Emerson Radio Corp (MSN) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Emerson Radio third quarter fiscal year 2008 earnings conference call. My name is Lisa and I will be your coordinator for today. (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 conference, Ms. Denise Roche from Brainerd Communicators. Please proceed, ma'am.

Good morning and welcome to Emerson Radio's fiscal 2008 third quarter financial results conference call. On the call with us today are Greenfield Pitts, (technical difficulty) Financial Officer; John Spielberger, President of our North American Operations; Andy Davis, Vice President of Finance and Group Controller; and Bob Maffei, Director of Corporate Treasury.

I would like to mind you that during this call members of Emerson's management, in addition to discussing the actual results of this past quarter, will be making forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management's current knowledge, assumptions, judgment and expectations regarding future performance or events. Although management believes that the expectations reflected in such statements are reasonable, they give no assurance that such expectations will prove to be correct. And you should be aware that actual results could differ materially from those expressed by the forward-looking statements.

Forward-looking statements are subject to a number of risks and uncertainties, including the risk factors detailed in the Company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the fiscal year ended March 31, 2007, as amended, and any updates contained in its quarterly reports on Form 10-Q and other documents filed from time to time with the SEC.

The Company undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise. With that I will turn the call over to Mr. Greenfield Pitts.

Good morning and thank you all for joining us on our third quarter fiscal 2008 earnings conference call. This marks Emerson's first investor conference call in recent years, a practice we intend to continue each quarter going forward.

What we would like to do today is introduce you to a few new members of our management team, mainly John Spielberger and Andy Davis. The three of us will provide color on Emerson's strategy, operations and financial results. Bob Maffei, who many of you know is our Investor Relations contact, is on the call as well.

Over the past several months we've taken a number of strategic steps internally to strengthen Emerson's senior management team and Board leadership. These moves have added depth and experience to our sales and marketing leadership and operations and finance teams. As you'll hear, it is also helping to re-energize and refocus the Company as a whole.

John Spielberger, our President of North American Operations, joined us in October. John most recently served as Chief Financial and Operating Officer and Senior Vice President of Business Operations and Customer Relations Management at Sony BMG sales in New York. He brings a strong portfolio of financial and business operational expertise in a sales and marketing distribution organization to Emerson.

Andrew Davis joined in August 2007 as Vice President of Finance and Group Controller, bringing 18 years of accounting, audit and controllership experience. Andy joined us from Computer Associates, where over the last two years he lead the required accounting, Sarbanes-Oxley and financial systems turnaround efforts for its services business.

Richard Rude joined us as Chief Operating Officer in October. Rich possesses over 13 years of supply chain management experience from Liz Claiborne, as well as proven experience implementing operational initiatives to drive improvements in both profits and performance. He has also spent significant time in both Hong Kong and mainland China, including a three-year stint managing a factory operation in Shenzhen.

And finally I joined the Company as Director in 2006, and was appointed to the position of Chief Financial Officer in 2007. I came to Emerson with over 33 years of international banking experience, all of which was spent with Wachovia Bank.

In addition to the management appointments, we have strengthened our Board through the appointment of three new Directors in December. These new Directors bring us specialized experience across a variety of industries and bring fresh insights as we build and execute our strategy for growing the Company.

In thinking about strategy it is important to take stock of Emerson's strength today. Emerson Radio is more than a venerable name in electronics, it is a Company that has built a reputation for delivering quality products at attractive price points. We enjoy a solid distribution network and long-standing relationships with many of the nation's most recognizable names in mass merchandising. We believe retailers see the Emerson name as trustworthy, reliable and signifying value to their customers.

Our brand equity and track record for serving our customer relationships has enabled us to diversify our product portfolio beyond the legacy audio electronics line. The biggest example is our home appliance line, which includes such products as our tabletop microwave and toaster ovens. In the third quarter we increased sales in this productline 92% year-over-year. Retailers are asking us to deliver more, and that is leading to new categories like wine coolers and compact refrigerators.

As we look ahead we have both strengths and opportunities. The list of strengths starts with the Emerson brand and its reputation for quality and value. We have strong business partnerships with many of the nation's top mass and specialty retailers. And we have the ability to source, deliver and handle returns processing for multiple products across a wide variety of audio and appliance categories.

