Franklin N. Saxon - Chief Executive Officer, President, Director and Member of Executive Committee Kenneth R. Bowling - Chief Financial Officer, Vice President, Treasurer and Corporate Secretary

Chad Bolen Kevin Tracey Budd Bugatch - Raymond James & Associates, Inc., Research Division

Good day, and welcome to the Culp, Inc. Fourth Quarter 2013 Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I'd like to turn the conference over to Ms. Drew Anderson [ph]. Please go ahead.

Thank you. Good morning, and welcome to the Culp conference call to review the company's results for the fourth quarter and fiscal year 2013. As we start, let me express that some statements made in this call will be forward-looking statements. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Actual performance of the company may differ from that projected in such statements. Investors should refer to statements filed by the company with the Securities and Exchange Commission, including the Form 8-K filed yesterday for a discussion of these factors that could affect Culp's operations and the forward-looking statements made in this call. The information being provided today is of this date only, and Culp expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes in the expectations. In addition, during this call, the company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included as a schedule to the company’s 8-K filed yesterday. This information is also available on the Investor Relations section of the company’s website at www.culp.com. A slide presentation with supporting summary financial information and additionally -- additional quarterly and annual performance charts are also available on the company's website as part of today's call. I will now turn the call over to Frank Saxon, President and Chief Executive Officer. Please go ahead, sir. Franklin N. Saxon: Good morning, everyone, and thanks for joining us today. I'd like to welcome you to our quarterly conference call with analysts and investors. With me on the call today is Ken Bowling, our Chief Financial Officer. I will begin the call with some brief comments about Culp today, and then Ken will review the financial results for the quarter and the year. I will then update you on the strategic actions in each of our businesses. After that, Ken will review our first quarter outlook and then we'll be happy to take your questions. Rob and I are very pleased to report one of the best years in the company's history. Sales were up 6% for the year and pretax profits increased 43% to just over $20 million, the highest level since 1998. Both of our businesses performed well, with sales gains and significant operating income and margin increases. We also improved our return on capital from 22% to 29%, the highest level since the company went public in 1983. And as a result of growing income significantly, with only a 7% increase in average capital, we generated $13.1 million in free cash flow, up from $6.6 million the previous year. Looking ahead, we are expecting another solid year of free cash flow in fiscal 2014. To note for you, we define free cash flow as cash left over after investing in working capital and capital expenditures. We are especially excited about the outstanding progress we are making in product innovation and creativity. These efforts have made a significant contribution to our sales and profit performance this year, with an increasing percentage of our sales coming from new product introductions. We compete in a product- and fashion-driven business that is always changing. As a result, our ability to sustain excellence in creating innovative fabrics season after season is a key driver to our long-term success. In addition, with our strong free cash flow, we were also very pleased to have returned $12.6 million to shareholders this past year through dividends and share repurchases. Today, we also announced a 33% increase in our quarterly cash dividend from $0.03 to $0.04 per share on a quarterly basis, and this will begin with our July payment. Our consistent financial performance, improved cash flow and strong balance sheet have allowed us to make these decisions, and we believe this latest dividend action further demonstrates our confidence in our future and our commitment to building shareholder value. Importantly, we have the financial strength to pursue our growth strategies and make strategic investments in our businesses in the years ahead as opportunities may arise. Now I'll turn the call over to Ken, who will review the financial results for the year and the quarter. Kenneth R. Bowling: Thanks, Frank. As mentioned earlier on the call, we have posted slide presentations on our IR website that cover key quarterly and annual performance measures. In addition, we have also updated our investor presentation, which covers the key aspects of both of our businesses. Total sales for this quarter were $70.4 million, down 7% from the fourth quarter of last year. This quarter compares with an exceptionally strong fourth quarter of last fiscal year. For the year, sales were $268.8 million, up 5.6% over last fiscal year. On a pretax basis, we reported income of $5.9 million compared with $5.5 million for the same period last year, an increase of 6.7%. Pretax margin was 8.3% compared with 7.3% a year ago. For the fiscal year, pretax income increased 43% to $20.3 million. Adjusted net income, which is a non-GAAP measure, was $5 million or $0.41 per share compared with $4.5 million or $0.35 per share for the prior year period. Adjusted net income for the year was $17.4 million, up 50% compared with $11.6 million last year. The company's overall adjusted effective income tax rate through the fourth quarter was 14% compared with 19% for the same period last year. This adjusted effective income tax rate or ongoing estimated cash tax rate represents income tax expense for Culp's non-U.S. entities divided by consolidated income before taxes. This information is important because the company currently does not pay cash taxes in the U.S. nor does it expect to for a number of years due to approximately $51 million of loss carryforwards, which is down from $60 million at the end of last fiscal year. Free cash flow was $13.1 million, up from $6.6 million the year before. Cash flow from operations for this fiscal year was $17.1 million, up from $12 million at the same time last year. Here are the results for our 2 businesses. For mattress fabrics, we reported $40.8 million in sales for the fourth quarter, down 5.9% compared with the same period last year. For the year, mattress fabrics sales were up 5.8%, $154 million. Notably, fiscal 2013 marked the highest annual sales level for this division in company history. Operating income from this segment was $5.4 million for the fourth quarter compared with $5.7 million last year. Operating income margin was 13.2% of sales, which was comparable to the prior year period. For the year, operating income was $19.9 million, up 26% and operating income margin was 12.9% of sales compared with 10.8% of sales last year. Return on capital for mattress fabrics segment was 36% for this year, up