WD-40 Company
Q4 2008 Earnings Call Transcript

Published: 16 Oct 2008

[Operator:]

Welcome to the WD-40 Company fourth quarter 2008 earnings release conference call. (Operator Instructions) At this time I’d like to turn the call over to Vice President of Corporate Investor Relations for WD-40 Company, Ms. Maria Mitchell.

[Maria Mitchell:]

Today we are pleased to have Garry Ridge, President and CEO and Jay Rembolt, Vice President and Chief Financial Officer. This conference call contains forward-looking statements concerning WD-40 Company’s outlook for sales, earnings, dividends and other financial results. These statements are based on an assessment of a variety of factors, contingencies and uncertainties considered relevant by WD-40 Company. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from forward looking statements including the impact from cost of goods, the impact of new product innovation and renovation, the timing of advertising and sales promotion activities and the uncertainty in economic conditions both in the United States and internationally. The company’s expectations, beliefs and projections are expressed in good faith and believed by the company to have a reasonable basis but there can be no assurance that the company’s expectations, beliefs or projections will be achieved or accomplished. The risks and uncertainties are detailed from time to time in reports filed by WD-40 Company with the SEC including Forms 8K, 10Q and 10K. Readers are urged to carefully review these and other documents and to stay up to date with our most recent company developments provided in the Investor Relations section of our website at WD40Company.com. Our first quarter fiscal 2008 earnings conference call [sic] is scheduled to take place on Wednesday, January 7, 2009 at 2

[Garry Ridge:]