The list of opportunities is significant as well. We have healthy licensing and themed products business that have room to grow. Through our license with Funai Electronics, Emerson flat screen televisions are a popular item at one of the nation's national mass merchandisers. And through relationships with companies like Mattel, we're delivering a combination of design, features and value in themed lines popular with millions of children.

New product development is a key area of opportunity that cuts across many of our segments. Our new management team bring significant sales, marketing and operational expertise, and this group is excited about what can be done with the Emerson brand. We are evaluating all of our productlines with the objective of pinpointing opportunities to build fresh, innovative features into them. Particularly in audio, this approach is needed as consumers change the way they consume music. In speaking with our retail partners we get great insight on the demand for the latest technology features and look that younger demographics are looking for. Historically Emerson has been effective in responding to those insights. We create concepts and outsource product design work. For us to better address fast changing markets we're considering adding in-house designers across all of our categories.

Emerson is also looking strategically at ways to use its operational and sales marketing expertise to extend the Company's presence into higher end markets. This is not about trying to change the reputation of the Emerson brand, rather, it is about adapting our core strengths as a Company to marketplace opportunities.

This can be illustrated by our recently announced agreement in principle to form a joint venture with ADCOM LLC, which we expect to close this quarter. ADCOM is a respected leader in the design, production and distribution of high-quality audio and video devices and systems, and a leading brand in the home theater and home installer audio and video channel. We believe this JV is an intriguing and strategic opportunity for Emerson. You'll hear more about this and other initiatives on our call here today. To that end, I would now like to turn the call over to John Spielberger.

Our third quarter results were disappointing, but this disappointment stems from a couple of clear identifiable and isolated issues. Overall our business remains profitable, and is generating cash on an annual basis. And that is noteworthy in the current retail environment.

Net revenue for our fiscal third quarter was approximately $76 million compared to $89 million last year. Net income for the quarter was $1.1 million compared to $3.7 million last year. While Andy will provide further details on our financials shortly, I would like to zero in on two key issues, one impacting our revenue and the other net income.

First, we recognized $12 million in revenue during fiscal third quarter '07 related to a onetime holiday promotion by one of our major customers that did not repeat again this year. Second, in January we were informed by one of our long-time mass-market retail partners that they would be returning a significant portion of the inventory for a new themed product that they ordered at the start of the holiday season. As a result, we have recorded a $2.9 million sales return allowance. This was an unusual circumstance that we do not expect to be repeated, and I will provide additional detail when I review our themed product category a little bit later in this call.

I would now like to briefly discuss the performance of each of our major product categories and provide you with some insight into our growth strategies for each. While our audio category revenue declined in a quarter over quarter comparison, if we examine the category by productline, we find strong demand for our more innovative products being offset by declines in mature products like CD shelf and portable CD systems, as well as declines in our iPod compatible line, due mainly to increased competitive activity and slower overall growth than in previous periods within the iPod accessory market.

Growth is coming from products like SmartSet clock radios where sales increased 17%, and nostalgia products where sales grew 14%. We believe that developing fresh new products and technologies like SmartSet is the key to success in audio. Products like CD shelf systems and portable CD players are clearly in decline, and we manage the business around this reality, as consumption patterns for music and other audio entertainment change.

Audio overall hasn't performed well for Emerson lately, but our new management group sees it as an important business. We will be focusing on delivering newly designed products with new functionality for the digital delivery market.

Greenfield has mentioned our planned joint venture with ADCOM, and this is a great example of the type of fresh approach we want to take in audio. I want to take the opportunity on our call this morning to provide a bit more insight into the proposed deal.

Under the terms we have structured, Emerson would contribute a nominal upfront cash investment and make available a line of credit to capitalize a newly created joint venture, which will be named Advanced Sound and Image, or ASI, in exchange for a controlling interest. ADCOM would sell and/or license certain of its assets, including all of its intellectual property, to ASI in exchange for cash and a non-controlling interest. For us the deal would have relatively low capital risk, but provide multiple growth opportunities, both near and long-term as follow.

