Entegris Inc (ENTG) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to Entegris' second quarter 2007 earnings release conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Corporate Relations, Mr. Steven Cantor. Please go ahead, sir.

Thank you. Good morning, and thank you for joining our call today. Earlier today, we released Entegris' financial results for our second quarter ended June 30, 2007. You can access a copy of our press release on our website, www.Entegris.com.

Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties, and our actual results may differ materially. These risks and uncertainties are outlined in detail in this morning's press release and in our most recent 10-K report, as well as in our other reports and filings with the SEC. We encourage you to carefully read those reports and filings.

On this call, we will also refer to non-GAAP financial measures as defined by the SEC in regulation G. You can find a reconciliation of non-GAAP financial measures to the comparable reported results of operations under GAAP in today's press release as well as on our website.

I should note that all numbers discussed on this call, unless otherwise noted, are based on results from continuing operations.

On the call today are Gideon Argov, President and CEO; Jean-Marc Pandraud, Chief Operating Officer; Greg Graves, Chief Financial Officer; and Peter Walcott, General Counsel.

Greg will now begin the call with the financial highlights of the quarter.

Thank you, Steve -- good morning, everyone. I'd like to begin today with the summary of the quarter's results. Sales from continuing operations for the June quarter were $153.5 million. This excludes $2 million related to the discontinued operations. This compared to $159.6 million in the March quarter, and $179.3 million a year ago.

Our GAAP net income from continuing operations is $15.8 million or $0.12 per diluted share. On a non-GAAP basis, income from continuing operations were $15.1 million or $0.11 per diluted share. Reconciliation information between our GAAP and non-GAAP results may be found in today's press release.

Our second quarter results reflected two one-time items. First, we sold an equity investment and a tooling company and recognized a pre-tax gain of $6.1 million or $0.03 per diluted share.

Second, as part of an ongoing effort to optimize our business model, we decided to divest our line of cleaning equipment for wafer-handling components and are treating that in our financial reporting as a discontinued operation. This is a lower-margin product line that is not strategic for us and contributes only modestly to our revenues.

As a result of this decision, we recorded an asset impairment charge of approximately $1 million net of taxes.

Excluding these two items, sales and earnings on a non-GAAP basis for the second quarter were within the guidance range we provided in May. In addition to the one-time gain related to the sale of the equity investment, other adjustments to our non-GAAP results include $4.6 million in merger-related and other restructuring charges. I'll reference these as I discuss the income statement in detail and talk about non-GAAP results.

Gross margins for the second quarter on a modified basis were 42.7% of sales, in line with lower sales volumes and continued reduction in inventory levels. As was the case in Q1, our gross margin in Q2 was impacted by approximately $400,000 of transitional costs such as travel, sampling, and customer qualification costs related to the transfer of several key product lines from the U.S. to our facility in Kulum, Malaysia.

In Q2, we made the decision to immediately begin the transfer of a fourth product line -- our Spectra FOUP -- to Malaysia. The costs of these manufacturing transitions, which in aggregate could reach $4 million, will impact the next four quarters' results.

Total operating expenses on a modified basis were $49.4 million or 32.2% of sales. Spending on new product development projects resulted in R&D for the quarter of $9.7 million, which declined somewhat from the stepped-up level of spending in Q1.

Our GAAP operating expenses included $3.1 million of merger-related amortization as well as integration expense of approximately $800,000 related to severance costs. Total stock-based compensation in Q2 amounted to $2.7 million or $0.01 per diluted share, which included about $500,000 related specifically to restricted stock grants made in connection with the integration process from the 2005 merger.

These integration-related amounts declined from $700,000 in Q1 and will continue to decline through 2007 as these grants are amortized. As such, you should expect these charges to be negligible by the first quarter of 2008.

Adjusted for merger-related and other restructuring costs, non-GAAP operating income was $16.1 million or 10.5% of sales. We reported an income tax expense on a GAAP basis of $4.5 million in the quarter, or a 22% rate, reflecting the higher percentage of our income now being generated in Malaysia where we currently pay no income tax, and also reflecting a one-time $800,000 adjustment related to a change in German tax law. For the balance of 2007, we are estimating our tax rate to be approximately 29%.