This afternoon we reported net sales of $76.9 million for the fourth quarter of fiscal 2008, a decrease of 3% versus the fourth quarter of last year. Full fiscal 2008 net sales were $317.1 million, an increase of 3% over fiscal 2007. Net income for the fourth quarter was $4.7 million, down 50% compared to the fourth quarter last year. Fiscal 2008 net income was $27.2 million, down 12% versus fiscal 2007. Earnings per share for the fourth quarter was $0.28 per share compared to $0.54 per share for the same period last year. Fiscal 2008 earnings per share were $1.64 down from $1.83. These results are below the guidance we provided last quarter and there are many reasons for that. Before Jay covers the sales and financials in more detail I’d like to highlight some of the challenges and wins of this year. Fiscal 2008 can certainly be characterized as the best of times and the worst of times for WD-40. We experienced the best of times with increased international growth our WD-40 3-In-One brands, executing on our strategy established back in 1998 of diversification and growth by brands, borders and trade shows. We faced the worst of times with continued rising costs of components and raw materials, sales challenges with our household cleaning brands and deterioration in the economic conditions in the U.S. and in some other parts of the world. Our people worked hard to meet the growing challenges of these dynamic economic times and we refined our diversification strategy to meet the realities of today’s market and into the future. Rising costs of components and raw materials is nothing new; however the volatility and sharp increases we experienced this year particularly in the fourth quarter were unexpected and unprecedented. We started the year with crude oil at around $83 a barrel. Oil prices peaked at $141 or above in July and finished the fiscal year at about $115. As you know, oil prices have an effect on oil based products, plastic components and cost of diesel fuel we use to transport our goods to our customers. Steel prices also increased dramatically with a strong demand in China, India and Russia and the emerging markets. WD-40 cans are manufactured from tin plate which increased 20% over the last two years. We have continuously monitored the markets and prepared our teams to respond and adjust to the shifts during these uncertain economic times. While we were able to implement cost containment and margin enhancement strategies we could not shield the company completely from the volatility in commodity pricing this past year, particularly the fourth quarter. We experienced margin erosion as a result. We also experienced higher SG&A expenses which increased 7% during the fiscal year compared to 2008’s prior fiscal year [sic]. Our freight was up however it is important to note that freight costs could have been much higher if the company hadn’t fully implemented an integrated freight management solution. Changes in foreign currency also contributed towards higher SG&A costs. We hired staff to support our growing international operations; our legal expenses went up due to increased activity in litigation, case load and increased intellectual property protection. Also impacting Q4 results was an impairment cost of $1.3 million or $0.05 per share on an after-tax basis related to the indefinite lived intangible assets of the X-14 brand. The impairment charge, a non-cash charge, was triggered by a decline in future forecast sales levels of the X-14 brand due to management’s strategic decision to remove a number of products from the grocery trade channel. That decision resulted from the company’s new diversification strategy developed during the fiscal year 2008. This was the first step in transitioning the brand from its high dependence on the grocery trade channel. In light of these events it could be seen to be the worst of times. However, we do have wins to celebrate, particularly our growth in the international markets. As we commemorated our 53rd birthday for the first time in WD-40’s company history over half or 53% in fact of the company’s total revenues were generated outside the United States. International product sales of WD-40 alone grew from 57% in fiscal 2007 to 62% in 2008. Jay will cover the regional and product sales in more detail but I’d like to highlight that we experienced 15% growth in Europe in fiscal 2008 due to the new Smart Straw technology, expansion in developing markets and the growth of the 3-In-One professional range of products. China’s sales increased 66% in fiscal 2008 compared to the prior fiscal year. International markets experienced growth this year and helped offset the weakness in the United States. Another win for us this year was the U.S. conversion of our traditional WD-40 product to our new Smart Straw technology. As a successful innovation that has a dual spray and permanent straw attached. This new technology had allowed us to enhance our margins and our customers’ margins while resolving the number one consumer complaint; losing the straw. We’d like to think our customers will never lose that straw again. Following the conversion in April the market demand for the product outpaced supply and we worked hard to ensure adequate stock. While still in early stages, we believe the technology is meeting the consumer’s needs and the technology certainly looks promising. We also launched several new products this year. In the U.S. we were the first to launch a non-toxic and biodegradable carpet stain remover called Spot Shot Pet Clean. We also launched a product called 3-In-One No Mess No Rust Shield, a product that prevents rust and corrosion when placed in small enclosed areas to protect tools and valuables against rust. We also launched 3-In-One Professional Garage Door Lube, incorporating the WD-40 Smart Straw technology. We launched the 3-In-One Professional Range of products in Germany introducing this brand in that country for the first time. We continued to tighten up our new product development process to launch products that will meet our core consumer needs and the company’s strategic direction. Beginning with this fiscal year’s 10K the company will start reporting its products offerings in one of two product categories; multipurpose maintenance products and homecare cleaning products. The WD-40 and 3-In-One brand revenues will report under multipurpose maintenance products and all other brand revenues will report under the homecare and cleaning products category. Now over to Jay who will cover the sales and financial results in more detail.

[Jay Rembolt:]

In addition to the information presented on this call we suggest you review our 10K which will be filed next week. Now that Garry has touched on many of the themes of the year, let’s cover the details regarding our sales and financials for the fourth quarter and the financials for the fiscal year in total. Net sales were $76.9 million in Q4, a decrease of 3% versus the fourth quarter last year. Fiscal year 2008 net sales were $317.1 million, an increase of 3% over fiscal 2007. Our results by product line were as follows

[Garry Ridge:]

