La-Z-Boy Inc (LZB) 2009 Q2 法說會逐字稿

Greetings and welcome to the La-Z-Boy, Incorporated, second quarter 2009 conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Ms. Kathy Liebmann, Director, Investor Relations and Corporate Communications for La-Z-Boy, Inc. Thank you, Ms. Liebmann. You may begin.

Thank you, Claudia. Good morning and thank you for joining us on this morning's call to discuss our fiscal 2009 second quarter results. Present today are Kurt Darrow, La-Z-Boy's President and Chief Executive Officer, and Mike Riccio, our Chief Financial Officer. Kurt will open today's call with prepared remarks, then Mike will speak about the financials and more unusual items of the quarter. Following Kurt's concluding remarks we will open to questions.

As is our custom, the time allotted for this call is one hour. In order to allow everyone an opportunity to ask questions, please limit your questions to two. If you have follow-ups, you may reenter the queue. A telephone replay of the call will be available for one week beginning this afternoon. These regular quarterly investor conference calls are one of La-Z-Boy's primary vehicles to provide guidance and to communicate with investors about the Company's current operations and future prospects. We will make forward-looking statements during this call so I will repeat our usual Safe Harbor remarks. While these statements reflect the best judgment of management at the present time, they are subject to numerous risks, future risks and uncertainties, as detailed in our regular SEC filings, and they may differ materially from actual results due to a wide range of factors. We undertake no obligation to update any forward-looking statements made during this call. And with that let me turn over the call to Kurt Darrow, La-Z-Boy's President and Chief Executive Officer. Kurt.

Thank you, Kathy. Good morning, everyone. By any measure the furniture industry is in the midst of one of the most difficult periods in its history. The turbulence in the financial and credit markets has exasperated the consumer's willingness to make discretionary purchases in environment of depressed housing and record low consumer confidence readings. While the greater macro economic issues are beyond our control, my team's mandate is to control the controllables and aggressively manage our way through this unprecedented period. For the quarter, we experienced a sales decline of 9.2% compared with last year's second quarter, with a notable steady decrease in sales as the quarter progressed, particularly in the month of October.

As a result of the rapid decline in our order rates, we announced a series of initiatives earlier this month that include a 10% reduction in our headcount, a significant reduction in capital spending, and operating expenses, and withdrawal of credit, the anticipated closure of 15 to 20 primarily independently owned La-Z-Boy furniture gallery stores. These were very difficult decisions to make but in an environment of economic instability, where we believe the economy will continue to falter, it was necessary to take aggressive action to align our operating structure with today's order flow. Importantly, however, we remain focused on projects that will lead to significant improvement in our operating structure and are scrutinizing each and every expenditure and decision to ensure that we tightly manage this Company, given the current environment.

On the wholesale side of the business, upholstery sales decreased 8.1% and case goods fell 17.7%. We experienced corresponding declines in our wholesale operating margins as a result of the significant reductions in our order rates. In upholstery our operating margin was 3.3% versus 7.1%, a result of the decline in sales, increased raw material costs, and an increase in our bad debt expense which I will touch on in a moment. Although we are disappointed with our margins for the period, we are pleased with the footprint now in place across all of our La-Z-Boy branded facilities and are indeed gaining traction with a more efficient operating structure. Also impacting our results for the quarter were the costs related to the development and start-up of our Mexican cut-and-sewn operation which is on schedule to come on-line this coming January. We have approximately 75 employees working at a temporary facility in Mexico and have already started to send cut-and-sewn kits to our US-based manufacturing plants. Once we have fully transitioned the cutting and sewing operations, we expect to realize savings in excess of $20 million annually with a full benefit realized in fiscal 2011.

During the quarter we incurred a bad debt expense of $4.8 million with a portion of it related to the 15 to 20 stores we anticipate closing as a result of the withdrawal of credit. The majority of those stores are dealer owned, and while the closures will impact our volumes, it is the prudent move to make to both preserve cash and stem future bad debt charges while allocating resources to the most productive dealers within the system. From a marketing perspective we will continue to invest in our "comfort is what we do" television campaign with the objective of increasing consideration and purchase intent for our product. Given this environment, however, our advertising spend will be at a decreased level commensurate with the change we have seen in volume. And while we also will be reducing other areas of discretionary spend in marketing we will maintain our commitment to enhancing our on-line presence, particularly in the areas of e-commerce, paid search advertising, and our overall website experience.