from 29% a year ago. The key to this improvement was the 26% increase in operating income while average capital employed only increased 4%. Now on to upholstery Fabrics. Sales for the fourth quarter were $29.6 million compared with $32.3 million in the fourth quarter of last year. For the year, sales in upholstery fabrics totaled $114.8 million, an increase of 5.4% over last fiscal year. The upholstery fabrics business reported operating income of $1.8 million or 6.2% of sales for the current quarter compared with operating income of $1.8 million or 5.5% of sales for the fourth quarter of last year. For the year, operating income in upholstery fabrics was $7 million, up 97% over last year, and operating income margin improved to 6.1% of sales compared with 3.2% a year ago. Return on capital for upholstery fabrics was 40% this fiscal year compared with 26% for the same period a year ago. The increased return on capital was driven by a 97% increase in operating income while average capital employed increased only 17%. As reflected in the high return on capital for both of our businesses, capital discipline is very important to us. We have established a culture of excellent stewardship of our capital throughout our organization. Further, we have even tied our incentive compensation for divisional and executive management to how we use our capital based on economic value-added or EVA principles. Now to the balance sheet. Maintaining the strong financial position and generating free cash flow have continued to be top priorities for us in fiscal 2013. As stated earlier, we achieved $13.1 million in free cash flow after spending $11 million in capital expenditures and working capital. At the end of fiscal 2013, we reported $28.8 million in cash and cash equivalents and short-term investments compared with $31 million at the end of last fiscal year. It is important to note that we were able to maintain this strong cash position after the payment of $7.6 million in dividends, $5 million in share repurchases and $2.8 million in debt repayments. Importantly, over the last 2 fiscal years, the company has repurchased 1.1 million shares or 8.5% of its outstanding shares for a total of $10.4 million at an average price of $9.23 per share. Total debt at the end of this fiscal year was $7.2 million, down from $10 million at the end of fiscal 2012. Our next scheduled $2.2 million principal payment is due in a couple of months, with the 2 remaining annual $2.2 million payments due August 2014 and August 2015. For fiscal 2014, we expect our capital expenditure spending to be approximately $6 million and depreciation and amortization expected to be about $6 million as well. Finally, as Frank mentioned earlier, we also announced that our board has approved a 33% increase in our quarterly cash dividend from $0.03 to $0.04 per share commenced in the first quarter of fiscal 2014. Frank? Franklin N. Saxon: Thank you, Ken. I'll now provide you with an update on both of our operating segments, and I'll start with mattress fabrics. Our mattress fabrics business had a solid performance in the fourth quarter. As expected, our sales for the quarter were lower than the same period last year. However, our results were in line with industry demand, which was exceptionally strong a year ago. Overall, we demonstrated a very consistent performance throughout the year, with improved sales and higher profitability over the prior year. Notably, fiscal '13 marked the highest annual sales level for this division in our company's history. These results reflect our increasing focus on product innovation and the ability to maximize the efficiencies and flexibility of our manufacturing platform. We have continued to make strategic investments in this business and enhance our reactive capacity to offer a full complement of the latest technologies, design expertise, production capabilities and exceptional service. Our success over the past year reflects our ability to respond to the needs of our customers and changing demand trends. The higher-end mattress segment has continued to demonstrate the strongest growth, as consumers' trends indicated greater number of purchases of better bedding, with more of a tailored and upholstery-type look. Additionally, we are continually developing high-value products for all segments of the bedding industry as we are keenly aware of greater volume opportunities. Our state of the art manufacturing platform has positioned us well to meet this demand, and our innovative designs have been well received in the marketplace, with strong placements in the fourth quarter with key customers. We are also making meaningful progress with respect to our latest business venture, Culp-Lava, which further extends our vertical market reach with the capability to produce and market mattress covers. We are pleased with the favorable operating synergies and sales contributions to date from our Stokesdale, North Carolina, manufacturing facility as we have focused on specialized training and development necessary to establish this new venture. As we gradually -- as we continue to gradually add capacity, we believe Culp is positioned well to capitalize on meeting demand for the fast-growing specialty bedding sector of the mattress industry. We are very excited about the potential growth opportunities here as we continue to enhance our leadership position in the bedding industry. Now I'll comment on upholstery fabrics. We're also pleased with the performance of this business last year, marking the fourth consecutive year of sales growth. The higher annual sales and significantly improved profitability primarily reflect the positive response to our innovative designs and diverse product offering. We have been especially pleased with the success of our newest product introductions, with favorable product placements. We also benefited from a less volatile market environment in fiscal '13 as raw material prices stabilized and we did not experience the same currency fluctuations as in the previous year. While the overall economy is still presenting some challenges for consumers, the housing market is starting to gain traction, which should have a positive influence on demand for the furniture industry. Our China-produced fabrics have continued to be the largest component of our sales and accounted for approximately 90% of upholstery fabrics sales this year. With our 100% owned and scalable China platform, we are well positioned to provide our growing global customer base with a wide variety of innovative products, along with outstanding quality and delivery performance. We have significant manufacturing flexibility, creative design capabilities and a strong commitment to customer service, all important advantages that allow us to more effectively meet the demands of our customers around the world. We are encouraged with the stable sales level and steady progress with key customers we have made in Culp Europe, especially in the face of a very weak European business climate. In spite of these ongoing challenges, we are optimistic about the long-term opportunities for Culp Europe. Sales for Culp Europe were