First, Emerson would acquire access to sophisticated audio and video products and technologies and the revenue they produce. We would also acquire engineering and product development expertise, which we expect will result in increased innovation across our entire audio lineup. In addition, we would benefit from access to a new distribution channel in the custom home installer market. This is, and will continue to be, the predominant distribution channel for ADCOM branded products.

And this cannot be overemphasized. We are neither interested in taking the ADCOM brand into Emerson territory, nor the Emerson brand into ADCOM territory, rather we're matching distinct and separate strengths to create new opportunities.

One of those opportunities is utilizing Emerson's mass-market distribution expertise to develop additional markets for select ADCOM developed product. We've identified a select grouping of such products that may be suitable for placement within the higher end mass electronics retailer, but under an alternate brand name.

Finally, we see potential for bundling ADCOM audio products with other brands in our portfolio, including a home theater on a pallet system that would include ADCOM audio products along with high-end OEM display and loudspeaker options.

In particular, we experienced a very positive reception from the marketplace, working with ADCOM at the recent CES show in Las Vegas, where we set up a home theater system as I have just described. Along with it, we also demonstrated another ADCOM-developed proprietary product, a video iPod docking system that up converts compressed video data residing on an Apple iPod onto any 1080p-capable capable monitor. The home theater system and our concept of bundling high-end components to form a turnkey home theater computer solution generated a lot of interest among our visitors, as did the video iPod up converter product itself, which generated strong interest from some of the major electronics retail merchandisers.

Just finishing up on ADCOM, as part of the deal Emerson has received a commitment from ADCOM management to remain with the company. We have also pre-negotiated an option to purchase the entire company after two years, and will evaluate the benefits of doing so at the appropriate time. This reason for this option period is that it will take some time for ASI to develop its revenue streams, and thus the success of this venture cannot be judged for a few quarters. That said, we think the potential for long-term upside is attractive for Emerson Radio and its shareholders, and we look forward to closing the deal later this quarter.

Now moving to home appliances, which is currently Emerson's fastest-growing product category, with 92% year-over-year revenue growth during the third quarter. The products offered within our home appliance category include microwave ovens and wine coolers, both which demonstrated robust year-over-year growth, and newer products introduced this fiscal year, such as toaster ovens and compact refrigerators, which have been introduced to strong initial response.

Over the course of fiscal 2008 we continued to solidify our significant market position in microwaves and increase product offerings at our major retail outlets. In addition we expanded the distribution of wine coolers over the course of the year. Looking ahead we are focused on continuing to expand the distribution of our home appliance line, as well as introducing additional products within high demand, profitable segments of the category.

What is most gratifying to us here is the fact that our retail partners are the ones coming to us asking for new product designs. For example, this was the genesis of one of the new products we brought to market this fiscal year, compact refrigerators. Our retail partners come to us because we can get from design to manufacturing and distribution quickly. We are there for the customer at every step, including inventory and returns handling. In fact, this type of execution has resulted in us receiving the Partner Award of Excellence from Target for the second straight year.

Moving on to themed products, as many of you know, we ended our themed products licensing relationship with Nickelodeon at the end of fiscal 2007. Following the termination of that agreement, Emerson signed a license agreement with Mattel for a line of Barbie Real Electronics products, which launched during the spring of 2007. The line was initially launched with five core consumer electronics products that has been expanded to 11 models. Top-selling items include a portable CD boom box, a talking alarm clock radio with night light, a personal CD player, a 13 inch television with digital tuner, and a DVD player. These products are selling well at a variety of retailers. However, in the third quarter we encountered a significant issue related to a single order that resulted in the large return allowance I previously mentioned. I would like to take a minute to put that in context.

One of our large retail customers that placed a sizable order for themed merchandise last summer for holiday placement has recently informed us of their intention to return a significant portion of the product. Unfortunately, despite Emerson filling the order in time for the holidays, not enough of the products made it on to store shelves, and the retail merchandising and marketing effort needed to move product simply wasn't there.

Add to that the soft holiday retail environment overall, as well as the possibility of some negative consumer sentiment around highly publicized recalls of Chinese made toys, and we can include that a number of factors conspired against us here.