Innovation is another area we feel is important to emphasize during these challenging times. We have been focused in the past year on developing the processes and culture that will enable us to declare a regular drum beat of innovation to our retail partners and consumers. Two recent examples are our new comfort core cushion technology available on our new and improved La-Z-Boy premier stationary sofa line and the profile comfort touch recliner allows a consumer to personalize the firmness of the seat and back to their individual preference. Both were launched at that time recent furniture mark in High Point and received strong support from our dealers. Not only are they products -- not only are the products themselves compelling but they will also help drive much needed traffic into the stores.

For the third calendar quarter, our same-store sales were down 4.7%. However, as I mentioned earlier, we experienced a progressive decline in sales as the quarter unfolded. And in October, same-store sales were down over 17%, reflecting the immediate magnitude of change to the overall macro economic environment. Our case goods segment experienced a significant decline in volume for the quarter and as a result its operating margin decreased to 1.6% from 6% last year. Our profitability for the period was impacted by our plants operating and reduced schedules. For example, there were times throughout the quarter when they worked at less than 50% of capacity making it difficult to absorb fixed costs. Furthermore case goods groups are impacted more in this environment with consumer reluctant to spend more for total groups of furniture and the dealers unwilling to take on large inventory positions.

Now I would like to turn my attention to discussion of our retail segment. Our company-owned retail segment posted sales decline of 14.5% and a loss of $10.4 million. Here, too, we are seeing a magnified effect of the consumer's unwillingness to make discretionary purchases. Although traffic counts have declined we are servicing the consumer better as evidenced by improvement in average particular and gross margins. Additionally, as we mentioned last quarter, given the macro economic climate, we have slowed down our new store opening plans and are working to improve the performance of the existing store base through better merchandising and improved systems. We also announced during the quarter that Mark Bacon has joined our company as Chief Retail Officer. Mark has spent his entire career in the retail arena, working for such well-known retailers as Pep Boys, Wal-Mart, and Staples. We're delighted to have an individual of Mark's caliber leading our retail business and are confident he will make a strong contribution to our company and improve the retail segment's operating performance even with its high fixed cost structure in a difficult sales environment.

Another important initiative underway is the rollout of our company-owned distribution centers to the entire network of La-Z-Boy furniture gallery dealers. By taking on the warehouse inventory and delivery function for the network, we are freeing them up to focus on the front side of the business to generate sales and provide the consumer with professional and excellent service. Although it will take several years to consolidate all the dealers into the warehouses due to their existing lease obligations, we have already partnered with three dealers representing nine stores into our distribution system. By our fiscal year end we anticipate having nine dealers representing 20 stores in the corporate warehouse system. Importantly, this initiative will also make a significant positive change to our accounts receivable leverage. Once this project is complete, we will have a common IT platform throughout the entire retail network, enabling us to react faster to real-time trends. Now with that as -- for discussion of the business opportunities I will turn things over to Mike Riccio.

Thank you, Kurt. We reported net sales of $331.9 million, and a net loss of $53.7 million, or a loss of $1.04 per share. These results include a $38.2 million, or $0.74 per share noncash charge for evaluation allowance against the Company's deferred tax assets and a $0.04 per share restructuring charge primarily related to the closure of our Tremonton, Utah upholstery facility and the La-Z-Boy UK operations. One item that I want to clear up before we delve into the financials is that we stated in yesterday's press release that the goodwill impairment charge was $0.11 per share for the second quarter of fiscal 2008. That number should be $0.07 per share as previously reported in the prior year's second quarter press release.

Now let me take a moment to talk about the valuation allowance. As a result of losses sustained during the quarter, the impact of restructuring actions taken over the past three years, the significant decline in current and projected demand for consumer domestic furniture purchases and resulting uncertainty in the economic climate, we reassessed the likelihood that we would be able to realize the benefit of our deferred tax assets. Due to these economic conditions we concluded that a valuation allowance of $38.2 million should be recorded against the deferred tax assets. We continue to closely monitor the credit of our dealers and record bad debt provisions where appropriate. As Kurt mentioned in his opening comments we will exit the markets by discontinuing shipments of goods to dealers which will reduce the impact those stores can have on our future bad debt expense.

