ACCO Brands Corp (ACCO) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2010 ACCO Brands earnings conference call. My name is Lacey and I'll be your operator. At this time all participants are in listen-only mode. Later we conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Ms. Jennifer Rice, Vice President of Investor Relations. Please proceed.

Good morning and welcome to our first quarter 2010 conference call. On the call today are Bob Keller, Chairman and Chief Executive Officer of ACCO Brands Corporation, and Neal Fenwick, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the investor relations section of accobrands.com. These slides provide detailed information to supplement this call.

Our discussion this morning will refer to results for continuing operations and on an adjusted basis, which for 2009 excludes all restructuring and other charges and for 2010 applies a normalized effective tax rate of 30%. A reconciliation of all adjusted results to GAAP can be found in this morning's press release.

During the call we may make forward-looking statements and based on certain risk factors our actual results could differ materially. Please refer to our press release and SEC filings for an explanation of those factors. Following our prepared remarks we will hold a Q&A session.

Now it is my pleasure to turn the call over to Mr. Keller.

Thank you, Jennifer, and good morning everyone. Earlier this morning we released our first-quarter results, which I believe reflect the progress we've continued to make in improving our customer relationships, taking market share in key categories and channels, and maintaining cost discipline.

Our reported net sales increased 6%, but more importantly volume was down only 0.5%. Each of our three business segments recorded operating income gains, with Computer Products delivering a notable 53% improvement. In total gross profit margin expanded by 210 basis points over the prior year first quarter in spite of inbound freight increases from Asia and increasing raw material costs, and operating income increased 29% on a comparable basis.

EBITDA increased 22% to $33.1 million. Per-share earnings were $0.03 based on a normalized tax rate for the year versus a loss of $0.02 in the first quarter of last year.

Our results thus far are consistent with our expectations for the year. Market share gains in last year's line reviews have helped us offset the lack of meaningful growth in consumer and business spending. We continue to believe that durable sales will rebound before consumable product sales, and while we're cautiously optimistic about early signs of a durables recovery, it is too soon to call this a trend.

We continue to focus on our customer service performance, and for the first time in our history Staples recognized us with its Customer Experience Award, marking another milestone in our significantly improved relationship with them. We were also named as a Xerox partner of the year in our category, and just last week a very important European buying group, Quantore, named us vendor of the year.

Our outlook for the business in 2010 remains unchanged. While the volatility of currency, especially the current weakness of the European currencies, is a concern, we continue to expect to grow revenue and profitability this year. Our gross margins should expand by 200 to 300 basis points in 2010, faster than our SG&A costs rise despite the normalization of compensation expenses and a planned increase in marketing costs to drive end-user sales. EBITDA margins should increase by roughly three-quarters to a full point this year over 2009 results.

Our long-term goal is still to deliver EBITDA margins of at least 15% to 16% on a sustainable basis as business optimism and white-collar employment improve. While we're pleased with the progress we've made, we appreciate that we've got a long way to go. We expect the global economic environment to remain challenging, and our ability to hit our targets remains dependent on our continued focus on improving our service and value to our customers, on competing vigorously for all new business opportunities, on aggressively defending our existing business, on carefully managing our expenses, and by continuing to invest in new product innovation and introduction.

Now Neal will provide a more detailed look at our results. Neal?

Thank you, Bob. Our first quarter performance is recapped on Slide 5. Reported sales increased 6%, with currency adding 8 points. Volume declined only 0.5%, significantly less than in the last several quarters and in line with our expectations. Share gains reduced the effect of softer market demand.

Adjusted gross margin increased 210 basis points to 30.6%. Favorable mix accounted for 90 basis points of the improvement. Commodity costs, which had been extremely unfavorable last year, accounted for 70 basis points of improvement.

SG&A was higher in the quarter, as expected, increasing 11% or 90 basis points to 23.1% of sales. Foreign exchange translation added $4 million to SG&A. Salary, benefits and incentives costs increased $9.1 million, mainly due to temporary reductions in the prior year. This cost increase was partially offset by cost savings. Go-to-market expenditures were up modestly.

All in, operating income improved 29% on a comparable basis with margin expanding 120 basis points to 6.9%. Contributing to operating income was $3.7 million of year-over-year benefit from foreign exchange translation.