Shares outstanding on a fully diluted basis at the end of the second quarter were $115.7 million after the successful completion of our $250 million stock tender in June, in which we repurchased 21.1 million shares or about 16% of our outstanding shares.

We generated $49 million in cash from operations in the quarter as we continue to improve the management of our inventory levels. Ending inventories of $80.4 million were down $7.3 million from the first quarter, which helped to improve our turns to 4.2 times.

Depreciation and amortization totaled approximately $10.9 million and capital expenditures for the quarter were $7.2 million. Total CapEx for 2007 is currently expected to be approximately $30 million.

Accounts receivable in dollars improved by $13.8 million from Q1 and DSOs were 61 days versus 66 days in the first quarter and 70 days at the beginning of the year. Cash, cash equivalents, and short-term investments totaled $138.5 million at the end of Q2. We used $225 million in cash on hand and $25 million from a new $85 million revolving credit facility to finance the tender offer.

We believe the tender has effectively reset the bar in terms of our ongoing cash needs to run the business. Even so, the balance sheet and our strong cash flow provide us with the flexibility to grow our business both internally and through strategic acquisitions, and to focus on increasing our returns to shareholders.

With that, I will turn it over to Gideon Argov.

Thanks, Greg. I'll make some comments on sales and business trends, as well as provide an update on some key operational projects currently underway. We achieved sales in the second quarter that were within but at the low end of our guidance. Our results were mixed this quarter as our semiconductor device maker customers increased chip production during the quarter while slowing the orders for certain capital equipment for non-semi-related customers, which accounted for about 21% of our Q2 sales.

Production of data storage components was seasonally low, and the flat-panel display market was actually slow to recover from softness early in the year. These divergent market trends were evidence in the sales mix of our unit-driven and capital-driven products, which was 60-40 in Q2 for continuing operations compared to 59-41 in Q1.

Among our unit-driven products, consumable liquid filter sales reflected increased utilization and production levels at our semiconductor customers, which offset software sales of these products to non-semiconductor customers.

For our wafer shippers, after strong growth in Q1 we saw a modest decline in sales for 200-millimeter wafer shippers. We expect the market for 200-millimeter and below to be relatively firm in the third quarter, even as a few 200-millimeter fabs are slated to be transitioned or decommissioned -- or transitioned to 300-millimeter.

Sales of 300-millimeter FOSB wafer products were modest in Q2 but we made good progress in achieving customer qualification and acceptance. It's important to note, however, that until we achieve our share goals in the 300-millimeter shipper market, our unit-driven sales will not always track the industry's unit production.

Sales of other unit-driven products, such as data storage shippers, were lower, reflecting the seasonal nature of this business. Data storage represented about 5% of revenues in Q2.

Turning to the capital-driven side of our business, which was about 40% of total Q2 sales, sales of our liquid systems declined modestly in Q2 due to fewer facility build-out projects and lower track tool shipments during the quarter. Sales of such capital-driven products as wafer processes carriers and FOUPs grew in the quarter.

We recently announced a major order for a new Spectra FOUP from a large Asian foundry customer. Spectra not only offers a customer a number of enhanced features, but its lower cost structure and Asian-based manufacturing will allow us to provide some savings and lower cost of ownership to customers.

Sales of other capital-driven products, such as gas, micro contamination products, were strong during the quarter. Demand for these continues to increase since they have key applications in controlling airborne molecular contamination, particularly around the lithography process of the advanced nodes.

We continue to see growth for our liquid lens system for delivering ultra-pure water in immersion -- photo-lithography -- and we continue to get good traction with our Clarilite certified system, which is the industry's first comprehensive system for addressing reticle haze and contamination, which is a significant and costly problem in the industry.

On a geographic basis, our Q2 sales were as follows: Asia was 35%, Japan was 25%, North America 25%, and Europe 15% of total revenue. Of particular note, sales to Japan were even with Q1, despite a weaker yen and slower OEM demand as device maker customers continue to ramp production and add capacity. In contrast, sales to North America declined, reflecting softer demand for capital-driven products at our OEM customers.