Now on the balance sheet, our debt to capitalization ratio increased from the prior quarter due to the effect the all of situation allowance had on our equity, but it was still down from the 24.9% a year ago. Additionally, due to the seasonality of the furniture business, the Company's accounts receivables increased $16.5 million to $196.8 million during the quarter which was funded in part by the increase in our total debt versus last quarter. Our excess availability under our credit facility at October 25th, 2008, was $58.3 million. Our excess availability fluctuates based on our outstanding borrowings, eligible receivables and inventory, among other factors such as outstanding letters of credit. Also historically our third quarter has been one of our stronger quarters for operating cash flows. As you read in our release yesterday we also made the decision to reduce our quarterly dividend to shareholders from $0.04 to $0.02 per share due to the uncertain business environment.

Our tax rate on a continuing operations for the quarter was 203% impacted by the significant valuation allowance. To assist you in modeling I would continue to use 38% rate for consistency purposes. However, our tax rate will continue to be impacted by various discrete items and whether or not we will be able to reverse valuation allowances or utilize tax benefits in the future based on our level of income. We announced two weeks ago that we would reduce our capital expenditure plans for the year from approximately $27 million to $18 million to $20 million. Much will be related to expansion into Mexico and IT related upgrades. Depreciation and amortization will remain in the $24 million to $25 million range. I thank you for your time this morning and I will now turn back the call to Kurt.

We are in the midst of an exceedingly difficult operating environment with economic indicators pointing to the likelihood a prolonged recession. Due to the weakness in the financial and credit markets our order rates have declined and remain inconsistent with little or no visibility into the future. Accordingly we deemed it necessary to suspend our yearly guidance. While this period is disconcerting to all of us, as I sudden my opening remarks, we're controlling all that we can and are moving ahead with plans and projects that will establish a strong foundation for us in the future. With the best known brand in the furniture business, a large proprietary network of stores and a lean operating structure, we believe we will emerge from this period and will ultimately be a stronger company operating in a very different environment. Everything we are doing today is with the intention of positioning us to be a leader in that new environment and we have every confidence we will prevail. We thank you for being on our call today and for your interest in La-Z-Boy. I will now turn the call back over to Kathy to begin the question-and-answer period.

Thank you, Kurt. We will begin the Q&A period now. Claudia, please review the instructions for getting into the queue to ask questions.

Thank you. (OPERATOR INSTRUCTIONS) One moment, please, while we poll for questions. Our first question is coming from Budd Bugatch with Raymond James. Please state your question.

Yes. Good morning, Kurt, good morning, Mike, good morning, Kathy. If you look at your company-owned retail and compare it to the system-wide retail performance in comps, can you give us a feel of that difference and how that progressed during the quarter with total sales being down 14.5% at retail? I'm concerned about how your company-owned is doing compared to the independent dealer base.

Well, for clarity's sake, Budd, I would answer that question in two ways. One, the statistic we give on the system is written sales and the numbers we report on our own retail segment is delivered. So there is a lag factor there between the two measurements. Number two, due to some of the markets we're in, particularly Florida, and some other operational issues we have, we are not performing as well as many of our independents, and that's one of the reasons we've made a change in leadership and organizational structure within our retail group, and we don't think there's any reason that we can't perform at our independent dealer levels, but we haven't been doing that for some time, and we're intent on changing that trend.

And how did it progress during the -- I mean, you are obviously -- October, for everybody, was a significant down draft that many of us have continued into November. I would be interested if you have any additional color on that. Can you give us a feel of those issues? And I have one more question.

We are experiencing a trend, just like everyone else, October was a significant down draft, and we were not immune from that, and we did change some of our reporting this quarter. We normally only give a quarter's same-store sales indicators. We gave the month of October to give you some idea of the impact it has had on us, and that's the extent of what we want to comment on, but obviously things are remaining very difficult.

Okay. And if Mike could go through the mechanics, I know it's somewhat arcane on the calculation but that impact as we go through the rest of the year your ability to avoid being in a covenant tripping issue, which I think has an impact on the balance of dividend. Could you kind of go through how that calculation works and maybe what were the LCs that impinged on that as well?

