter.

Keith, this is Dave, I know your question was specific to Residential, but it would be reasonable to assume that we would see some even more meaningful margin expansion as the year goes forward in a couple of the other segments.

And I guess my follow-up question on your demand comments before, do you feel like that's the kind of year we're going to be in where you're going to have one month that's positive, one month that's flat, -- just kind of up and down, and it will all add up to a positive year? Do you think that will be the trend?.

Well Keith, none of us could have forecasted the lack of winter. So we probably had a pull forward in January and February. A wonderfully strong Presidents' Day. I do believe that the consumer is very sensitive and we need to look at consumer confidence numbers. Hopefully, they'll be confident around the all important Memorial and 4th of July, Labor Day selling day period. But, yes, we do expect choppiness. And the bogeyman that's out there, from a future perspective is the election. And what happens to consumer confidence around the election? We believe it will be a contentious election, we also believe that it will be a very expensive election that will force our retailer customers to spend a little bit more on advertising. So there's some concern around all of those impacts. So yes, choppiness is where we are.

Our next question comes from the line of John Baugh with Stifel, Nicolaus. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: My question is, back to Residential on the mix, in answering that question, Karl, you were I guess, talking about mix between bedding and furniture components. I'm wondering if you could dive into the mix that's within the bedding, what did you see in the mix within furniture components.

That's a good question. Generally, the first quarter is our most negative mix of the year from a bedding perspective in that. We sell a lot of units, we sell more units now in the first quarter than any quarter of the year. It is highly correlated to tax refunds, it tends to be more promotional than the mix it will enjoy through the full-year. As an example, that our promotional product sales were up significantly, but are actually our fastest-growing product category is Comfort Core, our answer to Pocketed Coil. We expect that mix based on some large customers' introductions that appear to be very successfully implemented and well received in the market that, that mix will improve as the year goes on, we experienced the same thing in furniture. That there's a little bit of a low-end mix just because of the highly promotional around tax refund season. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Karl, when we were out at Vegas, you had expressed some hope about the growth you're seeing in Hybrid beds -- did that not help the first quarter at all? Or what's the prospect for that help, if any, as we go through the year?

There's very little help in the first quarter. Serta just started shipping in iSeries about a month ago. I know that the new Simmons product, which is Hybrid was shipped in about that same timeframe as was the new Sealy Hybrid product. We believe that, that product -- that series of product is being very well received. We think the customer has -- the consumer, the end consumer has a deep appreciation for the support that an innerspring provides in a core, augmented by the stories that they're being told of the specialty sleep applications to the top. So it will help the year as the year progresses. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: And then I wonder if I could just sneak one more in and jump over the retail store fixtures and display. We'll leave the name of the large discount retailer as private. But I guess I'd love to look at that business in 2 buckets. One, that customer, and what are they dealing with you and what are your expectation now for the year? And then secondly, everything else within store fixtures and display.

Okay. John, that customer, being Walmart, is the largest, historically, the largest retailer obviously in the world, the largest customer of our store fixtures business. In 1Q of 2011, they were very aggressively remodeling, and you'll remember that they made a very public statement in the March, June timeframe of last year, that they were going to slow their remodels and invest in other selling practices, looking at smaller stores and experimenting with different footprints. And that continues. So we continue to enjoy a very good relationship with them, they continue to remodel but at a slower pace and we expect that they'll continue to remodel at a slower pace through this year until they figure out what their strategy, from a long-term go-forward, is. We're very well-placed with them. Certainly, have a good relationship and they're doing well in the marketplace. But, what you should expect is a strong third quarter in store fixtures because of our position gained with some other retailers. You'll remember, John, that the third quarter historically, had been the strongest selling season for store fixtures as those retailers position themselves for the holiday selling season. You should have that expectation, which has not been the case for the last 3 or 4 years, but have that expectation that, that historical trend should take place in 3Q will be, by far and away, the largest quarter in store fixtures ... John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: So it sounds like, Karl, Walmart will be down for the year, again. And then, the rest of it, what? Offsets, makes it up, puts us ahead, still down?

