Eaton Corporation plc
Q1 2008 Earnings Call Transcript

Published: 24 Apr 2008

[Operator:]

Good day ladies and gentlemen and welcome to the first quarter 2008 Cooper Industries Ltd. Earnings conference call. My name is Stacey and I will be your moderator for today. (Operator instructions). I would now like to turn the presentation over to your host for today’s call, Mr. Jon Safran, Director of Investor Relations. Please proceed.

[Jon Safran:]

Thank you Stacey. Hello and welcome to the Cooper Industries’ first quarter 2008 earnings conference call. With me today is Kirk Hachigian, Chairman and Chief Executive Officer and Terry Klebe, Senior Vice President and Chief Financial Officer. As mentioned in our press release, we have posted a presentation on our website related to the first quarter results which we will refer to throughout this call. If you would like to view or download the presentation, please go to the investor center section of our website, www.cooperindustries.com and click on the hyperlink for management presentations. Before we proceed, let me remind everyone that comments made during this call may include forward looking statements under the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which are outside the control of the company and as a result, actual results may differ materially from those anticipated by Cooper today. A discussion of these factors may be found on the company’s annual report on Form 10K and other recent SEC filings. In addition, comments made here may include non-GAAP financial measures. To the extent that these have been anticipated, reconciliation of those measures to the most directly comparable GAAP measures are included in the press release. And now let me turn the call over to Kirk.

[Kirk Hachigian:]

Thank you Jon and good morning. As many of you know, 2008 celebrates Cooper Industries 175th year anniversary and we head into 2008 extremely well positioned with a great portfolio of world leading businesses, strong product breadth with the first end market exposure and 33,000 talented employees eager to take on the next 175 years. We have terrific momentum as we’ve just completed seven years of record financial results. In 2006, we generated revenue growth of 10% and earnings per share growth of 25%. And in 2007 our revenues were up 14% and earnings per share up 22%. So it should be no surprise today that we posted new record results for the first quarter of 2008 despite significant issues in the global financial markets, severe commodity inflation and a deepening North American housing slump. If you turn to page 2 of the presentation for specific highlights in the quarter, our revenues were up 11% with foreign exchange and acquisitions contributing 9%, electrical products were up12% with acquisitions contributing 7, foreign exchange 2 and a core growth rate of 3%. And our tools business was 1% with foreign exchange contributing 6% so actually a negative 5% core. We saw continued strong growth in industrial and energy markets, the utility markets were strong and residential continues to be soft. Overall a solid performance versus tough comps last year when our core growth rate was up 7%. We continued with very strong international growth up 28% with total international now representing 37% of our total sales in the quarter. Earnings per share were $0.81, up 14% from the first quarter last year and at the higher end of our guidance. Electrical products return on sales was 16.4%, up 40 basis points despite the incremental dilution from the acquisitions which Terry will talk about more in a second. Our tools return on sale was 9.3%, down 260 basis points and again Terry will make more specific comments in a few moments. Free cash flow was $42 million on track to deliver our eight consecutive year of free cash flow in excess of recurring income. And we completed two acquisitions in the quarter

[Terry Klebe:]

Thanks Kirk. As Kirk mentioned we had an outstanding start to the year in a more challenging economic environment. Before turning to the earnings for the quarter I’ll provide some highlights on our free cash flow and balance sheet. On slide 6, as Kirk noted, our free cash flow for the first quarter of 2008 was $42 million compared to $52 million in the first quarter of 2007. As is typical in the first quarter, annual customer and employee incentives are paid which results in the first quarter being the lowest free cash flow generating quarter of the year. Cooper’s strategic initiatives continued to drive performance and we anticipate delivering the eighth year in a row where free cash flow exceeds recurring income. Our balance sheet remains in great shape with our debt to total capitalization net of cash and investments at 31% on March 31st 2008 compared to 24.8% on December 31st. During the quarter we took advantage of what we believe was an attractive buying opportunity and purchased 6.3 million shares for $266 million. In the short term this drove the increase in our debt to total capitalization up to 31%. The stock buybacks of course reduce equity, driving up the reported net debt to total capitalization. Importantly, our debt to EBITDA at December 31st 2007 was less than 1

[Kirk Hachigian:]