Budd, to give you some flavor, as you go back and look at the agreement, there is a lot of complexity, as I've mentioned before on the call, and coming up with our excess availability. Because, A, you have a definition called eligible receivables and eligible inventory. There's about seven or eight factors in each one of them that reduces eligibility based on the aging of the receivables or the -- or whether it's a foreign receivable or not. So that's where our starting point is. And then you have to calculate what that is, then back out things. In our definition of things that come out is letters of credit, is reserves for deposits, those type of things. We just don't -- I'm just not set to giving out detail of all of our individual numbers, but for logic sake, the agreement is going to allow to us -- like we have our IRBs, which were about $16 million, reported in the end of the year 10K. We have LCs, those aren't any secret, against all of our IRBs, because that's how the municipalities want it to be done in case they have to pull the payment. So all those LCs are reducing our availability.

Then we're required to have LCs for workers' comp in some states and those type of things that are just common business practices for most companies. That's about as much clarity as I can give on that to give you some idea, but there's also many other things we have to consider every quarter as our business changes to go against that. That's why we try and give as much information on the excess availability on a quarterly basis so that everyone can understand our liquidity. As our receivables go up, our availability goes up. But as time goes on, if we have to borrow money to fund those receivables, then it usually stays kind of constant As we correct the receivables and pay down the debt, we then obviously reduce the debt, and we also reduce some of our availability because receivables aren't as high, but we get dollar for dollar on the cash. We don't get dollar for dollar for borrowings.

Okay. I know it's very complex, so I won't belabor that on the call at this time. Thank you very much. I'll reenter the queue.

Our next question is coming from Matt McCall with BB&T Capital. Please state your question.

Thanks. Good morning, everybody.

Good morning, Matt.

You mentioned, Kurt, I think the bad debt expense and obviously the goal, the 15 to 20 dealers, to reduce debt. Can you talk about the percent of your bad debt, and what was total bad debt? I think you said 4.8%. I thought it was higher than that. That what was the percent of bad debt from those 15 to 20,and how much do you expect that to move lower as you close these locations?

In the 10Q, Matt, we put in that the bad debt for the first half of the year was $1.9 million.

$9 million.

No,$ 1.9 million was related to these 15 to 20 stores.

Okay. I missed that.

Of the $9 million that's on our cash flow.

Okay.

But going forward, we are trying to reduce that impact, and I'm pretty sure there will be some minor impact as we complete some of these transactions.

Also, Matt, we have 29 -- $28 million in our bad debt reserves, and the majority of that is allocated towards the La-Z-Boy store system in general, and not all the money is reserved for our store dealers, but a majority of it is, so we think we've been very prudent and conservative with those calculations as well.

And doing it on a quarterly basis when the risk does come about so that we're monitoring this on a daily basis to make sure that we are at the level we need to be to have the right valuation against our receivables on monthly basis.

Okay. That's helpful. And then outside of the 15 to 20 furniture galleries that you plan to close, are you stopping shipments to other wholesale customers, then if the answer is yes, what's the total impact to your top line from these actions?

Good question, Matt. The challenge that we all have in this environment right now is to determine what the future run rate is going to be. Is October reflective of the new level of business? Will it bounce back a little from there? Is business going to be down 10%, 15%, 20%? That's a very moving target right now, one we're trying to get our arms around. We believe we can structure this business appropriately given wherever the volume ends up, but we can't continue to lose money on customers that have no ability to pay us. So we're prepared to deal with that, make the adjustments in our business model from a cost standpoint, if we lose more volume, but we would be guessing right now on how many more people are struggling financially and how many normally good paying dealers may fall into another category here. If business remained like it was in October, that universe gets larger. If business comes back some, that universe is smaller. So it's something we're very cognizant of, we're very careful with, and we're moving aggressively in those avenues.

Okay. And one more, and I'll hop off. Your operating expenses -- so there was like a $10 million sequential increase on the top line and likewise, there was a $10 million sequential increase. This is from Q1 on the operating expense line. A bit surprising the magnitude of that move. I know there's some bad debt in there. Maybe that's part of it. I know there's some advertising. I think you spoke about it in the Q on a year over year basis. Help me understand how you are going to see that one for one move in operating expenses versus sales from the Q1 arena, especially when you are focused so much on managing your operating expenses.