We have made the decision to take a conservative approach to our financials. While we have received limited returns to date, we have chosen to reserve for it as a 100% return. We are in discussions with our other mass merchandiser partners to try to place the returned inventory elsewhere. Should that occur, we will see a positive flow through to the P&L within the latter half of this calendar year.

This was a difficult event and one that our new management group is taking steps not to have repeated. Sales of new themed products traditionally take some time to ramp up, and we're working on expanding our relationship with Mattel and introducing products for other Mattel toy brands. The themed products category is an important area of growth for Emerson, and we remain committed to delivering high-quality products that are popular with consumers.

Looking ahead, as you heard Greenfield state earlier, we have new management and new energy at Emerson. There is also renewed attention to both detail and opportunity as a Company, including an emphasis on new product and category development and design, sales growth and market penetration. That is my focus. We've got great strengths, solid retailer relationships, respected brands, experienced management and dedicated staff, and above all, a reputation for value and reliability. That's a lot to work with and right now we're building on those strengths internally.

We are currently engaged in a detailed review of every SKU we offer. We will manage for profitability on a product by product and customer by customer basis. We're evaluating IT and warehousing systems with the goal of making our supply chain more efficient. And we're taking steps to improve our ability to quickly design new products that meet retailer needs with the features and capabilities that consumers desire.

As we work quickly, but diligently, on these initiatives we believe the next 12 to 18 months will be a key period in transitioning Emerson as we work to implement the initiatives discussed here today. Overall we're very excited about the business strategies we have put in place. Your new executives here couldn't be more energized by the opportunity to take a great company and widely recognized brand to new heights. But we understand that these efforts won't count for much unless they translate into a profitable and growing business that delivers consistent value to our shareholders.

With that, I will turn the call over to Andy Davis for a review of our financials.

Net revenues, which are comprised of Emerson and H.H. Scott branded product sales, themed products sales which do bear an Emerson-owned brand, but rather bear a certain theme or character, and licensing revenues for fiscal third quarter '08 were $75.8 million, as compared to $89.3 million in fiscal third quarter '07.

As John mentioned earlier, the prior year's net revenue results included a $12.3 million onetime holiday promotional sale that did not repeat.

Emerson branded product sales were $67.2 million in fiscal third quarter '08, as compared to $60.3 million in the same quarter of fiscal '07, an increase $6.9 million, or 11%. The increase resulted from higher sales volumes across the Company's home appliance category, particularly microwave ovens. as well as clock radios and nostalgia products within the Company's audio category. These increases were partially offset by audio category declines in CD shelf systems, personal stereos and iPod compatible products.

Themed product sales were $6.8 million in fiscal third quarter '08, compared to $15 million in fiscal third quarter '07, a decrease of $8.2 million, or 55%. The decrease was a result of the discontinuance of Nickelodeon themed products, partially offset by sales of Mattel themed products which began in the fourth quarter of fiscal '07, which were themselves dampened by the $2.9 million return that John mentioned earlier.

As John noted, we believe there's a lot of potential in the Mattel relationship, but themed products lifecycles take time to ramp up and gain traction. So we did not anticipate performance commensurate with that of the mature Nickelodeon receipts in the comparable prior year period.

It is worth noting that this type of productline has a multiyear lifecycle, and we're just in our first year.

Third quarter fiscal '08 licensing revenues decreased from the prior year by approximately $100,000, or 7%, to $1.6 million, primarily due to increased holiday season competition in the television sector where our principal licensee operates.

Cost of sales decreased $8.1 million to $68.4 million in fiscal third quarter '08, as compared to $76.5 million in the same period of fiscal '07. The decline was primarily related to the decreases in net sales, a decrease in inventory reserves and royalty expenses, partly offset by increases in warehousing costs.

Selling, general and administrative expenses were $7.4 million in fiscal third quarter '08, compared to $5.4 million in the comparable period in fiscal '07, primarily driven by increases in legal and freight costs. We do not anticipate legal expenses to continue at the third quarter rate on an ongoing basis.