about 3% of total upholstery fabrics sales, level with the prior year, and we incurred a small operating loss. With the small footprint and limited capital invested in our Culp Europe operation, we can be patient with building sales in this new market. I would now like also like to talk about how we view capital allocation. We have been and continue to be in the very fortunate position of having significant cash flow to invest in our businesses, to build our net cash position and to return substantial funds to shareholders. We expect this cash flow trend to continue. Therefore, I wanted to again review with you how we prioritize our use of capital. The first priority for us will always be investing in our existing businesses, with working capital and capital expenditures, to grow organically. It is important to note that we have very little capital requirements for CapEx in our upholstery fabrics business because it is not fixed-asset-intensive. But the majority of our annual CapEx requirements are in our mattress fabrics business and we have invested $41 million over the last 6 years in mattress fabrics for maintenance and expansion capital projects. We believe building our business internally with existing and new customers and new customer segments offers the highest returns with the least risk. Last year, for example, we invested $11 million in working capital and CapEx for the growth organically that we had. Our second -- for our second priority, we initiated a regular quarterly dividend a year ago, and we just increased it by 33%, beginning with our July payment. This level is $2 million per year. With the free cash flow we expect to continue generating, we have ample runway to increase the regular dividend in the future. Our goal is to grow the regular quarterly dividend annually on a moderate basis over the years ahead based on our performance. Third priority, we are open to strategic acquisitions in our mattress fabrics business. As you may remember, we invested $20 million in 2 great acquisitions in this segment in fiscal '07 and fiscal '09, both of which added significantly to building value in this business. We will continue to be disciplined and patient with any acquisitions that we consider. In reality, however, with such a small number of competitors in the mattress fabrics industry, which is a good attribute for our business, and the strategic advantages that could be available with any such acquisition, there just isn't a lot of current opportunity as we see it. Nevertheless, we remain open and patient, and we have the capital available if something did fit strategically and financially. Fourth, we have wanted to build our net cash position to at least $20 million to $25 million. At last year-end, we had $21.6 million. We would now like to increase our net cash reserve this fiscal year to $25 million, which is just under 10% of annual sales. This seems to us as a prudent level to maintain at this time. Importantly, this cash level helps Rob and I sleep very well at night and always have the dry powder to be opportunistic. It also gives our customers confidence that Culp will not only be around for many years but also can and will invest to provide more value to customers, whether it be equipment, technology or working capital. Also, having a very strong financial position contributes to our thinking about and running our businesses for the long term. Fifth, after the above priorities and assuming an acquisition does not materialize, we expect to generate free cash flow that exceeds our net cash target level. As we began doing over the last 2 fiscal years, we are returning funds to shareholders by way of share repurchases and special dividends that exceed our desired net cash level. In fact, we have returned $18 million, which equals about $1.47 per share, in share buybacks and dividends over the last 2 years. Prior to that time, a lot of you may remember, we used most of our free cash flow for many years to pay down debt. This heavy lifting in the earlier years really laid the groundwork to where we find ourselves today. With respect to share repurchases, because we do not necessarily want to decrease our available float, we are only interested if the market becomes irrational, as the market can do from time to time, and is valuing Culp at what we would consider a substantial discount to a conservatively calculated intrinsic value. With respect to special dividends, our board would consider distributing such a dividend after year-end and seeing where our net cash level comes in depending on circumstances at the time. Obviously, considerations for such distribution would include the economic and business outlook, as well as the possibility of funds being required for an acquisition. The bottom line is that we are in the fortunate position to be generating significant free cash flow above the requirements to grow our business organically and maintain a strong net cash position. Therefore, we can provide shareholders with the added value that comes from healthy dividends and opportunistic share repurchases. Ken will now review the outlook for the first quarter, and then I'll have a few concluding remarks. Kenneth R. Bowling: We expect to build on the momentum of our performance with a solid first quarter. However, we have a tough year-over-year comparison with an exceptionally strong fourth -- first quarter of last fiscal year due to higher industry demand. Overall sales are expected to be in the range of 3% lower to 2% higher compared with the first quarter of fiscal '13. We expect sales in our mattress fabrics business to be comparable to the same period a year ago. Operating income and margins are expected to be flat to slightly lower compared with the same period a year ago. In our upholstery fabrics business, we expect sales to be slightly down compared to previous year's first quarter results. We believe operating income and margins will be slightly lower than the same quarter of last year. Considering these factors, we expect to report pretax income for the first quarter of fiscal '14 in the range of $4.9 million to $5.6 million. Pretax income for last year's first quarter was $5.4 million. Frank? Franklin N. Saxon: Thanks, Ken. Throughout last fiscal year, Culp has continued to build upon our strong competitive position in both businesses and deliver excellent financial results. Furthermore, we believe we have a proven business model that will allow us to grow our businesses especially as the economy recovers. We have continued to meet the changing style demands of our customers with a commitment to product innovation and design creativity, along with the support of a scalable global manufacturing platform and a strong financial position. As such, Culp is well positioned for further growth as the housing market continues to show signs of a sustained recovery and consumers gain more confidence. We are fortunate to have a talented and dedicated team of long-term associates located throughout the world, and we are very excited about the opportunities before us as we look ahead to fiscal '14 and beyond. With that, we will now take your questions.