Matt, I think philosophically you have to look at, we were, as you could see from our same-store sales through the end of September with our whole system, we were moving in a path that was close to our planned efforts and typically in the furniture industry, the fall is a seasonal uptick, and we anticipated in late August and early September that that would happen. The degree of change that happened in the month of -- the last week or two of September and the first two weeks of October, the degree that that magnitude changed, and as rapidly as it changed, when we were planning on things improving a little bit, caught us at an apex that we had to make some substantial adjustments. So as we look at it, it was a timing issue of planning business going in one direction, having the bottom fall out in the other direction, and having to adjust, and we think we've made most of those adjustments with the announcements we made in early November. So there are areas of spending, our advertising was up for the quarter. As a percentage of sales it will be down in the second half of the year. We talked about the bad debts. We had issues with raw material rising in the first half of the year, which we don't feel is going to be the trend line in the second half. So there's a number of different factors that we saw that we have reacted to, and I think we reacted aggressively.

And also, Matt, the second quarter is our market quarter, so sequentially over the first quarter we have expenditures related to that, that aren't in the first quarter that won't be in the third quarter.

Okay. Thank you all.

Our next question is coming from Todd Schwartzman with Sidoti & Company. Please state your question.

Good morning, folks. First question, exclusive of the stores you have targeted for closure, and I also hope that you can maybe provide some color on the geographies involved there, but ex those, are there any new VIEs on the horizon that you likely need to consolidate?

Todd, this is Mike. What we're very cautious on what we're trying to do, we're doing everything we can to not add any more VIEs and monitoring our credit so that we do that. There's always a chance that that may happen. It is not in our strategy right now to try and do that. But what we're monitoring that pretty carefully to ensure that we can maintain where we certainly are at with our retail division as well as our current VIEs.

The issue, Todd, on identifying the stores, in some cases we have had clear communication with our customers involved. In other cases they may not have advised their staff and their employees of these changes, and so we're being respective of their personal situations. I would tell you, however, the we've talked about the states that have been under the most pressure the last year or two, and can tell you because it's been communicated in certain instances that some of the stores are in Florida, and some of the stores are in California, where we'll be making some of the changes.

Right. Okay. Thanks, Kurt. Also, which of your debt covenants is of most immediate concern right now?

The only one that we have of any -- having our excess availability drop below $30 million. There is no other covenant right now other than that.

Your leverage ratio covenant is what, just to refresh?

We have a fixed charge coverage ratio that only comes into play if it's less than $30 million of excess availability.

So that there's no debt to EBITDA covenant?

No.

Thanks.

(OPERATOR INSTRUCTIONS) Our next question is a follow-up from Budd Bugatch with Raymond James. Please state your question.

A couple of other things. Mike, on taxes you said for modeling we ought to use 38% operating rate. Do you think will you be presenting the financials that way, or is it just too cloudy to tell yet?

It's too cloudy. Budd, obviously the deferred tax issue, the valuation allowance is mainly as we talked about, based on the enact that we have lost money in the past, so if I would lose money in the next quarter I would not be able to take a benefit for that. If I make money in the next quarter, I would probably be able to reverse my valuation allowances to offset that and my income taxes would be minimal. So I don't -- the problem is I can't give you modeling effective tax rate because it depends on what jurisdictions I make money in and how we make money depends on how the rate goes in. It's a little more complicated now for us because of that. It depends on how we make the money and where we make the money so our rate could be zero next quarter even if we make money. It just depends on how it goes about. So I don't know how to give you any better insight on that for doing. I was just trying to give you some idea of the sense of what would happen, and if you use 10%, 30%, I'm not sure that it really matters because it will be a nontax number. I mean, a noncash number, excuse me.

Yes, I understand that.

But I try to give you as much feel as I can. It just depends on how it works out in the future, and probably as we move through the year, give you more clarity on that.

Just trying to figure out how best to present that number. We've come across this before, and we just kind of usually have gone in a kind of modeling sense have gone to zero tax until we get some assurance that that valuation allowance is going to go back the other way.

I couldn't counter that argument.

Okay. When you look at the utilization of the case goods, the remaining factories that are open and the upholstery what kind of utilization rate? And I know that's a nebulous, in many cases, a nebulous term, but kind of an investment feel of how you're operating and what kind of future we look at in terms of those facilities. Where would you peg that if you were forced to give an answer, like I'm trying to do?