Regarding income taxes, looking back to the second quarter of fiscal '08, Emerson increased its estimated liability in that quarter for California franchise taxes for tax years 1979 through 1990 in the amount of $3.7 million. During this quarter negotiations with the California Franchise Tax Board were completed and the Company made a final settlement payment to the state of California and recorded a $1 million recovery to income as a result.

As a result of the aforementioned items, Emerson recognized net income of $1.1 million for fiscal third quarter '08, as compared to net income of $3.7 million in fiscal third quarter '07.

As of December 31, 2007, the Company had cash and cash equivalents of $20.4 million, compared to $11.1 million at December 31, 2006. The increase in cash and cash equivalents of $9.3 million was primarily due to increased cash flow from operations, the collection of a receivable due from affiliates, and the sale of real estate holding in the Far East. These increases were partially offset by cash used for repayment of short-term debt, property and equipment additions, and the payment of taxes, as described earlier.

Working capital was $63.9 million at December 31, 2007 compared to $70.8 million at December 31, 2006. I will now turn it back over to Greenfield.

Hopefully you've gotten a good flavor of the enthusiasm we have here at Emerson in our strategy for where we want to take the Company. In addition to growth initiatives, we are also working hard to improve performance by closely evaluating every product SKU and every aspect of our business. We anticipate there will be benefits to these efforts as well.

Of course, we're embarking on this strategy in an uncertain economic environment. That said, in looking at Emerson's history, we believe the value proposition of our products and our focus on the mass-market channel have afforded us some insulation from volatility in the economy and its impact on the broader retail environment. When consumers are watching their dollars more carefully, they tend to look for reliable products from recognizable brands at reasonable prices, and that is where Emerson is positioned.

We thank you again for joining us, and we look forward to providing continued updates on future calls. Operator, we're ready for questions.

(OPERATOR INSTRUCTIONS). Rick Sherman, Oppenheimer.

My question would be on what kind of revenue were you looking for the joint venture, assuming it closes in the first fiscal year?

It is Andy Davis here. We are anticipating that the revenue streams coming from the joint venture will be a relatively small portion of total Emerson revenues for the foreseeable future. I will hesitate to give a number, but to leave it at that.

The nature of the joint venture and the reason we are so enthusiastic about it is that it provides some core strength and competencies that we feel will complement Emerson's currently, as well as open up some interesting distribution channels. It offers a lot of opportunities for future growth, and I will leave it at that.

It is John Spielberger. If I can jump in. The one thing I would add to that is, while the JV will take some time as I discussed to ramp up, there's a strong three-year projected growth pattern associated with the JV. And we do expect some nice future revenue and profit streams as well as a result of this JV.

Where does this -- how do you sell this product? Is it being sold through other retailers or how exactly -- or how is this business model comparable or complimentary to your current one?

We view this as an opportunity for Emerson Radio to get involved with new distribution channels. The current ADCOM product is currently distributed through home in stores. So someone who is building a new family room who wants high-end equipment as part of their wall unit, ADCOM would be one of the most respected brands in that marketplace. This opens up Emerson Radio to a new channel.

The other thing we're looking at is taking some of the existing and future technology that will come out of the ADCOM engineering R&D labs that we can use to transfer over to the Emerson brand, as well as any other brands that may come up in the future, to help us get our products into a new retail marketplace, i.e., where we currently excel in the mass merchandisers market, we're looking to expand into the slightly higher end major electronics retailers. And we view this as a great opportunity to enable us to do so.

Is the hope is that eventually this platform could translate to -- are you going to go toward a very high-end person like Sound Advice or Tweeter or somebody like that, which is selling that type of platform? Or are you talking about looking -- when you say higher end, I mean, from mass merchandiser you're going to a Best Buy or a Circuit City?

We will be looking at both actually. The initial push would be into the latter that you said. We are clearly looking at exploring getting into the Best Buys and the Circuit City's of the world. However we will -- with this higher end audio and video equipment, we will be looking to place product as well into the more specialized even higher end retailers that you had mentioned.