That's our expectation. We are still hopeful that Walmart will kick in more of their remodels in the back half. But we do not know that at this point.

Our next question comes from the line of Budd Bugatch with Raymond James. Budd Bugatch - Raymond James & Associates, Inc., Research Division: We appreciate the transparency of Leggett. Appreciate the fact that the guidance for the year is modestly up. I want to take a little bit longer term question, go back to a question that we asked, I guess, in the middle part of '09, which was that the road map to a place where the dividend is no longer going to be kind of 77% to 90% of earnings. I know, appreciate the TSR metric and those things, but the dividend continues to increase and earnings really do not. And David, I know we've been through kind of a long simulations of, number simulations of how we get to $2. I kind of want to reflect back on that and maybe readdress that whole issue of how we get to $2 and now we need to get to $2 plus, to get to your eventual goal of a dividend payout of 50% or so.

If we go back to when we first discussed that $2 a share concept and the assumptions used in that concept, it's certainly something that we're comfortable with and the assumptions occurred and we didn't anticipate that we'd see this sort of economic downturn. That could come across as an excuse, I certainly don't mean it that way. We still have a significant, very significant amount of earnings power in the company, and especially when you take a look at our production capacity utilizations, which are up incidentally this first quarter. We're pleased to see that almost across the board in the various units. But what it's going to take is increased demand, capacity, utilization. The concept or the leverage that, that incremental volume has is still real. In some cases, the leverage is -- starts with a four handle, it has a 40% impact. In some cases, it's 18%, 19%, but on average, we still feel comfortable with that 25% to 30%, 35% leverage, Budd. And so, when will it happen? It'll be a function of when that demand continues, I mean when the demand reaches the level that provides us the capacity utilizations that we want and need to get there. I don't know how to predict that. I know that if we say -- if we just threw our revenue number out, it's challenging because we don't know how much inflation or deflation may come into that. I'm still very comfortable as a shareholder and as part of the management team here, that we will be able to continue to reduce our payout ratio going forward, and ultimately, get into that range of 50% to 60% payout ratio. I know it's frustrating for certain investors. We're very comfortable that we'll be able to achieve that. We just need the demand. And like I said, I don't want to get too optimistic, but the first quarter, I'm looking at the production capacity utilization chart right now, is very encouraging in that regard. So as we see these margins expand in the second, third and the fourth quarter relative to last year, we can even seek more comfort in that thinking. Anybody else want to add something to that, though?

No, I would pile on a little bit, Budd, and that I absolutely subscribe to what Dave said that we did -- Susan did a very in-depth contribution analysis not very long ago. It's data that we continually test. As Dave said, we need a mix of unit growth and we feel very good about it. We appreciate the fact that we are seeing the benefits of every one of the restructuring events that took place in the fourth quarter of last year. We measure them very carefully. They're very trackable and while they were difficult decisions, we made the right decisions. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Can you maybe share some of that contribution margin, at least on the surface as we'd look at it? And just by the numbers year-over-year, the contribution margin really is pretty much 0 this quarter on a year-over-year basis. I didn't quite do it yet season -- sequentially, but where do we see it? How do we get more comfort to investors and to us that you're actually on track for that?