We consider WD-40 Company a long-term investment in your diversified portfolio and as such we’d like to share with you why it is fundamentally strong and stable. First, we pay close attention to our credit exposure. The company has strong credit relationships with large and trusted financial organizations and we will continue to manage these relationships closely. We monitor the health of our supplies and major customers as well as financial vendors to ensure we minimize the exposure to third-party relationships. To minimize our credit risk we use credit insurance with our international distributor markets. We also monitor our direct sales markets very closely and the company has historically had bad debt levels that have been low as a result of these efforts. Second, we have a strong balance sheet. However, our debt is low and we continue to de-lever the company. We have $42 million remaining on our original $75 million fixed rate term loan which we reduce to $32.2 million of our principle payment in just a few days. The company remains in compliance with all its debt covenants. We also have access to an additional borrowing if needed with a $10 million credit facility available. Third, we implement best practices with our working capital and cash management strategies that has the company with strong free cash flow. We have cash available for investments and cash to fund the regular quarterly dividends and operating activities. Over the past 55 years our company has fared well in difficult times and we will continue managing the business to ensure long-term sustainability. Our objective for fiscal year 2009 is to continue to deliver value to our shareholders despite the adverse economic conditions. Ultimately we will deliver value by providing products of choice for consumers. We want to give consumers the ability to choose by developing and acquiring products that consumers buy in our global distribution channels of demonstrated strength where we have the right to win. We want products that create the same positive, lasting memories as our hero product WD-40. That said we invested time and resources this past year in reviewing our strategy with the objective of answering the following questions. Where do we now have the right play and win? All the work we’ve done in this past year has now confirmed a shift in our belief and that is we must now focus on adjacent business opportunities by leveraging the WD-40 and 3-in-one brands. We believe this focus will provide us with the best global opportunities. This means that we will look, develop and/or acquire more products under our core multipurpose maintenance products business and leverage the distribution channels where we have this high level of competency. It also means we will continue to diversify through global development and expansion. The new direction has also led us to revise our corporate logo to reflect the likeness and maximize the power and association of the WD-40 brand. We feel this will help address the company’s need to leverage our famous brand while preserving the unique position the brand has in the hearts of many consumers around the world. While the following guidance for fiscal 2009 does not include an acquisition, we believe that the turbulent times are creating greater numbers of attractively valued acquisition opportunities than in the past few years. Our strong balance sheet and good business model will enable us to execute on acquisition opportunities that are the right fit. Our guidance for the fiscal year is as follows. We expect our sales to grow between 2-8% to $323 to $343 million driven by continued geographic expansion and market penetration in those markets and new products. We expect our investment in global advertising and promotion expense to rise between 6.5-8.5% and we expect net income of $27.4 to $30.7 million which would achieve an EPS range of somewhere between $1.60 and $1.85 assuming 16.6 million shares outstanding. While we do not run our business on a short-term quarterly basis, or generally by the quarterly basis, we would like to share our Q1 outlook as well. Q4 was a tough period negatively impacted by short-term events and transitions. It is absolutely no more like business as usual. We believe our results in Q4 were an aberration and we are seeing a recovery in sales and the bottom line in Q1. With that we will share our guidance for Q1. We expect sales to grow to between $81.5 and $84.7 million in Q1. We expect our investment in global advertising and promotional expense to range between 6.5-9.5% and we expect net income of between $6.6 and $7.4 million which will achieve EPS of between $0.40 and $0.45 per share assuming 16.6 million shares outstanding. Thank you very much for joining us today. We’d be pleased to answer any of your questions from what seems to be a marathon call.

[Operator:]

(Operator Instructions) The first question comes from Jeff Zekauskas – J.P. Morgan.

[Ben Richardson for Jeff Zekauskas:]

I just wanted to discuss business conditions in Europe for a moment. We noticed you had about 5% sales growth. We considered that you probably had a currency benefit, possibly 10% in the quarter and I just wondered if you might speak to price and volume trends in Europe as you see them.

[Jay Rembolt:]

The currency benefit was relatively small in the quarter. If we look at the end of the year in Europe we had really a number of markets that had phenomenal growth through the first three quarters and in some ways it was really just phasing as some of those markets adjusted to the higher level of volumes they had seen. So we don’t see what may be a lower level of fourth quarter revenues in Europe as being indicative of what the future is going to bring.

[Garry Ridge:]

In fact, the guidance that we have given for the first quarter would anticipate that you would see a reasonable growth in Europe in the first quarter.

[Ben Richardson for Jeff Zekauskas:]

I guess speaking to those factors impacting gross margin. Firstly, the product conversion costs and sourcing changes, can you go into a bit of detail concerning those factors?