[Operator Instructions] We'll take our first question from Chad Bolen with Raymond James.

Also, thank you, Frank, for the detailed discussion around your thoughts on capital allocation. I think it's obviously a good problem to have and a good position to be in, and I think the way that you guys are thinking about it makes a lot of sense. In terms of my first question, when you look at the revenue guidance for Q1, it does seem to imply sort of business getting a little bit better in both bedding and furniture, albeit against an easier comparisons than you had in Q4. Just not asking you to give full year guidance, but just sort of could you outline for me how you're thinking about the bedding and furniture industry outlook for the remainder of this year? Franklin N. Saxon: Okay. Our outlook is pretty much in line with what we hear from other people, which is, currently, I'd characterize the business as choppy in both businesses. Last year at this time and of course, our fourth quarter, there was much better industry demand, but it's still pretty good now. It's just a little below last year. And I would say, mattress fabrics is probably a little stronger -- mattress is a little stronger than furniture. As we look at it in terms of our fiscal year, we do expect the second and certainly, third and fourth to be better quarters in the industry. As Rob will often say, in his 40 years in this business, he's never seen a fiscal year we had where industry demand was good all 4 quarters. There's always a weak quarter or 2. So that's what we've seen recently with fourth quarter and first quarter. But I would say the business level is still okay, it's just not quite as good as the strong levels of the comparable periods last year. But we do believe it's going to improve over the balance of our fiscal year.