Budd, I'm going to speak to that just from a high level standpoint. And folks will find some of these details in the slides that we posted yesterday. Slide #4 is a bridge from last year's to this year's sales and EBIT. And if you recognize that of our total revenue growth, there's only about $20 million of that, that was from the unit volume increase that is the carrier of this 25, 30, 35% contribution margin that we talk about. And when you start with last year's EBIT, that was $74 million, but I recognize that there were $6 million or so of unusual things that helped that, that you're really looking at kind of operationally about $68 million of EBIT. And conversely, when you look at this year's $75 million of EBIT in the first quarter, and again adjust that for things that we've talked about that are a little bit out of the ordinary, including the gain from the divestiture and some of the acquisition-related adjustments, then you're somewhere around $75 million, $76 million of EBIT. That increase which is about $8 million, when you take that noise out, on $20 million of volume, and in addition, rightfully so, you should expect and we are realizing, operating contribution from the acquisition. You can see it's just -- what's unfortunate is as always, it seems like every quarter, a bit of noise here and there, whether it's revenue or in a noise, or earnings or in a noise. So it's never just one thing really, that's driving our performance. But when you kind of work through those details that's how I continue to kind of keep comfort with that 25%, 30%, 35% contribution margin. And it is mix sensitive, to Karl's comment earlier, our mix wasn't especially strong in this first quarter with some of the things going on. Budd Bugatch - Raymond James & Associates, Inc., Research Division: All right. One last thing -- just one quick other question, Karl. You had said inflation and I thought you called out steel and I believe energy as well, in the first quarter. As I look at the numbers that I see on the steel basis, it looks like scrap went up, but rod actually -- the selling price of rod actually went down in the quarter. Is that -- am I incorrect on that? Some spread narrowed but it was narrowing because of an increase in cost and a little bit of a decrease in the price of the market price of steel rod.

Budd, I hate to do this to you, considering it's your birthday. But, yes, you were wrong on that. Budd Bugatch - Raymond James & Associates, Inc., Research Division: That's okay, I'm wrong a lot.

The high carbon rod inflated during the quarter and the spread would've widened as the quarter went on.

[Operator Instructions] Our next question comes from the line of Herb Hardt with Monness, Crespi and Hardt. Herbert Hardt - Monness, Crespi, Hardt & Co., Inc., Research Division: A question regarding the steel operation. Most of the industrial companies I've spoken to have said kind of the reverse of your results in that January and February were slow. March came through better than expected, April again, better than expected. In your steel business itself, was that similar or also different?

As you know, our steel business is dedicated solely to long products, primary high carbon with specific applications. Where, I do agree with your comments, I read a lot of steel company results, they tend to be more broad-based in their application of steel with certainly, they are steel producers in this country are feeling a significant uptick in demand based on auto sales. But while -- our steel mill just absolutely does a wonderful job. They're great people that are dedicated to the business and they had a few challenges in the first quarter that won't repeat. One is we, unfortunately, had a crane-related accident. There was an employee that was hurt. That employee, thankfully, is well into recovery and was released from rehabilitation earlier this week and is now at home. So prayer's been answered. That is the reference to the worker's comp expanse in industrial. With that unfortunate incident, we did lose some yield in the steel mill. But a bigger cost impact was there was -- we took an 8-day outage in the mill that was planned, that will not repeat and it was dedicated to replacing the finishing end or the packaging line of the rod mill and that is really what the major driver was for our reduced sales. So you should expect that sales will recover in the second quarter and going forward.

Our next question comes from the line of Allen Zwickler with First Manhattan.

Could you maybe spend 2 minutes on your new acquisition? I mean I -- perhaps you've described it a little bit here and there, but just sort of the bid customers and what your expectations are to the extent that you can? I mean, I just want to sort of get my arms around. You sound very excited about it, that it's been -- it's certainly a different business than you've been in. So just, if you don't mind, maybe spending a minute or 2 on that.

Sure, Allen, let me start and then Karl can give you some detail. But one of the things I wanted to reiterate is that when we established some new criteria for acquisitions, we set a little bit of a higher bar. We wanted businesses that had higher technical content. We wanted businesses that had significant market share. We wanted businesses that had higher margins, higher growth rates, and if that wasn't enough, we wanted perfect management. So establishing those criteria gave us a very good screen on some extraordinarily good companies. Western Pneumatic happened to make that screen and we're very pleased. I'll let Karl give you some specific details.

Allen, the business is dedicated to the manufacturer of tube, primarily thin-walled, large diameter tubes that go into primarily, aerospace applications. They're vent tubes, they're cooling tubes. You will find their product either titanium, nickel or stainless in just about every area of commercial and military aircraft. The business, today's point, is extremely well-run. The large customers would be distributors to the aerospace industry with -- and Western itself enjoys a long-term supply agreement to both Boeing and Airbus. And as you know, Boeing earlier this week reported a wonderful first quarter and in that report said, that their backlog is only 4,000 planes. We went through the Boeing operations with Joe Downes, the manager of the Industrial Materials segment and the management team 2 weeks ago in Washington. And we are very enthused about the acquisition and believe that it allows us to analyze some possibility of some additional acquisitions around that space that would be complementary to the Western play.