Sales to Asia declined 3%, reflecting lower sales of liquid systems, and sales to Europe were 8% lower than during Q1.

That summarized the second quarter sales trends. To put these trends in our recent financial results in perspective, Entegris is in the midst of a number of planned and significant transitions. These transitions involve first successfully launching new and improved products in a number of our markets. Many of these critical products such as Spectra, FOSB, Clarilite, and a number of new products we recently launched at Semicon West, which addressed emerging and growing contamination control of problems at 45- and 32-nanometer technology generations.

We have a number of additional new products planned for introduction in the coming months. Secondly, we are shifting capacity -- infrastructure as well as resources to Asia, which represents the fastest-growing avenue for future growth.

There are currently four product lines in various stages of transition to Asia, with additional moves in the planning stages. The four product lines in transition are among the most significant new products in our portfolio, and we expect to generate approximately $35 million in revenue from these products in 2008.

Moving these products will provide us with major tax savings and will also allow us to manufacture and ship them at significantly lower cost than making them in North America. Furthermore, as we complete the transfers of these products, we intend to reduce our overall footprint in the United States.

Thirdly, we continue to evaluate our product offerings to make sure that strategically they fit and meet certain market and profitability goals. To that end, we've decided, as announced, to exit the cleaning equipment product line. We will support existing customers during the transition period, and we'll continue to offer cleaning services for our wafer-handling products to our strategic customers in key areas throughout the world.

We intend to continuously review our product portfolio, and obviously we'll prune lines that don't offer strategic importance, growth potential, or return on invested capital that we believe should characterize our business. At the same time, we will continue to focus intently, as we have, on return on invested capital.

Our business model heavily emphasizes consumable products. It continues to produce excellent cash flow -- about $50 million in the second quarter of this year alone. This high cash flow business model provides for stability and enables us to both pursue selective acquisitions that compliment our core business as well as repurchase shares.

As our recent $250 million tender offer indicates, we're quite serious about using stock buybacks as a means to return cash to shareholders and to position the Company for high returns. In the past 12 months we've used approximately $350 million to repurchase just about 30 million shares, or approximately 23% of the total shares outstanding.

Very few public companies in this space or any space can make that kind of statement. And this is not a one-time event; there is currently about $50 million remaining in our stock buyback authorization, and while the specific timing or means for any further buybacks has not been determined, we believe that consistent buybacks over a long period of time can be an effective way of maximizing returns to shareholders.

Turning to our outlook for the third quarter, there are clear indications on the capital equipment side that the market is softening, at least for the short term. While wafer starts and unit production appear to be firm, lower tool shipments and installations in the industry as well as softer sales of data storage and flat-panel display products will be a headwind to our unit-driven sales in the third quarter.

As such, we expect third quarter sales to be down 4% to 8%, and in the range of $142 million to $148 million. Given our commitment, the sustained, strategic investments in new product development and the key manufacturing initiatives we just outlined, we expect GAAP net income per diluted share to range from $0.03 to $0.05, adjusted for the approximately $3.5 million in merger-related charges and expenses, we expect non-GAAP net operating earnings per diluted share to range from $0.05 to $0.07.

And with that, we'll now take your questions. Operator.

Certainly. Our question and answer session is conducted electronically. (Operator Instructions.)

We'll go first to Chris Blansett with JP Morgan.

Hi, guys. Thanks. Gideon, you just commented how near term, things are looking a little weak. As we look out into the third quarter, should we expect the mix of revenue to become much more heavily based on the consumable side as you're capital-spending-related sales decline again?

I would assume that would be modestly the case. That's typically what we see in these situations. I'm not going to predict a percentage, but typically we fluctuate between 35% and 40%; more likely between 37% and 43% capital, the rest being consumer products. My guess is, it's going to be the high rent of that range for the consumable product sales, yes.

All right. And then with the decision to add the food product production to the Malaysia transfer, what do you guys expect for margins in the near term -- what kind of additional impact should we be seeing? And then now when this product line along with the other ones are fully transitioned to Malaysia, what percentage of the Company's revenue output will be coming from that region now?