[Jay Rembolt:]

We have had a number of new introductions and conversions of old products which as you move into the new from the old depending on if you have a soft cut up or a hard cut up you have some additional packaging component material that is left over. So some of those conversion costs were associated with that as we had a number of new products that were being introduced and changes. Some of the costs were associated with changes in our manufacturing partnership and those were costs associated with inefficiencies associated with new runs on new lines and kind of getting a new production facility up to speed. So a number of those costs are not expected to repeat as we go forward.

[Garry Ridge:]

We also had increased freight costs as part of our cost of goods as we were shipping product from a new manufacturer to other warehouses and those costs should also normalize as we go forward. So again those are a number of activities that cause that.

[Ben Richardson for Jeff Zekauskas:]

Lastly on the topic of raw materials, given the decline in oil prices, even steel has backed off a bit, in how many quarters do you expect to see raw material turn positive? Is that possible?

[Garry Ridge:]

Let’s break it into two. Let’s talk about oil first. Oil is down to around $75 today. We’ve got a fair tail on that and that’s why we had such an upswing in Q4. So certainly if oil stays down where it is we’re going to get a positive advantage. The good side of that is both of the major tin plate can manufacturers released to the market a number of months ago they expected steel tin plated cans to increase in price anywhere up to 90% in January. The latest indications we have got is that percentage increase could be anywhere between 45-60%. So although we will see some offset on oil we had not anticipated that level of price rise on our tin plate can purchases. This has been widely announced and discussed. So certainly we would have hoped to have seen some back off but that doesn’t seem to be happening. Our tin can suppliers have been reluctant to confirm what they think the number is because I don’t think they know either. I think it is going to be somewhere in the vicinity of the range that I shared.

[Operator:]

The next question comes from Alan Robinson – RBC.

[Alan Robinson:]

Garry thanks for your discussion of your credit procedures. It was very helpful. I’d just like to clarify my understanding of your expectations regarding the factors that impact your gross margins. You discussed oil. You discussed tin plate. It seems the other factors, the product conversions, sourcing changes, losses at VML, increases in discount costs for A&P, they look like kind of one-time items really that perhaps shouldn’t impact so much for next year. Is that a fair appraisal?

[Jay Rembolt:]

I think that would be the case with the exception of the discounts. Those move around period to period depending on the mix of marketing activities. So depending on the activities are focused on specific customer trade-type promotions we will see more discount related activities. If we do broad consumer based advertising activities those costs are reduced. So it really varies quarter by quarter.

[Alan Robinson:]

Did you discuss at all any progress on your cost containment efficiencies program you talked about during the last all?

[Garry Ridge:]

That continues on an ongoing, 24/7 basis. Certainly one of the reasons we changed manufacturers of our automatic toilet bowl cleaners was to get a margin enhancement. So we are working on that. We are working on enhancing margins through innovation, through packaging changes, through rationalization. Certainly we will get a lift in our margin on Smart Straw as we enter next year and all of the high speed automation comes on line. So those are some of the things we have been working on.

[Alan Robinson:]

So what you are saying really is that things are looking very positive there on your margins, apart from this potential increase in tin plate cans we might expect in January?

[Garry Ridge:]

The thing we have been able to do is we implemented another price increase that took effect in the U.S. on the first of October of about 10%. That has gone through. We have accelerated our price increases. We think we have a handle on most things except for the volatility and uncertainty in steel and oil. But we have been able to offset that with some pricing. We would hope we are going to see an expansion of our gross margin as we go forward unless something doesn’t happen or happens that we don’t know. Today, that could probably happen. There are questions we ask ourselves today we would never bother to ask ourselves two weeks ago. So we’ll see where it goes.

[Alan Robinson:]

Your guidance that you mentioned for the year and for first quarter that seemed to imply to me you’re going to have much flatter seasonality next year than you have experienced the last couple of years. Is that a fair point and if so what is causing that?

[Garry Ridge:]

No. What it should indicate to you is we are really uncertain looking further out. That is what it should tell you. We feel comfortable with our guidance for this quarter but we are not in a position to and we feel okay about the year but we need to get through the can increase and we need to get through what happens to our bumpy Q4. What we are happy about is we are seeing Q1 coming out strong for us with sales growth and I think if we can weather the storm through that we will give you more information at the end of Q2. Again, we thought it was best to give you that visibility.