Thank you Terry. In summary we feel extremely well positioned to deliver another year of double digit earnings growth despite the challenging economy. Our portfolio is much more diverse and has a broader exposure to key global market segments that will provide an offset to a weakening US economy. We’ve also made significant investments to gain a much larger share of the developing and global infrastructure spending which we expect that trend to continue. Our order rate was strong in the first quarter and we continue to find good opportunities for organic growth across our diverse business portfolio. We completed 15 acquisitions over the last 15 months for $650 million and the integration process is on track. These acquired companies with $500 million of revenue to date will provide us additional access to attractive higher growth better margin opportunities in the future. And while we’ve been feverishly integrating these properties, the market uncertainty in the first quarter made our stock valuation very attractive giving long term Cooper shareholders the opportunity to purchase our shares at a very attractive multiple. And so we purchased over 6 million shares continuing to be disciplined and opportunistic with our cash deployment. In summary we expect our 175th year anniversary to be another record year and feel good about the start to this historic anniversary. Now let me turn the call back over to Jon to answer your questions.

[Jon Safran:]

Thanks Kirk. At this point I’d like to open the call for questions. I just would like to remind our listeners to please enter the queue using your own name. Out of respect for others waiting to ask a question, we will not take questions from people who entered the call queue using someone else’s name. Operator, first question please.

[Operator:]

(Operator instructions). Your first question comes from the line of Bob Cornell, Lehman Brothers, please proceed.

[Bob Cornell:]

Hi everybody. Good looking quarter, you mentioned intriguingly the comments about the strong April order book, could you flesh out that comment please Kirk.

[Kirk Hachigian:]

Yeah as we kind of wrap through the year as Terry mentioned we were up against some difficult comps and as you can imagine we keep tabs on things pretty close. So the intake rate in April is at or head of where we thought it would be. I think Terry did a nice job sort of walking you guys through and giving you as much visibility as we could, sort of business by business and where we stood. You know we’re very positive about the order rate and as you know Bob, when we look out at least one quarter we have very good visibility. So the combination of the order rate and the way April started out, you know we feel pretty good about the second quarter, certainly. And as we mentioned, while we’re somewhat conservative, still feel pretty good about the remainder of the year.

[Bob Cornell:]

Yeah you know I’m sure a lot of people on the call are going to wonder about the non-res market and you’ve previously talked about inquiry levels and order rates and visibility, what would be an update there?

[Kirk Hachigian:]

Yeah if I buried my head in the sand and didn’t read any of the journals or watch the TV I would tell you that the first quarter we built backlog at the lighting business. We continued to see a good order pattern and quotation pattern. You know we’re focused on where the growth is, the institutional segment, the hospitals, government, utility, energy, international. We continue to build out our portfolio on the spec side of the business. The energy retrofit market is booming. You know lighting is roughly 40% of the electric bill, 80% of the buildings have systems or lighting products that are older than 1990. And you know lighting controls and the payback on these energy efficiency products are really upwards of 40%. We’ve got a whole launch of new product families in this area coming up at the light fare and you know second quarter because of the backlog looks good. But I think you can’t be naïve and not think that the layoffs in the financial institutions, the higher commercial loan crisis and the construction costs aren’t going to have an impact and certainly the ABI number in the last month wasn’t overly attractive. So you know we’re anticipating a tightening in the back half but we don’t see it yet and I guess you know again if I looked at some of the other reports that came out in the last couple days, some of the big commercial people on elevators and H-AC and security and systems controls, I would believe that maybe we’re being conservative but I think it’s the prudent stance to take at this point.

[Bob Cornell:]

And just one final comment, I mean all of the sudden people are talking about the energy retrofit, I mean Honeywell has been big in that business for years as was Johnson Controls, I mean why is the energy retrofit business all of the sudden now such a hot item?

[Kirk Hachigian:]

Because utility rates have gone up and nearly doubled because of the price of oil and coal and then there’s this government energy bill which gives people more incentive to want to do it and this whole green impact, everybody’s doing sustainability reports now. We have now I think re-lamped the majority of our facilities, you can cut your electric bill by half. And again you can get a payback in one to two years on that investment. So there’s a lot of things that are pushing the interest in that space right now Bob.

[Bob Cornell:]

Okay, thanks Kirk.

[Operator:]

Your next question comes from the line of Nicole Parent with Credit Suisse, please proceed.

[Nicole Parent:]

Good afternoon. I guess just to start, when we think about kind of the strength of the international portfolio I think you said electrical was up over 30%, could you just give us some context when you think about regions? And I guess as you think about your industrial and commercial portfolios, I think both of you cited strong international, slower North American industrial, could you give us some sense of the magnitude of the difference and where you’re seeing the strength in Europe and when you expect that to moderate like we’re seeing in North American in the second half of 08?