Okay. And in the press release and in your commentary, you really emphasized innovation and how important that's been for the business. Is there any way for you to kind of quantify that for us? Maybe what percentage of products that you've sold this year are new in the last 3 years? Or is there any way to put a little bit of meat on that bone and sort of help us with what that means for market share, margins your competitive position, all that sort of thing? Franklin N. Saxon: How I would characterize that, Chad, is it is significant in both businesses, new product placements. We will take a look at that and see if that's something, a metric, we can add down the road, some percentage of our sales in new product introduction. But I can tell you, it is very meaningful in the year just ended. And we put significant emphasis and focus on innovation throughout the company. And we're seeing the fruits of that with the last year's results and with the product placements that we see with our customers. The best thing about innovation we like, of course, is when you innovate, it doesn't require a lot of capital to innovate. It's right in line with our EVA principles, our high return on capital goals. We can grow sales and margin and operating income without much capital investment. So it's a -- and we're in a fashion- and product-driven business as we've said. So this is really a core competency that we will continue focusing on and get better at over time.

Okay. And along those lines, we're hearing a lot lately in the mattress industry about sort of climate control and different projects that address sleep temperature. Are there opportunities or anything that you do along those lines in conjunction with your partners for Culp? Or what are you hearing about that topic? Franklin N. Saxon: We hear about a variety of those type of things and more so lately, and we have them all. But to date, whether it's bamboo, whether it's heat, whether it's cooling, we have not seen a significant amount of business from any of those. But we have products in all those categories that we're continually innovating, and one may hit one day. But to date, the vast majority of the sales and the volume is just in well-styled, great value products.

Got you. And Frank, you talked earlier about sort of stabilization in terms of raw material costs. Just anything that we should be concerned about on the cost front looking forward? Or how do you feel about that line item right now? Franklin N. Saxon: Yes, and we should always comment on raw materials every quarter. We have a highly variable cost structure in upholstery fabrics and a moderately variable cost structure in mattress fabrics. So our raw material prices, which are mostly synthetic fibers-related, is very important to our cost structure. And so far, we've been fortunate last year, and as we see it today, we're enjoying stable raw material prices. And on the optimistic side, if you look at what's happening on the oil prices, and those have stayed in the moderate level, just below $100, $90 to $100 and there's a lot of talk about even that price being under pressure with all the developments in the U.S. energy front, that could be a really good positive for us for -- over the next several years, if raw material prices have the benefit of staying stable. We use mostly polyester, that's by far and away our biggest fiber that we use. And you could say a good 50% of the polyester price is driven by the price of oil. And we've noted of late, China's demand for oil is declining, so that's another factor where we're seeing weaker global demand for oil and of course, at the same time as we're having increased supply. So that really is encouraging to us versus several times over the past 5, 6 years, we would have oil price spikes and that would translate into sharply higher raw material prices for us, which are nearly impossible to pass on, on a short-term basis. So we're feeling pretty good as we look at the macro landscape that our raw material environment could be stable for a while. I don't necessarily think it will go down, but stable is good.

[Operator Instructions] And we'll take our next question from Kevin Tracey with Oberon Asset Management.