[Operator:]

The next question comes from Joseph Altobello – Oppenheimer.

[Joseph Altobello:]

Just a few questions here on the top line. In terms of guidance, it looks like it is pretty wide for 2009. Where are sort of the unknown or the biggest unknown? Is it the U.S. you are unsure about or is it Europe?

[Garry Ridge:]

Do you think I can answer that question Joe? I don’t know what I’m unsure of these days. I think what we do know is there are indicators for us that tell us we’ve got growth going forward but I don’t know where things are going to go. We know what is going on in our business but we don’t know what is going to happen in the world around us. So I think that is why we have been wide. We have been probably a little less wide in this quarter guidance because we’ve got a better feel for that. So to us it is a bit like how far do the headlights of a car see down the road? Well it depends how far the car is traveling down the road. Again, these are not times of business as usual and you probably know that much better than I do.

[Joseph Altobello:]

In terms of the first quarter you said you are seeing sales growth thus far in the quarter. Is that in both of those regions? Is one region doing better than the other?

[Garry Ridge:]

We are seeing growth across the world. We are seeing growth in the U.S. because of Smart Straw and some of our other brands. We are seeing good geographic growth. We’re seeing growth in all of our geographic locations.

[Joseph Altobello:]

In terms of the accounting for the foreign exchange impact maybe I am missing something. If Europe is about 1/3…actually greater than 1/3 of your sales and the Euro has been extremely weak relative to the dollar in the quarter since probably July why are you not seeing a greater FX impact?

[Jay Rembolt:]

Our FX impact we have got a couple of FX impacts. We really have our European business is really driven out of Sterling. So in Europe our sales are recorded and booked in Sterling so when they get converted to the U.S. because of those changes in the quarter year-over-year the impact was smaller than it has been in the past.

[Joseph Altobello:]

But the Sterling has been relatively weak as well hasn’t it?

[Garry Ridge:]

It got weak into the end of the fourth quarter. The real weakness has been in the last 5-6 weeks.

[Jay Rembolt:]

We get the gain from foreign exchange when the Sterling is strengthening because it converted at 2

[Garry Ridge:]

That is why one other thing our guidance reflects for next year is the impact of for a full year the Sterling going from 2 to what is probably 1.7. So we are actually losing sale growth in our consolidation from Europe in these numbers for next year. Probably to the tune of a couple million.

[Joseph Altobello:]

Lastly, on the supply disruptions and the transition from VML, do you see any additional chance of further disruptions going forward or do you think that is behind you at this point?

[Jay Rembolt:]

I think we are comfortable with the move we made and I think we see most of the hiccups have gone through the system. I think we are fairly positive on the outlook with respect to that situation. I think as Garry talked earlier this isn’t business as usual. I think that some of our concerns and some of our focus is really on the health of all of our supplier base. So that is an area that we watch very closely as well.

[Joseph Altobello:]

Are you seeing any weakness in your other suppliers thus far in terms of credit and things like that?

[Jay Rembolt:]

Nothing that we have identified at this time.

[Operator:]

The next question comes from Robert Felice – Gabelli & Co.

[Robert Felice:]

First, I wanted to key back on a previous question related to variance around the guidance. I was hoping you could highlight some of the underlying assumptions that you are baking into the high end and the low end of the range. As you mentioned it is pretty unprecedented times and perhaps that would give us greater clarity around the sensitivity of the guidance.

[Garry Ridge:]

I think the guidance really if you look at it the swing is in our sale number. What is the economic condition of our customers going to be like and how are they going to react. I think the biggest variance is the overall economic conditions that are in front of us now.

[Jay Rembolt:]

In addition to that we also are aware of the potential impact of the steel and potential additional volatility in the oil as well. Somewhat conservative in our expectations with respect to commodities in general.

[Robert Felice:]

So you are not anticipating raw material costs being a significant headwind or tailwind either way?