[Kirk Hachigian:]

Yeah we just came back, we had the whole team over in Asia for about a week, I was in Vietnam and some of the guys were up in Korea and Japan. While there’s higher inflation and currency strength, I think the overall fundamental GDP growth across Asia is intact. And so again we’re a relatively small player on relatively small numbers in the grand scheme of things, so continue to see great strength there. Middle East because of the oil and gas and the commercial construction, very, very strong and then Grant and I were in South America, we were down in Costa Rica and Peru. But I would tell you South American continues to be very strong as well. So we really didn’t see anything that would give us any reason to believe that we’re going to slow or see anything different in the back half of international. The project activity we continue to localize manufacturing and bring out more products, we continue to invest in our sales organizations out there. And I think that’s going to continue its strength. In the US, you know the Crouse business, oil and gas was terrific. I mean the Gulf Coast was strong, lot of new construction and investments in as I mentioned the US steel industry, copper, we were out at [Kanaka] mines out in Utah, still a lot of activity. You can imagine these facilities are being run hard now on three shifts with commodity prices. The softness is in the US automotive space, furniture market and those kinds of space. But overall our industrial space continues to be very strong and our outlook for the year continues to be very strong. Terry do you have anything to add?

[Terry Klebe:]

No I think that’s right and you asked about Europe Nicole, Europe has started out the year very strong. And of course you know a lot of our Europe business exports to the Middle East and other areas of the world that are booming. So right now the outlook across Europe et cetera is going to be much stronger growth than clearly the US for the year.

[Nicole Parent:]

Super. You indicated the orders versus shipped spread is I think greater than 10%, what has that historically tracked, what’s the range? And then I guess to follow up to your answer to Bob, Kirk, how far in advance would you see a slowdown on the commercial side based on kind of what you’re seeing with ABI.

[Kirk Hachigian:]

The book to bill was the best it’s been in about five, six quarters Nicole. So that’s very strong for us. A lot of times normally we see 3-4% because, I would say it was particularly strong and again the best in almost a year and a half as we sort of went back and just sort of looked at the book to bill overall for the last few. To answer your question on the lead time, you know I think we have a pretty firm, for the second and the third quarter now looks okay. As you get out to the fourth quarter it’s a little trickier because again a lot of that business hasn’t even been quoted yet or begun to be placed. So on the project side. We’re seeing slowness in the stock business as you’d imagine, related to light retail and housing. But the project business has been especially strong and again we would begin to see that slowing down in the fourth quarter sometime at the end of the second quarter would be my guess and again we’ll talk about it on all the calls. But our anticipation is that it will slow.

[Nicole Parent:]

Super, thank you.

[Operator:]

Your next question comes from the line of Jeff Sprague with Citi Investment Research, please proceed.

[Jeff Sprague:]

Thanks, hello everybody. Hey I don’t mean to nitpick this order versus shipment but it is a very interesting intriguing point and just to further follow up to where Nicole was, you know you said the book to bill was strong but I guess the bill was abnormally depressed a little bit on these items. So just if you look at the year over year growth rate in orders, could you tell us what that was?

[Kirk Hachigian:]

I don’t have it in front of me.

[Terry Klebe:]

Jeff, I don’t have that handy but last year in the first quarter I know we were up nicely over the prior year also. And over the first quarter last year if you remember we raised guidance in the first quarter because of the strength of the first quarter and the bookings we had going into the second quarter. So while I don’t have that information right in front of me I would suspect, being up the way we are right now over a quarter like the first quarter of last year is very positive.

[Kirk Hachigian:]

Yeah, we could pull that out Jeff, I don’t want to spend time on the call here going through that but we could pull it up.

[Jeff Sprague:]

Yeah, I’ll follow up with Jon on that, no problem. Can you give us a little more color Kirk on what you’re seeing in the utilities space? You know clearly there’s some pressure on the D side of the equation with resi weakness but how about some of the more project related pieces of your business, what’s going on there?