Chris, this is Greg. In the second quarter we had about $400,000 in transitional related costs. In the third quarter, those costs will approach $1 million. The net impact on the margins given the lower volumes and the increase in transition costs that expect margins to be down slightly -- call it a point, point and half -- next quarter.

With regard to revenue, the products that we're moving to Malaysia now represent another about $35 million in revenue in 2008.

Okay. And then quick last question, along the lines of what you mentioned before, Gideon, that some of your equipment OEMs are -- they're indicating that their order outlook will start to pick up maybe in the fourth quarter -- what's the tone of those customers? I know you haven't started to see it yet since your guidance is down, but what is their tone? Has their attitude changed recently?

I think that we see a lot of interest in new products for 45- and 65-nanometer applications, and we see that on the part of certain large customers that are heavily involved with those nodes. And so there is a lot of activity in terms of developing new products for those nodes as well as for example 193-nanometer in the photo-photography area, which again serves those advanced nodes.

I'd say the tone is one of an expectation, potentially, of some better news towards the end of the year, but as you know those things are hard to predict. Jean-Marc?

Yes, I would agree. I mean, for the time being we are not seeing any -- or we don't expect any improvement in the OEM (inaudible) make-up of business. Hopefully we'll see that by Q4, but it's too early to tell.

All right, thank you, guys.

We'll go next to Brett Hodess with Merrill Lynch.

Good morning. I'm wondering, on the unit-driven side, given that the flat-panel area has picked up quite a bit lately on the semi side, looking pretty good going into the third quarter here on a unit basis, if you could talk a little bit more about how your unit-driven products are trending versus what's going on in the chip and flat-panel markets, because it seems like as typical, there's some kind of lag between the unit pickup and really seeing your unit-driven products pickup. If you could give us a little insight on that?

Yes, Brett, this is Jean-Marc. This is true. What we have seen in the second quarter, a mixed result in our liquid filtration business, we were positive on the semiconductor side, wafer related, wafer (inaudible) related was good. The FPD, flat-panel displays, semiconductor material display was really soft, and so what's going to happen in the third quarter is still a question mark.

I mean, we would love to see that going up; we might. Today, given the fact that the same quarter we are badly surprised, we are probably on the soft side.

Okay. And then the other question I had is when you look at the guidance range for the coming quarter -- so is that based on the roughly 15 million shares that you had left after the buyback?

Brett, the share count in that guidance is about 117.5 million shares.

117.5. Okay, very good. Thank you.

We'll go next to Mark Fitzgerald with Banc of America Securities.

Thanks. The $1 million in transition expenses here, would you expect that to spill over into the next couple of quarters as well?

Yes, certainly over the next couple of quarters, Q3 and Q4, those expenses are going to run in the $1 million quarter range. There will be some spillover into next year, I wouldn't expect them to be as significant in the first and second quarter, but we will continue to see some of those expenses.

As you think about transferring approximately 7% of our revenues to Asia, which is what we're doing here, that's a sizeable portion of what we make to be transferring over a nine-month period, say, Mark.

Okay, fair enough. And then just on the R&D front here, is there any pressure to pick up R&D spending, given any new product plans? Or is that safe to kind of forecast that flattish through the balance of the year?

I think that's safe to forecast, that flattish for the balance of the year. We are zealous about protecting our R&D budgets and spending, because as you know products take a while to develop and they take a while to introduce into the market. And so we're not going to be slashing those budgets.

But neither do we have to augment them in a significant way. We've got plenty going on in that area, Mark.

Okay, and then last question is wafer starts in the foundries have picked up pretty significantly. On a unit basis, have you seen your business there pick up, from a regional point of view?

Yes, this was -- Mark, this is Jean-Marc. This is the comment I was making a couple of minutes ago on the point of views, photo-resist, and typical Quickchange family of product, which is very much wafer-software related. We have seen the pickup in the second quarter, so hopefully we'll see a continuation of that in the third quarter.

The big question mark for us was really this TFT flat-panel business, which was [running on] and we don't know what's going to happen in this coming quarter, so the reason why we're on the conservative side.

Okay, thank you.

And we'll go next to Jim Covello with Goldman Sachs.