[Garry Ridge:]

I think there is one headwind and one tailwind. There is a probably tailwind of oil and a probable headwind of steel.

[Robert Felice:]

But on a net basis?

[Garry Ridge:]

I think there is probably a little headwind there now. We don’t know. We haven’t had the final confirmation of the steel tin price increase yet so it is only an assumption.

[Robert Felice:]

What was the magnitude of the delta during the fourth quarter between raw material cost increases and pricing? I’m just trying to get a sense of what the gap was and what is left to be made up.

[Garry Ridge:]

I don’t know that we have that number.

[Operator:]

The next question comes from William Burke – Janney Montgomery Scott.

[Liam Burke:]

Garry on X-14 you said you were going to…you obviously had written down some trademark value and you are going to reposition it in the distribution channel. Are you going to completely take it out of grocery or is it going to be more specialized through the hardware chain? How is that going to be repositioned?

[Garry Ridge:]

Liam what we have looked at very seriously is the whole point is where we have the right to win. In that bathroom area with the expansion of products like the new green products from Clorox and others we have not got the power to win with that product in that category. So we decided we’re not going to throw our investment behind that. So I think what will happen is we will still maintain the premier position we have with our X-14 high end mildew products. Then we’re going to look at where else the brand might be able to travel and more so along to the other trade channels that we have. We basically are out of those general purpose bathroom cleaners where margins were tight, competition is hard and we really just didn’t have a right to win.

[Liam Burke:]

So essentially you’ll be in the grocery channel with just one product and that is the mildew remover?

[Garry Ridge:]

Yes.

[Liam Burke:]

1001 in the U.K. how did that do?

[Joe Rembolt:]

It had some weakness in the quarter and was off.

[Liam Burke:]

Garry on the Spot Shot on the non-aerosol and the green product how did that do? I know the aerosol was sort of being de-emphasized.

[Garry Ridge:]

The aerosol is not being de-emphasized. We’re in the stages of launch and transferring the original pump product into the new environmentally friendly, non-toxic VOC free product. So promotional activity on that is commencing within the next couple of weeks in line with a movie that is being launched and still building distribution. So I think we’ll have a better picture on that in the next 60-90 days but I think we are progressing okay.

[Operator:]

The next question comes from Frank Magdlen – Robins Group.

[Frank Magdlen:]

On the gross margin you said the goal was to get back to historic levels. Is that the recent historic level of say the 48%?

[Garry Ridge:]

I don’t know. I keep saying and I am going to continue to say this business model was built on an assumption of a gross margin north of 50%. We need to get back there and we have been struggling with that for four years now. I think what you are going to see from what we know today in the fiscal year coming 2009 you are going to see us start to go in the right direction towards that. How fast and how much will depend on what the steel prices are, how our price raises fall in and anything else I don’t know about.

[Frank Magdlen:]

Did you have any stock options? Did you lose significant sales because of the product conversions and change in sourcing?

[Garry Ridge:]

One of the biggest areas was in our Smart Straw. Demand outpaced our production capacity in the last five weeks of the year. That really was a flow on from, if you remember when we converted the Smart Straw back in April we had an anticipation that our customers would buy out the classic product because of the increase in the price. They didn’t. The outcome of that was we had a poor Q2 in WD-40 and we had hoped that as transition happened we could build inventory of Smart Straw to be able to support the demand as we got through to the end of the year. In fact we were living hand-to-mouth on Smart Straw right through the end of the year as it was only in the last weeks of August we got full production on line of the second supplier of the actual Smart Straw unit itself. That is why we then ended up with a major part of the Smart Straw promotion pushing into the first quarter of this year and we had some classic products left over we then cleared out. So it was a consequence of that whole effect that we never got a chance to build inventory so we weren’t maximizing our opportunity with Smart Straw. I believe we are through that now and we’ve got the full production on line. I believe our production capacity will increase over the next month as we finish installing some new high speed equipment that actually puts the straw on the can. Right now it is being done by hand and these new machines are going in to play that will increase our production ability. I think we are through that. On the household products area we did have some disruption as we transitioned our manufacturing of our automatic toilet bowl cleaners from one production site to another. Not material but some hiccup. More of a cost issue really on gross margin because we were paying either inflated freight rates because we were moving products from one warehouse to another to meet orders instead of being able to source product directly from the manufacturer. We are balancing stock a little more. So a lot more extra costs in our cost of goods just to keep in supply as we balance stock around the warehouses that had inventory but not necessarily in the place we wanted it.