Okay. And did you release, and I'm sorry, if you did, then you could just smack me in the head. But did you release what their last year or last 12 months or however, was this -- but this is a private company, correct?

Yes.

Okay. Did you release what their sales and earnings were for the prior year and sort of what their growth rate had been? Have you disclosed that to anyone?

Yes. Sales, we talked about that and it was ...

It was about $60 million.

$60 million in round numbers.

Is that -- that would be a calendar year or their fiscal year, whatever, however, you want to look at it?

That was the 2011 calendar.

Right, so they had $60 million in sales?

Yes, correct. And we did not and will not release their earnings.

Okay. Well, could you at least tell us if they were profitable?

Yes, they're profitable. And in the conference call script, you would've heard us make mention to the fact that the results were above the company average from an EBIT perspective.

And Allen, that includes all of the charges that is even with all the charges ...

Well, that's what I was going to say. When you loaded up with the amortization, but not interest obviously, right? I mean I just want to make clear what your definition is when you say it's above the corporate average, would that -- are you assuming the goodwill in the -- the amortization in there on the interest expense or combination?

Yes. Fully burdened, it's above the corporate average.

Allen, this is Matt. Yes, both in EBIT and EBITDA perspective, it is above the corporate average, it is exceeding our expectations. Another aspect of this particular business that is beneficial, is the predictability of the future cash flows is better than a lot of other businesses, as Karl mentioned, with a backlog that Boeing, Airbus and other folks have, we feel very good about the next several years and beyond as best we can, of the reliability and predictability of those cash flows. And that helps us quite a bit in terms of our comfort with the investment, as well as the prospects for it going forward.

And was this a competitive auction or were you the only guy in town or have you disclosed that?

It was a competitive situation.

Okay. And my last question is, just keeping that along, is that, and you'll pardon me for asking this, what is the corporate average? I mean it's -- you've had -- again, that's been a number that's been bouncing around a lot. So what -- when you say the corporate average, could you tell us what that is or what you used?

The point of guidance this year would be 8.6% EBIT margin.

That's EBIT, and EBITDA based upon the guidance, is about 12%.

Okay. So when you're referring to, it's better than that, that's -- those are the numbers that we could use. And again, just to clarify, so the fully loaded number is better than that? Is that correct?

Correct. Fully loaded EBIT with amortization and all the other acquisition.

Right. And how did you pay -- end up paying for this acquisition? What was the final way that you spent the money? Did you just borrow under your line? Did you use some cash?

Yes, we borrowed under our line predominantly, Allen. We had a, as you know, $600 million facility, which is about $300 million borrowed right now and that acquisition was $180 million in January.

Okay, so you just use your line, you didn't use an existing cash. Right?

That's -- well, yes, the cash flow we're generating is all part of the equation. But in essence, we used the line's capacity to help fund that transaction.

Okay. Could I sneak in one more related, unrelated to that? The Residential, excuse me, the office products business or the office commercial business, could you just characterize how that is these days? I mean, for a while there, it looked like it was really humming along notwithstanding that nobody's in offices anymore. So how would you categorize that business these days? Just from a mix and a profit standpoint?

It continues to hum along rather well and it is up against some very difficult comps. So we feel good about that business if there's a little cloud in the broader office space, it's the lack of government spending. So you would've heard that in some of our customers' calls. But our take up there, from a sales perspective, was slightly better than flat in the first quarter, which is notable because it was up against a such a difficult comp. We expect to run positive to the remainder of the year.

Mr. DeSonier, that's the end of our questions. I'd like to turn the floor back over to you for closing comments.

Okay. We'll just say we appreciate your questions and your attention, and we'll talk to you again next quarter.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.