[Kirk Hachigian:]

Yeah, overall again as Terry sort of said on the phone, a little bit deceiving because the core growth last year was sort of high, I think it was 28% was the growth rate of the business, so you saw it taper off in the first quarter but again built backlog, had a good order intake rate in the first quarter. Saw softness as you’d expect on the distribution type products. You know no inclement weather in the quarter, nothing unusual there. But the C&I business continues to be strong. The international business continues to be very strong and the reliability, the Cannon EAS type products continue to be strong. As we talk to customers there, continue to be a lot of interest and capital budgets are holding, so no reason to believe that the utilities are being used as they’re cutting capital plans and you know the age grid and all that comes into play. But we expect it to continue to be strong and certainly be close to our double digit growth number by the end of the year, which means we’re going to catch up on some of the softness we had on the year over year basis in the first quarter. Pricing continues to be favorable as well as you can imagine with course steel and copper and all the other sort of things that we’re aggressively going out trying to recapture some of that in the marketplace. So I’d say the pricing environment still continues to be strong there as well.

[Jeff Sprague:]

Alright. And I guess that’s going to be a question as we look over the course of the year, do you see, I mean your volumes are still net-net pretty decent but are you seeing any signs that people are pushing back on price given that the volume momentum in general is softening a little bit in some of these channels?

[Terry Klebe:]

You know to date Jeff and we’ve just talked to all of our division presidents, we’re really not seeing that. And we’ve come out with price increases across the globe, Europe, North America in every one of our businesses. Some earlier in the quarter, some will happen again here in April and May because of what’s happening with steel prices, but to date no real pushback on it.

[Jeff Sprague:]

Okay, great and then just finally, can you actually give us the growth number for Europe in the quarter ex currency, ex deals?

[Terry Klebe:]

It was up mid, a little better than mid single digits.

[Kirk Hachigian:]

Between 5-10% Jeff, without acquisitions and without FX.

[Jeff Sprague:]

Okay, thanks.

[Operator:]

Your next question comes from the line of Christopher Glynn with Oppenheimer, please proceed.

[Christopher Glynn:]

Thanks. Just wanted to again dig back into the retrofit a little bit. I think the majority of your retrofit exposure being lighting and it’s probably kind of a new business model, a different sales model. Where are you with kind of putting the infrastructure in place around that to go after that market?

[Kirk Hachigian:]

We’ve been working on the new product pipeline Chris for about the last 12 months. We have ten new product families that were being launched in the last 12 months. And we built a vertical market team and the gentlemen who runs this business really reports directly to the division president. And then on top of all that we have been out of course aggressively training the lighting agents and our sales people in the field in how to sell the economics of this. Because again you’re talking to people who don’t necessarily wake up and say I need to go re-lamp my distribution center or my warehouse. But when you go in and you show them the economics which is basically a spreadsheet and you just plug in your utility costs and what would it cost to, the capital expenditure, it gives them a payback very, very quickly and shows them the economics of all this. And then they get the benefits of any utility rebate that could be in that marketplace and additionally they get the savings and the credits for the green initiative as well.

[Christopher Glynn:]

And how easy or difficult is it to track the volumes and the quotations going into that market as distinct from the traditionally normal project and refurbishment? And as a follow on to that, do you have any figures around what the quotation activity levels are at relative to say a year ago?

[Kirk Hachigian:]

Well the business has nearly doubled in the last 12 months off of a slow number but it’s getting to be approaching that $100 million, $100 million plus business this year. And it is hard to separate because again when the order is actually placed its placed through the normal order entry of the business and so you, it is a little bit difficult to say exactly what was sold on a retrofit versus what was sold on a remodeling job. We can’t track it in that specifically back to the origin of the order or the end user. But the large retailer, the national accounts, great traction, as you’d imagine the UPSs of the world, the Federal Expresses, Pro-Logics, people who own large amounts of distribution centers, so there’s a ton of traction out there in this area.

[Christopher Glynn:]

Okay and then just a couple housecleaning, the corporate expense was quite low, just wondering if there’s anything of interest there. And then finally in the segment income statement, does the currency benefit go in the electrical segment?

[Terry Klebe:]

General corporate expense includes the $5 million in the currency gain. So if you add that back up we were up less than $2 million in general corporate over the prior year. And it goes into SG&A, it’s not in the segments.

[Christopher Glynn:]

Great, thanks very much.

[Operator:]

Your next question comes from the line of Scott Davis with Morgan Stanley, please proceed.

[Scott Davis:]

Hi everybody. Most of my questions have been answered but I am curious on the net debt to cap chart hitting 31% in 1Q. We always kind of think of 35% as somewhat normalized I guess for most industrial companies. Terry do you have a view of where kind of optimal capital structure is for you guys and heading into, if you believe Dodge and ABI heading into what could be a tough back kind of 08 and 09, does that change your view on how you think about debt levels?