EBITDA increased 22% to $33.1 million, in line with our forecast, and EPS from continuing operations were $0.03, using a normalized tax rate of 30%, versus a comparable negative $0.02 in the prior year quarter. Our actual reported tax expense and rate are now very volatile quarter to quarter, and for the year should approximate 50% even though cash taxes should be similar to last year. Slide 7 shows the details behind the change in margin that I just discussed.

In the Americas sales increased 1% and volume declined 1%. This was a dramatically improved trend from the past two years. It's also notable that market share gains have helped to offset continued declines in underlying demand.

Operating margin for the Americas increased 110 basis points to 5.2%, despite higher employee compensation costs as a result of lower year-over-year commodity costs and cost reduction activities.

International segment sales increased 12%, all of which was currency driven, and importantly volume declined only 2%, again a rate much lower than in previous quarters. Europe continued to see lower demand but at a mitigating rate, and our Asia-Pacific region delivered another quarter of sales growth.

International segment margin increased 90 basis points to 9.1% due to a combination of gross margin expansion from the elimination of commodity and currency imbalances with sales price and from cost reductions.

Computer Products sales increased 12% and volume increased 7% driven by strong sales of computer security locks. Computer Products operating margin improved 540 basis points to 20.4%, principally due to substantial improvements in gross margin from favorable product mix.

Turning to our cash flow on Slide 9, we saw the normal seasonal cash outflow in Q1. We paid $33 million in interest payments on our notes and made an $8 million early contribution to our pension plans. We finished the quarter with only $15 million of borrowings on our ABL.

Turning to our outlook for 2010 on Slide 10, this remains unchanged. We continue to expect EBITDA margin expansion between three-quarters and a full point. The increase will be the result of gross margin expanding at a greater rate than SG&A. The normalization of year-over-year changes in input costs, currency and cost savings should result in approximately a point of gross margin improvement, mainly realized during the first half of the year. We would expect a further 1 to 2 points of expansion from the numerous initiatives including freight and distribution and supply chain execution tactics that we have previously discussed, mostly to be realized in the second half of the year.

SG&A will increase by approximately a 1.5 to 2.5 points. The normalization of our 2009 cost base, including compensation and benefit plans, represent about a point of the increase. As announced in the fourth quarter, we have also increased compensation to repay employees for the 2009 pay cuts and reinstated management incentives. Our management incentive programs are designed to ensure we deliver improved returns to shareholders and before we accrue any management incentives. Importantly, we continue to invest in selling and marketing to capture improvements in demand.

Overall our profit improvement will be fairly even throughout the year with a slight acceleration in the back half as our topline share gains are fully realized. Longer term, as our volume recovers we will further leverage our leaner cost model, reducing our SG&A costs as a percent to sales.

In terms of cash flow, we continue to expect approximately $50 million to $60 million in free cash flow in 2010, predominantly in the second and fourth quarters. Q3 will be a cash outflow quarter due to our new interest payment cycle and seasonality. This outlook includes an estimated $9 million in restructuring cash payments associated with expenses accrued on the balance sheet. We will not have any new charges in 2010 beyond reserve true-ups. Capital expenditures should be approximately $20 million in 2010.

By year-end I anticipate that our net leverage ratio will be in the upper 3 times, but our objective remains to reduce it to below 3 times as our profit continues to improve and net debt declines.

At this point Bob and I will be happy to take your questions. Operator?

Thank you. (Operator Instructions) And our first question will come from the line of Bill Chappell with SunTrust Robinson. Please proceed.

Good morning.

Good morning, Bill.

Good morning, Bill.

I guess first on the gross margin, not to take away from a 200 basis point improvement, but I kind of expected this to be the easiest comparison on a year-over-year basis with commodity costs and costs of inventory. Was this kind of as you expected or was there anything holding that back for the current quarter?

It is largely in line with our expectations. There were some puts and takes and we didn't see some of the benefit we expected from the [dummimess] system that we put into Europe in the back end of last year, and we think we'll get the benefit of that probably kind of mid year and beyond. We were hoping to see some of that this quarter, but our story is we're going to expand gross margins and we're going to manage SG&A and net-net we're going to grow EBITDA, and that's kind of what we're focused on.

Okay. And kind of looking at the sales number, certainly encouraging but I'm just trying to understand is there any way to break out how much of it was customer wins versus kind of what the underlying category growth is?