Hi, this is (Kate Koslarsky) on behalf of Jim Covello. Just curious if at this point you're evaluating any other product lines to potentially divest maybe some things that are lower margin, kind of similar to what you did this quarter.

No, we evaluate the portfolio on an ongoing basis, and we're not contemplating any further disposition at this point.

Okay, thank you.

We'll go next to Timothy Arcuri with Citigroup.

Hi, guys. I have a bunch of things. Number one, I guess I'm still a little confused in terms of whether maybe there's something structural going on here, because I guess I look at your revenue and it's down for five straight quarters, and there's not any other consumable or equipment company that I know of that has revenues down for five quarters in a row.

So I'm wondering if maybe -- and we had actually talked about maybe some new products coming in, as well. So I'm wondering is there some share loss here, maybe, in some product lines? Is there something that I'm not taking into account when I kind of look at the last five quarters?

No. You're asking is the model broken; the model's not broken. The Company has the potential to provide some very attractive returns to shareholders, number one, and there is a structural element in the fact that we do not currently participate in the 300-millimeter shipper market, as you well know. That is an embryonic market for us, that is a $120 market in the industry.

And until you see us participating in that market in a significant way as we make our share gains there, that is going to be looked at as a -- that's a drag, if you will, in terms of the unit-driven revenues in the Company.

As far as the rest of our unit-driven business, as you know, a portion of it is related, as Jean-Marc just indicated, directly to wafer starts, which is things like photo-resist, oriented filters. But there's a large portion of it that's also directly related to the production of equipment and because it goes onto new equipment, as well.

And so that tends to be impacted by equipment sales, also. So I would say we're confident that given the new products that have been introduced, given the traction that we have on the so-called platinum projects that are out there for us, we think we'll do well. And there are some reasons that I just outlined, as well as including the TFT LCD market that Jean-Marc described, that have hindered our growth, certainly on a comparable basis, in the last couple of quarters -- no question.

Okay, Gideon, I guess maybe just two follow-ups on that. So I guess if you look at your consumables revenue and you look at it per wafer start, it's down about 40% in the last, say, eight quarters. So do you think that that -- I guess the explanation for that would be that you're not in the 300-millimeter shipper market, and also that the flat-panel display weakness -- is that what you would attribute that to?

That's exactly what I said, yes.

Okay. And then I guess last question on the margins, it seems like if you're transitioning $35 million in revenue next year to Malaysia, it seems like a pretty big impact on gross margin for that relatively small amount of revenue. So I'm wondering how to think of incremental margins going forward, because I guess I'm surprised that that is such a big impact, given there's not that much revenue there.

What I would say is there are significant savings by moving the products to Malaysia across a number of categories. It's labor, it's logistics from the fact that we're closer to the customer. But I would also say that about 40% of the savings related to the transfers to Malaysia are in taxes. But I will say, I mean, the savings relative to what we're spending are significant.

So Greg, last question. If you were fully converted today -- let's say you had equivalent guidance in September a year from now -- which you wouldn't be fully converted -- but at some point when you're fully converted, at this revenue level, what would your gross margins be?

Can you repeat the question, Tim? I'm not following that exactly.

No, I'm just trying to see, if you had fully converted in September -- if you had that equivalent revenue and you assumed full conversion over to Malaysia, what would your margins look like versus what you're guiding in September?

I think our gross margins would be higher on that basis, but they would not be as high as our net margins would be because of the 40%, the savings that's in the form -- we pay zero tax in Malaysia, Tim. So the real kicker here is you might see a modest improvement in gross margin, but you'd see a substantial improvement on the net operating line.

And I'm not going to say right here on this call whether it's 300, 400, 500 basis points for these product lines, but substantial -- otherwise we would not be making the transition.

Of course. Okay, thanks Gideon.

We'll go next to Colin McArdle with Needham & Co.

Good morning, guys. Gideon, in May you used the term rolling bottom to describe the outlook for your guys. And based on the current guidance, I wondered if you would still describe it that way or if you would use different terms just kind of on a qualitative basis?