[Terry Klebe:]

Well, you know, we’ve bought back a substantial amount of stock in the last 18 months which has really pulled our equity number down. So if you look at our net, just look at net debt to cap, it shows you know we’ve gone up slightly from where we were two, three years ago. But if you look at our EBITDA coverage ratio, you know we’re still only a little bit over 1.1

[Scott Davis:]

Okay. Guys, maybe just more asking your opinion than anything else, I mean how do you reconcile this dreadfully bad ABI and Dodge data that we’re getting and certainly that’s spooking the heck out of the marketplace as it relates to anybody who’s got commercial construction exposure. I mean how do you reconcile that with maybe some of your sales guys, division heads have been doing this a long time, you know is there, I guess my question is, one, to kind of get your opinion on the quality of this data and if you kind of believe it or if it’s maybe not capturing some of, maybe a broader subset that maybe you’re selling to an also just if you do believe the data, what do you do about it? I mean can you plan to, pre-plan some you know, take out some shifts or cut down some, take down a couple factories in anticipation or do you kind of wait until it hits you then feel like you’re going to have enough time to be able to make some moves. If indeed you believe the data because it sounds like you’re internal sales force is telling you something that maybe the data is telling us something different.

[Kirk Hachigian:]

Not just the sales force Scott, I mean you got to look at the order rate, right, so you can’t panic too soon because you become self fulfilling. So let me try to answer your question. First of all the ABI has got residential in it and several other components in it, like retail. And there’s nothing surprising that residential got worse in the month of February and March. And so and like commercial, we’ve been talking about Starbucks and Dunkin Donuts new sites for a while and there’s not been a lot of activity there. The second piece is, if the large project business on the institutional side, even within the ABI showed good growth or strong stabilization there. And that’s where we’re seeing the good project business and the business holding up quite well. The other piece is that 32% of our 26%, commercial is international. So Dubai, the European economies are holding up pretty good. And so I think that if you even went back to 2001 and you looked at the last downturn, from peak to trough on lighting, and if you looked at the Gen Lights and the [QTs] and the others, it was something like 5%. So I think between the international exposure, the segments that are still strong, the energy efficiency piece which is stated to be something like $100 billion opportunity that’s out there, the international piece I talked about, the lighting controls and some of these other nice slivers, we can do reasonably well there. We’ve driven productivity, we’ve outsourced a lot more, we have, we configured our footprint. And then I think what you’re not taking into consideration is where we’re going to be on industrial and utility and these other spaces which has been part of our plan, and not be solely focused on construction as a company, again like we were in 2001. So when you look at the company at 2001 and 2008, again that’s why we’re confident that we can continue to grow this, even in this environment. When housing is soft and non-resi’s going to get soft in some segments, we’ve got the international piece, we’ve got a great industrial piece, we’ve got a great utility piece that we think we can offset some of this and so grow the earnings of the company double digits.

[Scott Davis:]

Okay, that’s pretty clear. The other question I wanted to get is, last question, is energy efficiency and this has certainly gained more momentum in the last couple quarters. It’s very hard to quantify and I think your comments really reflect that. There’s a lot of chatter on cap and trade and some things going on in Washington that could impact. I mean how does your sales force go to market you know if, I guess my question is if we are getting a new environment where you’re going to have cap and trade in 09, it may actually benefit companies to wait until legislation is passed before they upgrade or retrofit. How do you get the sales force out there selling this and getting people to change early? Is it purely on you know real time energy savings?

[Kirk Hachigian:]

It’s real time energy savings, the utility costs continue to go up and I think most or all companies have an incentive now to demonstrate some area of energy efficiency or green initiative to their customers or employees that they’re doing the right thing. It’s also Scott of course a better, whiter light. So versus that old kind of orangey sort of hew that you have in your manufacturing centers or distribution centers, you know you’re putting in. If you go to the old Home Depots and the Lowes’, they used to use HID and all those applications, now all the new is fluorescent. So I don’t think we’re seeing a reluctance and need more government intervention to speed it along although that continues to be the trend. The utility companies in different states have incentives as well for people to do this as well.

[Scott Davis:]

Okay, good, that’s helpful. Thanks guys.

[Operator:]

Your next question comes from the line of Deane Dray with Goldman Sachs, please proceed.