Yes. On the chart that we provided, we do break that out for you, Bill. It's on the first quarter 2010 revenue drivers chart.

Right.

There is $7 million in market share gains.

And that's a net number because there is some anniversary of some things that occurred in the middle of 2009 which are negatively reducing that which is why you will see more share pickup in the second half than in the first.

Have there been any new customer wins during the quarter that would help pad this year or even into 2011?

We're really just at the front end of the line review cycle. We think we'll have a better sense of that at the next quarter earnings announcement.

But I guess in going back to my original question, what is your sense of the industry? I mean, have we bottomed? Are we seeing a pickup? Is it just too early to tell? I mean, what's kind of your state of the state?

We feel good about our progress. I think we've been -- our perspective has been that this is going to be a challenging year and that our expectation for the industry as a whole is it's going to be down low single digits and that will be up. So we're kind of factoring in the fact that we've got market share gains, but we're not feeling comfortable enough to declare victory at this point in time. When we look at the first quarter, Bill, January was a pretty solid month, February was a weak month, March was a terrific month and so it's lumpy.

That said, we're not expecting things to get worse than where we are, and as we've kind of been indicating we see points of indication that the durables market is starting to recover a little bit and that will help us.

It's also different geographically, and so as we've said many times, we've seen a lot of strengths in Australia/Asia area, we've seen a lot of weakness in the European area, and that hasn't changed.

Okay. And then just two other quick ones. On SG&A you said of the 1.5 to 2 point increase that a point of that would be higher salaries, higher compensation. What's the rest of that? And then the other question is on interest expense. I think you're targeting $80 million, but starting this quarter you're looking at a little bit below that on a run rate. Did I miss something on the seasonality of that?

The one point is from normalization of pay, but it's worth understanding that we also have to normalize our incentive comp which is a big addition which is variable. And if you look at the total SG&A, there are really three drivers of SG&A normalizing. There is normalizing people's basic salaries and benefits programs, and then there is putting back in a management incentive program which will be based on our performance and therefore it's a variable cost. And then there is supporting sales growth initiatives that we want to see. And so you get those three elements into play throughout the year which will come into play as we see different performance. And part of our accruals in Q1 were for incentive comps which we didn't have any of in the prior year.

But also in Q1 on the salary side, we ran for six weeks in the first quarter of last year at 50% salaries, and we normalized salaries and gave the people that had that impact a salary increase. And so in the first quarter there is a $9 million compensation difference just on salary, Bill.

Great. Thanks so much.

And our next question will come from the line of Arnie Ursaner which CJS Securities. Please proceed.

Hi. Good morning.

Good morning, Arnie.

Good morning, Arnie.

Staying right on that same point, the incremental $9 million of SG&A spend, I think you just said that the majority of the $9 million was salary increases getting back to base. But you've got roughly $13 million or so of cliff incentive payments for management. Can you break down or would you care to break down the amount that was accrued in Q1 that would be -- and I assume that's completely incremental versus last year.

So out of the $9.1 million, about $2.5 million of it relates to incentive payments which would be dependent on our full-year performance, and so the rest of it is really related to normalization of base pay and benefits.

And to clarify, since it was a very confusing issue to some of your analysts on the last call, that $13 million is a cliff payment that will only be paid if you exceed certain EBITDA goals, meaning if you get towards the end of the year and you're not at that level, that $13 million or so would reverse. So is that the right way to think about it?

That's exactly the right way to think about it. We think for the management team to get paid incentives we need to deliver to our shareowners.

Okay. Two more quick questions. I know your revenue guidance excludes the impact of FX, but obviously right now with the volatility around the euro that's quite a different dynamic than it might have been even a month or so ago. So can you just remind us of the impact of FX over the last few quarters of last year and if it were to stay at current levels what the impact would be on this year's revenue?

Probably easier is to give you a better view as to how it's going to impact this year. And so foreign exchange has moved around a lot in a short period of time, and from a topline perspective we would be expecting the current year, even using today's very low rates, to still benefit by at least 2 points plus. At some points it's been as high as 5 points, and so our assumption coming into the year was we would get about 3 to 4 points of gain. We are currently looking at more like 2, and if you ask me on other days it's looked more like 5.