Well, Budd, I would tell you, in the quarter, our upholstery operations were in the low 90% capacity utilization. The only problem with that number is the quarter got progressively worse. So if you would roll out three months of October, we wouldn't be at the 90%, but that's where we were for the quarter with the upholstery groups and for our two case goods plant, our utilization was slightly under 50%. So that's the magnitude of that, and that is at a quarter of volume that we may not see here in the near term, so that's why we had to make some changes with headcounts and other things as well.

When will all that be effective? Is it done? And when do we see the annualized savings?

Well, I believe that probably 90% of what we announced in early November is done. There was immediate action taken. There's a few things that are trickling out between now and the end of the calendar year, but the majority was immediate because our decline in volume was immediate. So we had to move aggressively on that.

Okay. Savings, you'll start to book in that third quarter? You're starting to see it now?

We would have immediate impact on that. Obviously, Budd, we'll have to book some severance and some benefit costs in our quarter, but overall, for the quarter, we should see some benefit from this as well, whether it offsets the severance but the fourth quarter, we would see 100% of the savings.

And we tried to give you some magnitude in the press release of what the headcount reduction would mean on an annual basis.

Right. Okay. I understand. Finally, as I do my numbers, trying to come up with what I think has happened to the individual segment operating expenses, it looks to me like the gross margin and the wholesale group declined half a point or so. Just making some other assumptions. Kind of working that backwards, looking at the segment operating expenses, looked like segment operating expenses were up year-over-year. Is that an accurate way to look at it? SG&A side of the segment. Wholesale segment, sorry.

We told a couple of the big drivers in the SG&A percentage was the bad debt and the advertising. Both of which we think we can positively affect going forward by some of the changes we've made in how we're going to spend and which dealers we're going to support. That was the primary driver. There are some other things involved there, and the discretionary spending controls that we've put in place will help that, but those are the biggest two components of the SG&A run-up.

And that bad debt -- obviously the bad debt appears in the wholesale segment because those are independent dealers. Is the advertising also primarily in the wholesale segment? Is that where that's showing?

It is in both but it is primarily the extra is primarily in the wholesale section.

Got you, so that does explain that. Thank you very much. Good luck. I know how challenging this.

Thank you.

Thanks, Budd.

We do after follow-up question coming from Matt McCall with BB&T Capital. Please state your question.

Thanks. Mike, going back to one of the earlier questions, I think, on the potential or the fixed charge coverage ratio, do you know what that calculation is today to make sure I'm including all the pertinent details? Do you know what that would be today?

Matt, we've been pretty consistent on this, only because we're just trying to only disclose things that are in play. As long as we're above the $30 million, that's not in play, and so I have -- we're not disclosing that information at the present time.

That's okay. The only reason I ask, maybe just I want to clarify some of the language in the queue, you were talking about managing the liquidity in the back half of the year. One of the items you listed was suspension of the dividend. Just wanted to clarify that that was if things were to get worse, I didn't see that language in there, just saw that was listed as one of the items would be suspension of the dividend. I know that would be another result of losing below $30 million.

There is two things on that. The suspension of the dividend obviously gives us more cash, but it also is a factor in the calculation of the fixed charge coverage ratio. But it's defined in there.

But the language is more of a what if, if we need to we'll suspend the entire dividend.

Let me respond to that, Matt. Our dividend decision is discussed every quarter.

Right.

And made based on the current conditions, but what we have attempted to do philosophically is to look at our business model today, make what we believe is appropriate cuts. Our bias right now is October, is not the new norm. If we have to slash and burn even more, and stop all advertising and suspend all dividends and do all those things, we think at this point that would be a knee-jerk reaction and one that would not be appropriate given what we know today. But obviously if business conditions get worse, if the recession deepens, all options are on the table, the and we would consider whatever we have to do to keep this company strong.

But also, just to clarify what you're -- I know what you are getting at now, there is a provision, if the goes below $30 million excess availability, that is a restriction within the bank agreement about the dividend as well, if that's what you are referring to, Matt.

I saw in the -- one section of the Q you talked about map acknowledging the liquidity of the Company through the end of the fiscal year and one of the items you mentioned as a way to manage was suspension of the dividend. And this is just after you talked about cutting it by 50%. I'm just making sure that's a what if, that what has occurred thus far is just the reduction to $0.02.

That's correct.

Okay. Thank you all.

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you, everybody, for participating on our call today. If you have follow-ups, please give me a call. Have a good day.

Thank you.

Thank you.

This does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.