[Frank Magdlen:]

So I take that to mean you lost some sales?

[Garry Ridge:]

Yes, we would have lost some but I think in the household area it wasn’t significant. Certainly there was a reasonable loss in the Smart Straw.

[Joe Rembolt:]

That is in the quarter. In the year-to-date, in the first part of the year we did lost probably $1 million or more of sales in the household products category.

[Frank Magdlen:]

Garry when I looked at the long-term goals that you put up on your web site and you put up in your investor presentations are you inclined to change that at this time?

[Garry Ridge:]

We will update that in December.

[Frank Magdlen:]

On the X-14, is there anything left to write off on that impairment charge? Did you take it all or just part?

[Joe Rembolt:]

Just part of it. There is a little left.

[Operator:]

We have a follow-up question from Robert Felice – Gabelli & Co.

[Robert Felice:]

You talked about the fourth quarter here being somewhat of an aberration in terms of performance and you have given us guidance on the first quarter and it seemed relative to the fiscal year 2009 guidance that the back half of next year will be pretty weak or baked in the possibility of some substantial weakness. Why is that, especially in light of the fourth quarter?

[Garry Ridge:]

We don’t know. That is why. We are not comfortable. We have given a guidance range in the full year but we’re unsure what the economic conditions are going to be 3-6 months from now. I think not having that comfort zone then it would be irresponsible of us to say that we felt we could swim against the tide. So it is really because we don’t know the impact of the current economic turmoil. It is not business as usual so we can see closer in and we feel we understand where we may end up and that is why the range is as wide as it is because we just don’t know. We know our business but we don’t know what is happening in the broader market. If you find anybody that does can you give them my number? I could really use it.

[Operator:]

We have a follow-up question from Alan Robinson – RBC.

[Alan Robinson:]

Garry can you discuss how attractive are the acquisition opportunities out there? Are they attractive enough for your board to think about sacrificing the dividend if need be?

[Garry Ridge:]

We look at the dividend on a quarter-to-quarter basis. We understand the dividend is an important part of the investment consideration of the shareholders. At this stage we haven’t had any discussions around that.

[Alan Robinson:]

Are you more predisposed for smaller, tuck in acquisitions? Or is everything on the table?

[Garry Ridge:]

I think it is a matter of looking at we are certainly conservative. I think you know that. We’re not going to make dumb business decisions and put ourselves at risk for the big prize that is maybe not there. We would like to think we can pull tuck-in acquisitions in pretty easily. So we are very actively looking around. We’d like to see private companies that need help, particularly in this current circumstance. We are looking but I don’t think you will find us doing something that will have you saying, “Oh my God why did they do that?”

[Alan Robinson:]

Presumably this discussion over the use of cash will still include the potential of share buybacks?

[Garry Ridge:]

We have done share buybacks. We have had dividend increases. We have paid down debt. The management and the finance committee every quarter look at our balance sheet and look at our cash needs, think about what it is we want and where we want to go and we make decisions based around that. We bought $60 million plus worth of our stock back in the last couple of years while paying down $30 million worth of debt, while paying out $15-16 million worth of dividends and still retaining $46 million cash. So I think I best explain it as a balanced, responsible fiscal approach.

[Operator:]

There are no further calls.

[Garry Ridge:]

That is a marathon that is for sure. It is always nice to talk to you. We hope that whatever is going on out there today you and your families are not being impacted adversely and we’ll certainly get on and do the best we can to deliver the best results we can over the next period of time. As I said it is not business as usual but we’re not people as usual. Thanks very much.