From a bottom-line perspective, Europe is one of our weaker profit areas and so we still will get two-thirds of the bottom-line benefit that we were expecting even at today's weak euro rate because other currencies such as the Australian dollar, Canadian dollar and Mexican peso are actually strong against the dollar, and therefore from a bottom-line perspective we would still expect to pick up something closer to $6 million or $7 million of bottom-line contribution.

And that is not embedded in your general views of EBITDA at this point?

That is included in our general view of where we were coming for the full year, and obviously it features into what we would accrue in terms of our incentive comps, etc.

Okay. Two more questions for Bob if I can. Bob, just freshen us up on the mass-market rollout. I know you won a number of contracts, but you can't ship product in these various categories until the customer -- until your client replaces the inventory they have of the previous supplier. So if you could update us on where we stand on the rollout. Let's start with that, and then I have one more follow-up for you.

Sure. We're very pleased with the progress we've made in the mass channel. The categories, the stapling and board categories that we won last year at Wal-Mart are rolled out across all their stores. That implementation is going very well. We're very pleased with the progress in that relationship, and I think they are too. Sales are at or above both our expectations, and we are performing at or above their service level requirements.

The binder business that we won at Target, we're kind of at the point of the first reorder cycle. That is on track. Again, we are at or above all of their expectations in terms of operational performance which was key relative to that win.

And Bob, a more structural question, the Company has spent a great deal of time, money and effort over the last two to three years cutting your costs, and now that we're beginning to see a recovery can you kind of remind us of your focus on not letting costs creep back up and how focused you are on sustaining the efforts you've made over the last few years to keep the various controllable costs just that, controlled?

That sounded like a pretty good hint. The answer is yeah, we're not going to lose sight of it. We're pleased with the progress that we've made to date frankly across a broad spectrum of issues, but the fact that we had a decent quarter doesn't change the focus. And we think the way that we take this from being a decent quarter to being a decent year is keep doing the things that we've done well, take good care of our customers, improve our operational performance, manage our expenses very, very carefully, and bring new product to the marketplace and compete vigorously for all business.

And Arnie, just one point of clarification for me because I slightly misheard your question. From a sales topline perspective, FX was not part of our guidance that we gave, so we were looking at -- have always said that we anticipate sales growth and then FX would be on top of that.

But going to that point, Neal, if FX were to stay at or near current levels, that would be a nice tailwind for you at this point. Is that correct?

Correct. It would give us another couple of points of growth.

Thank you very much.

And our next question will come from the line of Reza Vahabzadeh with Barclays Capital. Please proceed.

Good morning.

Good morning, Reza.

Just in terms of your overall results and then maybe some key indicators, would you say that the first quarter results, EBITDA, sales or any other key metrics were in line with your expectations, ahead of estimates or below?

We're pleased with the first quarter, and the thing that we don't want to do and we don't want you to do is to get ahead of ourselves. If this had been a quarter where we started okay in January, built momentum in February and had a great March, we think it could be projectable going forward. It wasn't that kind of quarter. I mean, as I said earlier, we had a solid January, February was very weak, and March was very strong. We think in aggregate the quarter is reasonably representative of point of sale, but we're not at a point where we feel good about projecting it forward. And frankly we're managing the business not on a full-year basis but on a week-to-week and month-to-month basis at this point.

Got it. And then when you talk about the gross margin drivers for the quarter year over year, is the mix component and the cost savings component going to continue at this pace or will there be some moderation of that?

We think the mix was positive in the quarter, and based on how we're trying to drive sales through our customers, we would anticipate we'd have an opportunity to maintain kind of a favorable mix as we move forward. We think there are opportunities on the operational side of our business to improve over how we performed in the first quarter and we're focused on that.

Right. Is the cost savings component that you are highlighting here and on a go-forward basis, is that around supply chain and manufacturing or is there more to that?

There is more to that. We'd rather take cost out of the business by being more efficient than we'd rather -- than take cost out of marketing programs to help our customers drive volume or compensation ultimately. And so we're focused on doing the things to improve the efficiency and effectiveness of our business.

Got it. And then how are things unfolding on the new product shipment fund? Is there going to be some tangible progress made on that this year?

Yeah. We have an aggressive rollout plan for the year, and we've said all along we believe and our customers have reiterated the fact that product vitality is a critical component in the value chain that we bring and so we're not going to lose focus on that. We budgeted last year for an increase and we thought that paid dividends. We budgeted for an increase in product development capabilities this year and our expectation is that will pay dividends as well.