I would describe the term rolling bottom. I don't think it's that different. I think that we see more softness today in the capital equipment side of the business than was the case three months ago. And I think that at the same time, we see some indications, as Jean-Marc indicated, some indications, but early, that we may see a turn in the unit-driven side of the business, but it's early days.

So I'd say clearly, it is a rolling bottom. I think we feel comfortable given the new products that are coming in and given some of the trends in our particular customers, we're comfortable that we're not in some kind of a more significant decline. But we don't see any huge improvement, either, as was indicated. It's a rolling bottom at best.

Okay. And Greg, how would you describe your ability to contain operating costs at the same time as revenues are declining?

Well, we're very focused on cost controls right now, but at the same time we're not taking a -- a term I use -- burn the furniture mentality. I mean, we're focused on continuing to invest in the R&D, we're focusing on continuing to maintain our infrastructure.

Because, I mean, it's a long game for us and like I said, there's not an initiative to cut operating costs 10%, but there is an ongoing initiative to say watch the travel, watch the entertainment, save where you can.

Yes, okay. And then lastly, do you expect Clarilite to contribute to revenue at all in '07, or is that more of an '08 story?

It's already -- this is Jean-Marc. We see the quarter two story -- in fact, the Clarilite family is, as I said, a family of product, and they already contributed this quarter -- a little bit less than $1 million revenue. And they are continuing to ramp up in the coming quarters. These applications are in such demand in the industry that we see a lot of traction right now.

But again, it's less than $1 million in a quarter, [not] $150 million. So you have to (inaudible) things.

Okay, thanks, guys.

And our next question is from Hari Chandra with Deutsche Bank.

Thank you. I just have a multi-part question. Given all the plant transition on the way, how do you define your business model in terms of revenue and EPS growth? And one of the growth elements to the business that you see over the next 12-18 months, and how confident are you that these will deliver net growth and on a non-diluted gross margin basis?

Well, Hari, we've obviously modeled the costs of producing these items in Malaysia very carefully. The transition costs are actually minimal -- $4 million over a period of three to four quarters to transition 7% of our capacity -- that's not significant. The actual costs of operating in that part of the world -- obviously we have a very good understanding of that because it's not new territory for us.

We have a very large facility there, we have very large facilities in other parts of Asia, so we're pretty comfortable that we know what we're getting into. It's not new. I think what you're missing is the fact that part of the move of these products to Asia is actually also to provide proximity to our customers and the ability to provide lower cost of ownership.

These are products that are delivered largely to customers in Asia, and being able to do so from facilities that are -- and these are products that address 45- and 32-nanometer contamination control needs, largely -- delivering them from Asia to Asia is an important element in itself.

So I would say we're very comfortable that on a net basis, given the number of new products that address the advanced nodes that are in early stages of new ramp, and that we know we have adoption by key customers on, we're pretty convinced that those will deliver substantial growth for us over the next 12 to 18 months.

Where do you see the business model in terms of revenue and EPS growth?

Our view is that we're going to grow in line with or slightly ahead of the industry on the revenue side. We define our industry as probably over the course of a cycle, three or four years, as a 7% growth industry. I think the business is going to be a mod-40s gross margin business, and we'll continue to closely manage our SG&A related expenses and think there's significant operating leverage there.

So we think over the course of a three- to four-year time horizon we grow operating income 10% or 12%, we'll continue to repurchase shares and still have earnings per share growth slightly ahead of that.

And then as we've talked about consistently, the focus on ROIC. I mean, repurchasing shares is going to two things -- one is it's going to help us, as I just mentioned on the earnings-per-share growth, but it's also an important element of driving higher ROIC as we have lower amounts of capital invested in the business.

And in terms of transition and (inaudible) into Malaysia, when will it be complete and what percentage of sales on the transition part is done?

Well, as I've indicated three times today on the call, it's about 7%. The products we're transitioning now are approximately $35 million, so that's something on the order of 7% or 6% of our revenue. And most of that will be done by the beginning of next year, and certainly all of it will be done by the middle of next year.

So we're in the execution phase of that right now, so as you well know, these things require qualification in certain cases, they require a lot of attention to quality and making sure you're delivering exactly what you were delivering before in the new location. It takes a very organized approach, and we're doing it in a systematic way.