I just wanted to ask, if I remember correctly, you guys had a non-compete agreement related to one of your acquisitions a number of years ago. And if I remember right, that non-compete agreement expired this year. And I guess I'm wondering, is that right and is there an opportunity for you guys to maybe gain a little more market share in your mattress business because of that. Franklin N. Saxon: Yes, Kevin. We did have with our -- with an acquisition we made in 2008, we had a 6-year non-compete with one of the mattress -- with one of our competitors who we bought the business from, who were one of the leading companies in the mattress business. We have -- with the transaction that we disclosed in early May in an 8-K, we have amended that agreement, and we no longer have that non-compete. So that will open one -- a larger bedding customer to us that the original non-compete would have expired August 2014, so 14 months from now. But now we are open to -- there's no restrictions to the customers in North America for us. And I don't know that I'll see any short-term benefit, but certainly, over time, second half of this fiscal year and beyond, that is certainly a positive factor for us.

Okay, okay, great. And then, I guess, you talked a little bit about your outlook for both businesses. But I was hoping you could talk a little bit more about, I guess, the potential for the upholstery business. It would seem as though the housing market continues to recover. And I know it's not -- you have restructured the business since the 2006, '07 and '08 years. So maybe it's not appropriate to kind of look at those level of sales. But I guess I'm just wondering, how much do you think you can grow the upholstery fabrics business if the housing market does indeed continue to gain strength. Franklin N. Saxon: Kevin, I would say, and we talked a little bit about this in the last conference call, that when you look at Culp, everybody historically looked at us, over the last 10 years, as a mattress fabrics company, makes great money, good returns and the upholstery fabric business was getting restructured and maybe didn't place a lot of value on it. But today, the upholstery fabric business just completed its fourth year of sales growth. We are a leader in the business. Our innovation capabilities is better than we've ever had it, and I think I would say as much as we like the mattress fabrics business, and we do, you probably have to say there's a higher growth opportunity for the reasons you stated in the upholstery fabrics business. And our outlook there is very promising, and the return on capital this past year was 40%. We're not fixed-asset-intensive. So I think now we not only have a great mattress fabrics business with stable profits and returns that we like, we now have a great upholstery fabrics business with significant growth opportunity with the housing recovery. And over time, certainly, furniture, upholstery furniture, is tied closely to the housing activity and consumer confidence, both of which look pretty good over any 2 to 5 year period here. So we are increasingly excited about the upholstery fabrics business and having 2 strong businesses rather than just 1. So again, really good news for us. And the other thing that's happening is our businesses are working together more. While they're different customers, different products, we are -- as we've mentioned in the last several calls, we are beginning to see a more decorative bedding industry environment with the -- and the way they do that is with upholstery fabrics on mattresses, particularly in the specialty bedding sector. So there's no other mattress company that has the breadth and depth of upholstery fabrics and a China platform to utilize upholstery fabrics with mattress fabrics for our customers. So that's proven to be a really nice synergy, and I think as the mattress business continues to become more decorative, that's an important strength for us as well. The bottom line, upholstery fabrics business has survived a deep restructuring and a reinvention of the business, but it is ready to do very well for a number of years in our opinion.

Okay. Okay, great. And then I guess a related question with regards to your guidance. Now you mentioned that you expect margins to be slightly down in the upholstery business, and I know that you're kind of comparing yourself against a strong first quarter last year. But I guess, I just wanted to ask, is your expectation that margins will hold up or hopefully, increase over the full year? And you mentioned that your cost structure is very variable with the your upholstery business, and I imagine that labor cost is quite a big piece of that. And I guess I just wanted to ask, are you getting hurt by wage inflation in China? Or -- and then, is pricing holding up in that business? Franklin N. Saxon: We would expect margins to hold up for the year. Reasonably, we feel good about that. There is wage pressure, as you mentioned, in China, and it is running anywhere from 12% to 15% annually. We believe that will continue. However, labor is not a big component of our cost structure. So those increases can be absorbed with the favorable raw material climate we find ourselves in. And so -- but there is some cost pressure on the labor side but I -- in China and we expect it, but I don't believe it's going to be a factor. Where that hurts was a year ago or 2.5 years ago, where we had increasing raw materials, increasing currency and increasing labor. But if we just got the increasing labor and the currencies remain relatively stable, China to the U.S. dollar, and raw materials, we can absorb that. On the pricing front, our business in both businesses are always price-sensitive. But as we innovate more and provide more value along with that, with the service and quality and [indiscernible] customers, you can -- you provide more value. And the price is always important, but we're finding we can get better margins with more innovative products. So that is encouraging us to do even more on the innovation front and deepen the focus in our company on innovation and where we can innovate, how we can do it, do we have enough resources, are there technical things we can do, just a whole host of ideas to drive innovation.