Got it. Thank you much.

And our next question will come from the line of Derek Leckow with Barrington Research. Please proceed.

Thank you. Good morning.

Good morning.

So Bob, I'm listening to your comments on revenue and revenue visibility and I'm just having a bit of a hard time here and wondered if you could give me your sense for how that visibility, if it's gotten worse or gotten better. I mean, it sounds like we're getting closer to our customers. We're getting closer to preferred supplier status at a number of big customers, and I'm just having a hard time understanding why it sounds like your message is that your visibility really is still week to week, month to month. Why is that?

It really isn't that, Derek. We do have significantly better relationships with our customers and we have a better perspective on their view of the world economy and its impact. We just think that getting ahead of ourselves and losing touch with the things that have gotten us -- the progress that we've exhibited over the last 18 months would be a mistake. And so we're trying to manage the business conservatively and then compete aggressively, and we think that's the right answer.

Okay. And then just looking at Slide Number 6 again on the revenue drivers, I'm noticing that price was a negative factor here and I think, Neal, you characterized the guidance as being at 2% or so of -- so I guess I assume that's volume and price. But are you assuming any movement in either volume or price in that number or is that sort of just normal improvement in inventory levels from basically economic effects or are you talking about actually seeing some growth and volume there?

Remember for us with a lot of our international business, the movement on the dollar is a big issue from cost of goods point of view. And so if you look at the significant strengths we've seen in things like the Australian dollar, we had to significantly reduce prices in Australia back in Q4 as a result of that. So you're seeing a lot of negative price flow through from some of the international currencies which is really harmonizing what's happening with the dollar. You will also see the reverse of that effect come through in Europe if the euro stays so weak. It will put cost pressure on us and it will mean that we have to raise prices accordingly.

From a US perspective, a lot of what you saw was some price reductions that went into effect as part of things like the move back to branded bindery as a good example where effectively we did a conversion back from private label to branded but at a lower than normal price for branded goods and made share gains as part of that tradeoff. And so as far as we're concerned there is a negative price element coming through the first half of the year and you'll see some positive price offsetting that in the second half of the year.

But is that a function of just the compare --

We expect the price to be neutral.

You're expecting price neutral --

Yes.

-- for the year on a consolidated basis?

On a full-year basis we think it's just about flat. We expect to get a little bit of a lift in terms of price based on the transportation costs increasing coming out of Asia which is an across-the-board phenomenon, and some level of increase based on raw material price increases that should get reflected in the second half of the year. So our expectation for the full year is neutral on price.

And if were to start to see an improvement in white collar employment growth, and I'm not sure if this makes sense to think about it on a consolidated basis, maybe on a country-by-country basis, but just wondering what that might do to ordering on the part of your customers. Have they given you any kind of better visibility on their needs to increase their inventory levels?

You know what? I think if there is a good thing about the recession, it's forced everyone to be more efficient. I think our customers feel good about their inventory levels, feel good about their customer service levels. I think we have performed very consistently and at very high levels for a year. Their expectation is that we're going to continue to do that, and so we don't expect a restocking. And the one caveat to that is that the higher-end durable, binding and laminating equipments, those inventories are running at very low levels throughout our channels, and there may be some lift there but I don't think it would be material to our results.

Okay. Thanks a lot.

And our next question will come from the line of Mark Rupe with Longbow Research. Please proceed.

Good morning, everyone.

Good morning.

As it relates to the flow of demand or revenues through the first quarter, Bob, you'd say January good, February a little bit weaker and strong March.

Yes.

Did any of the regions, channels and products act any differently through that kind of flow through the quarter? I'm just trying to get an idea on the durable side. You had said something to the effect of you didn't want to call it a trend or anything. Did it act any differently than the rest of the business during the first quarter?

I think we had some excess inventory in the channels following over from the Christmas season and that kind of slowed down the buy-in of our product from our customers in January and February. We think there was a catch up in March, and so we look at the quarter as a whole and think point of sale and buy-in and are still on track. And so we don't see any change in terms of our customers' expectation for managing inventory levels.

As Neal mentioned, Australia was strong. They continue -- our businesses there continue to perform very, very well. Europe is still soft, and specifically Germany is soft. We saw our first signs of recovery from Eastern Europe at the tail end of the quarter, and so we had parts of that geography that had just been dark for six or more months that we got our first orders in a long time and so that was positive. As Neal said, Asia-Pacific came back. US is performing basically on expectation. Canada and Latin America are kind of on expectation, marginally better than the US.