[Deane Dray:]

Thank you. If we go over back to the utility sector and comments if we could because your comments are a lot more bullish on the outlook than what some of the distributors are talking about. I know there’s a big difference in mix. But if those are the distributors, they are talking about down low double digits with some of the distributor products that they focus on. I know that’s only about 10% of your mix, but are you seeing the same slowdown that they’re talking about in the utility space?

[Kirk Hachigian:]

Exactly, if you peel that out and I already got a call, one of our competitors came out with some numbers the last couple days, we’ve already looked at it. If you look at that segment of our space which is the residential distribution business, it’s down almost about the same kind of numbers. The margins are up, the pricing is better but it’s down. If you look at the international Deane, if you look at the three phase pad mount, if you look at the reliability products, on some product lines we’re sold out. Order rates are very, very strong, good visibility, it’s probably one of our best visibility businesses as far as looking out six months. And so that’s why we feel confident with the comments that we made. It’s a different business than a lot of those people who rely strictly on distribution.

[Deane Dray:]

Good, that’s very helpful. And then for Terry, this is the second time we’ve heard about the tornado, is this going to carry through for the balance of the year or when does this get resolved and will there be insurance recoveries?

[Terry Klebe:]

Our facility was totally insured, there was about $25 million of inventory, well I guess it was more than that, probably more than $30 plus million of inventory in the warehouse. We lost most of that. That’s part of the reason why you see our inventory turns up because we had to, we hadn’t written that inventory off but it’s all 100% covered by insurance. So most of our cost was just getting out of the facility, of course we had to deploy teams, et cetera, to get moved into a temporary facility. We’ve done that. We’ve still got a little bit of recovery to do but by mid May we’re back in business full steam.

[Deane Dray:]

Okay and then just to clarify on the restructuring that you did in tools, was that in your previous guidance and was there anything discretionary there?

[Terry Klebe:]

There was a small, very small piece of that that was in our guidance. We did more, we took more actions there Deane. Ended up doing it much broader and that’s why we said it out that it did distort their numbers a little bit.

[Deane Dray:]

Okay and any update Terry on the asbestos front?

[Terry Klebe:]

Well the judge is through getting briefs and testimony on plan A. We’re waiting for her ruling on it. She is not doing that very fast. The plaintiffs bar has asked for a stay or injunction which I believe is a hearing set on June 2nd.

[Deane Dray:]

Okay and I know those delays are outside of your control but the earliest it would be, early June?

[Terry Klebe:]

That’s when the next hearing is set. So the next time we would hear something.

[Kirk Hachigian:]

But Deane, you know at the end of the day I guess we’re probably going to grow a little bit impatient with the waiting process as well. As you know the plan B has been approved. The overall program gets more and more expensive the longer we wait. So if we can’t get the judge to give us some indication one way or another, of course we retain the option to force plan B and just move on with this thing. Because it does give us the ability then to set up our shop and get on with life and just manage the liability and manage our insurance as we move forward. So I would tell you by the time we get on this call again we ought to be further along in our decision or probably closer to an end to this whole thing one way or the other.

[Deane Dray:]

And how quickly for plan B do you get that receivable? Is it $138 million?

[Kirk Hachigian:]

Yes, ten days roughly. Once we give our notification, the money is in an escrow, we pick up the $138 million, again we sort of re-staff ourselves and we just sort of manage this as we have for the last four or five years. We can look at other insurance options and other things but at some point, we’ve discussed this with the Board, we just need t move on. Some of these things can sit in a bankruptcy because of her docket for years and that is not a path that we’re going to take.

[Deane Dray:]

Well from a net liability standpoint and I don’t see a big different between A and B, I know you just would like to get final resolution on this.

[Kirk Hachigian:]

Well if you really look at the math, we were paying a premium to get at A, but as we’ve said the terms and the conditions of A don’t change if we sit out there for a year or two. So as we manage more of this liability over time, we’re not really chipping away at the offer. And so therefore the offer actually gets more expensive over time. So at some point this thing just becomes a white elephant and we just got to get on with life. And that’s kind of where we’re getting to.

[Deane Dray:]

Okay, thank you.

[Operator:]

With no further questions in the queue, I’d like to turn the call back over to Jon Safran for closing remarks.

[Jon Safran:]

Okay, thank you everyone for joining us today, this concludes the call.

[Operator:]

Thank you for your participation in today’s conference, this does conclude your presentation, you may now disconnect and have a good day.