And we'll take our next question from Budd Bugatch with Raymond James. Budd Bugatch - Raymond James & Associates, Inc., Research Division: I apologize, Frank, if you've already gone over this. But I know you've talked a lot about innovation, and I wondered if investors could gauge the success of that by looking at the gross margins of the various segments. I see, in the year, I think, upholstery was up about 360 basis points, and gross profit margin in mattress fabrics look like they were up about 210 basis points. And what is the high watermark for those, where could they go? Franklin N. Saxon: Budd, that's a great point. I probably should have mentioned that. That's probably the best indicator of our success with the integration initiatives. And to be specific, mattress fabrics, for the year, 19.2% gross profit, up 200 basis points from 17.1%; upholstery fabrics, 17.4%, up almost 500 (sic) [400] basis points from 13.8%. Those were margins that we did not see possible at the beginning of the year, to be honest with you. But that's what we're finding. The more we innovate, the better margins we have. And -- but I think I don't -- we don't have this kind of margin gain at the gross profit level, in the future, that we just had. I believe with the returns on capital that we're enjoying now, we'd be happy with gross margins in this level or slightly above with moderate sales growth. That would produce great results. But that is -- I think your point is right on target. The gross profit margin is probably the most tangible evidence of the benefit of the innovation focus. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. And my other question goes just real quickly. You've got a China operation for upholstery and a domestic, 1 factory or 1 mill left making domestic upholstery fabric, and that had been a challenging facility for a while. Can you give us maybe some feel as to how the U.S. upholstery business is and maybe the relative profitability of both or at least speak to how they look today? Franklin N. Saxon: Sure. The U.S. operation is 10% of the upholstery fabrics business, which was $150 million in sales rounded. We've got 1 facility, we've got 40 people. It's a small facility. But we have felt for some time now that it's strategically important to keep that 1 facility here and not have 100% of our eggs in that China basket. Last year, this division, the U.S. operation, had its best year in 6 or 7 years, long time. And with the sales level and the lower cost structure, moderate raw materials, we were pleased with that operation. We are starting out this year a little softer in that area than we would like. However, the key for the U.S. facility is just like what we've done in China, we've got to innovate. And it's more difficult to innovate when you own an asset and you own equipment because you can only -- if you own a coal mine, all you sell is coal, for example. So we are trying to innovate in that operation with velvets and textures, chenille-type fabrics just like we've done in China. But it's a more difficult task there. But that is now our focus. We -- again, we're product-driven. We have to find a way to innovate out of our Anderson, South Carolina facility for it to really be successful over the long haul. But the most of the profit in upholstery fabrics is -- comes from our China-produced fabrics. Budd Bugatch - Raymond James & Associates, Inc., Research Division: But is the U.S. operation -- was it profitable last year? Franklin N. Saxon: No, it was profitable. It had its best year in a -- it's not as much as we would like, but it's the best profit we've had down there in 6, 8, 9 years. It actually earned its cost of capital, which is the first in many, many years, so that's a great first step. But that's not good enough. What we wanted to do is we need to drive new products down there. And if we did the same measurement on new products as a percent of sales, that wouldn't look so good compared to our China-produced business, which, of course, is 90% of our business. So we're succeeding where we want to. But we think it's important, from a long-term strategic sense, to have a U.S. facility that innovates and is profitable and earns a nice return on capital.

And there are no further questions at this time. Franklin N. Saxon: Okay. Operator, we'll now conclude the call. Thanks, everyone, for joining us, and we look forward to updating you after our first quarter results. Have a great day.

And this does conclude today's presentation. We thank you, all, for your participation.