Perfect. Thanks, Mr. Keller.

(Operator Instructions) And our next question will come from the line of Arun Seshadri with Credit Suisse First Boston. Please proceed.

Good morning. Thanks for taking my questions. First I just wanted to talk a little bit about your updated industry forecast. You've kind of told us that you've been expecting flat to down industry and then you guys continue to take market share. Could you update us on that and your expectations for overall and then your share gain expectations?

We're exactly where we've been for the last four or five months, and the early releases that we've seen in the last 24 hours haven't changed that at all. So our expectation is that the industry as a whole is going to be a couple of points down and we're going to be a couple of points up in terms of real growth. We expect to take market share during the course of this year in line reviews and that those will get reflected in 2011.

Okay, great. And then I wanted to -- on supplier consolidation, I guess rate and distribution and supply chain, could you -- I think you previously talked about roughly 150 basis point improvement in that year over year expectation-wise. Could you talk about what that was on a quarter-over-quarter sort of year-over-year basis for Q1?

So for Q1 overall freight and distribution we saw no benefit. We got a small improvement in our distribution costs but it was offset by higher freight costs.

Got it. Okay. And then on --?

And that was partly driven by fuel costs, but it was also driven by the fact that we didn't get the gains that we expected out of our European distribution facility in terms of efficiency improvements that we had budgeted for in the first half that we won't see until probably the beginning of the second half.

Okay. And then in the Computer Products segment, noticed that obviously very strong operating income growth there and favorable mix. Could you give us a little bit more color around that and sort of what we should be thinking about in terms of growth there for the next -- for the balance of the year?

I think that's one of the points that we look at in terms of the durables recovery. I think the computer products industry as a whole had a pretty good quarter. The sale of laptops and net books went up. That ties pretty closely to our security business which is a terrific business for us, and we saw strong growth there. And we had a focus on it and we saw the results that we expected.

And a big schism between everywhere apart from Europe. Europe was actually still negative for computer product durables.

Okay, great. And finally I just wanted to reconcile your free cash flow guidance. It looks like Street consensus is around $165 million of EBITDA, and if I work my way through your modeling assumptions free cash flow, $20 million of CapEx, cash restructuring of $9 million, an interest of $80 million and taxes of $20 million. That implies that working capital you expect something of the order of close -- at least $20 million of a working capital source this year. Am I doing that correctly, and could you update us on sort of what you think about working capital?

Working capital we've said will be a small source. Your numbers are a little high compared to mine, and so I would recommend you just look a little bit at Slide 11 where we lay out a lot of the detail numbers.

All right. I'll follow up offline. Thanks.

And our next question is a follow-up question from the line of Arnie Ursaner with CJS Securities. Please proceed.

Hi, two quick follow-ups. What percent of your revenues come from Portugal, Greece and Spain, if you have a sense of that number?

Miniscule.

Tiny.

Okay.

We don't expect that to impact us directly.

Okay. And there has been a tremendous amount of talk about revaluation of the Chinese currency. How would that affect your transfer payments or other factors? If there were a meaningful revision in the currency there, how would it affect you?

The global commodity costs are unaffected by the renminbi changing. They're already the dollar or euro denominated as a base cost, and so the vast majority of what we buy from China is the basic commodity costs reprocessed. The area that the renminbi revaluation affects us is on the -- let's call it the added value that gets made in China. It's the additional labor costs and their profit margin, and therefore it does come through as an inflationary driver.

It's just less big than I think people would think because you have to exclude the raw materials side of the equation when you're doing the calculation. But like all steps out of recession, you tend to see inflationary headwinds start to build, and we're starting to see those and we're going to have to respond with pricing as necessary in order to deal with that.

But do your contracts have specific adjustments tied to currency changes of that magnitude or not? It's a negotiation with each individual contract?

It would be a negotiation with each contract.

Okay. Thank you.

At this time we have no further questions in the queue. I would like to turn the call back over to the Chairman and CEO, Bob Keller, with final comments. Please proceed.

Thank you all for joining us today. We look forward to reporting on our progress at the end of next quarter. Talk to you then.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day, everyone.