Okay. My understanding was it was a much higher number than 7% (inaudible). In any case, about the new products, what do you expect them to be as a percentage of sales in 2007 and 2008?

Hari, this is Steve -- just a quick clarification. What we're talking about in terms of the 7% number refers to new products going into Malaysia. Are you asking about what Malaysia will represent in total production for the Company?

Sure.

Oh. That's a higher number. Our Asian manufacturing, if you will, as a percentage of total --

Probably when we finish with these products it probably approaches 20% in Malaysia. Sorry for the confusion.

Okay. Yes, that's helpful. And on the new products, I just wondered, as a percentage of sales, how much do you expect (inaudible) in '07 and '08?

Yes, this is Jean-Marc. Currently at mid-year, I can give you the exact number. It's about 10% of sales to date. After six months, it's around $31 million, $32 million revenue right now. And we do expect this percentage to be similar in the second part of the year, and next year as well.

Thank you very much.

We'll go next to John Bendall with Hermitage Capital.

Good morning. Could you repeat the amount of shares that you said you have left to buy?

We have $50 million of authorized but unused buyback capacity at this point.

I came in a little late, but I think I heard someone mention that there is no immediate plan to start that, or any rush. It sounds like that is down the road a bit. Am I correct on that?

Well, what we've said is we'll be consistent buyers of our stock. We still have a transition period related to the accelerated buyback that we announced about this time last year. The broker continues to clean that transaction up, and so they would still be buying shares and we expect that to be completed in mid-October, at which time we're free to go into the open market and purchase shares with that additional $50 million.

Okay. You did your Dutch auction, as I recall, less than a month -- two months ago, was that correct? At an average price of how much?

Bidded at $11.80 per share.

Okay. And that was less than two months ago, was it not?

Correct, that was closed.

What always bothers me about this and about you guys -- first of all, we own the stock and bought it first of all because of the Company, second and maybe equally as much as with the balance sheet. Now I'm sure that's a long-range planning department that you guys have, and I'm not saying that you have to be a market (inaudible).

But you spend a lot of our money at a much higher price, and I'm sure that you had a clue that this quarter was not going to be a (inaudible) quarter, and you're going to suffer. We're down 11% today. If my portfolio suffered that performance, it would be devastating to me. So I'm not particularly criticizing on timing, but I'm saying, as I said once before to someone there, at some point in time, give the shareholders a break -- i.e., a dividend.

I think that might have been more than what I call a forced liquidation by buying in shares to see if we can't get earnings per share. That's a little bit artificial. So, I take issue with the amount of shares you purchased at that price, and you had no trouble getting them, given the fact that less than a month, we have a very, very disappointing quarter.

Well, sir, I don't recall your name, but --

My name is John Bendall at Hermitage Capital.

That's great, John. The tender offer was not about timing the market, sir. It had nothing to do with it. It was about resetting our capital structure and returning cash to shareholders.

We believe and continue to believe the tender is going to put the Company in a position to provide better returns to long-term shareholders. And it's not a single event; we didn't have Filene's Basement sale on our shares, and we don't look for those. It's part of a long-term strategy of continuous share repurchases, which is good for return invested capital.

That's what it is, sir, and that's what it continues to be going forward.

Why has a dividend not been considered along with that?

It may have been considered, but I'm not going to comment on that at this point because this is the way we decided to go, and I'm actually very happy that we decided to go this way.

Thanks very much.

We'll go next to Dan Leonard with First Analysis.

Just a couple of clarifying questions. What is the term of this tax holiday you have in Malaysia? How long does that last?

It's a 10-year tax holiday.

So you're not going to pay any taxes for 10 years in Malaysia?

Correct.

Okay. And did I hear you correctly that you were going to reduce your U.S. footprint further post the movement of these product lines to Malaysia?

We haven't announced any specific plans, but that would be a natural course of events.

Okay, thank you very much.

This does conclude today's question and answer session. At this time, I'd like to turn things back over to our presenters for any additional or closing comments.

No further comments. Thank you for joining us for the call, appreciate your time.

This does conclude today's conference. Thank you for your participation. You may disconnect at this time.