I will just add one thing to what John just said. We are going to be paying very close attention to the branding strategies on this. The ADCOM brand itself is very well regarded in the high-end arena in audio and video. The ADCOM branded products will continue to sell in the home install channel and to any very high-end boutique shop oriented outlets, as referred to. Any of the crossover opportunities of using their engineered technology in products that are more suitable to the larger retail environment, such as the specialty electronics -- the electronics retailers would probably be rebranded other than ADCOM.

Let me just go to the point of the product that was taken back. The 2. some odd million, $2.7 million or whatever of the return, is that a full charge dollar for dollar, or are you just taking -- is that the way you took the charge? Or did you take the -- how exactly of the $2.7 million actual gross amount of return did you take as the charge?

We took 100% of the allowed or anticipated return off of our revenue. And of course we unwound the cost side of that transaction as well, and have brought back the goods onto our inventory.

If I may add, this product is selling very well in some of our other retail accounts. We believe strongly in this product. And as I mentioned on the call, we are exploring other opportunities to place this product in other alternative areas, which we are having some success with initially right now.

I know that a number of you are fairly new to the Company, so this is not necessarily your fault, but obviously Grande Holdings since they basically have acquired a controlling stake in the Company have -- the numbers are the numbers. They have destroyed 75% of the shareholder value since that happened.

What is basically going to be done? The Company has a lot of cash. The return on investment through various initiatives, and the margins have -- at least on the audio side -- have continued to get compressed. Does the stock -- does the Company have any -- I guess what people were looking for initially is that Grande Holdings had some cross licensing or cross selling initiatives where there was some potential for a symbiotic relationship or something that was going to benefit everybody. That obviously hasn't happened.

Is there anything on the financial side? Is the Company at the current -- considering that you're selling at almost half your stated book value and almost cash value, is there at least plans to announce stock buyback or something that will basically benefit the shareholders?

You know, our Board and management regularly reviews all the available uses of capital. We make decisions based on what generates the best potential for shareholder returns, whether that is investing in the growth of the Company or returning capital to shareholders. We think -- we feel strongly in the current environment of which we face now and in the immediate term, that cash is king. We have laid out a strategy of what we think is an attractive growth track. We don't -- on the stock price we don't have any day-to-day insight, but we're busy running the country, and if we do our job right, the stock price should take care of itself.

That I would agree with.

As regard to Grande Group I think they are committed to our growth and building Emerson's presence as an independent public company. They do have expertise and relationships in Asian markets. They know the electronics business and manufacturing, sourcing and other relationships that can benefit us. Now as to any direct connection between the two, we are executing a strategy on behalf of Emerson, but using Grande's expertise in Asia to assist in that strategy.

If I may jump in come in. It is John Spielberger again. You mentioned something about the decline in audio. As I mentioned, it is something that our management is clearly cognizant of, and that we're serious about turning around. It is one of the major reasons that we pursued this ADCOM JV. We realize that we can do better in the audio world, and that is why as Greenfield mentioned we're very serious about our product design. And we are going to add some product designers so that we can develop more contemporary, more desirable product, trying to reach a younger demographic consumer who may not be as familiar with the Emerson radio brand name as someone who may be of the elderly generation. So it is something that we're currently looking at.

We are focused still on the whole digital world and improving our iPod accessory business, as well as we are receiving renewed interest from our retail base in our nostalgia brand of product. So it is another focus area. But turning the audio around is clearly one of my main initiatives that I am pursuing right now.

By the way, I think a slowing economy, just anecdotally, doesn't hurt you at all. I wouldn't use that as any reason for slower sales because basically people come down to -- I don't think a $60 microwave is a price point that is really going to be hurt by -- if anything people come -- from what everything anecdotally I see is that more people go to Target and Wal-Mart and Kmart as the economy slows and gets worse.

That is an excellent point, and it is a good reason why our microwave sales are up year after year. They are pretty much recession proof, if I may say, based upon the current retailers where we are placing our product and at the price point that they are currently being sold at.

Thank you, Rick. Let's move on to the next question.

No problem. Thanks.

[Jamie Smith, Farrow Capital].

Just to sort of expand on the bombshell that was dropped last fall on shareholders, the letter that Peter Bunger sent to the Board was -- I found it incredible. It talked about -- I guess there was one point that said, specifically a regular related party transaction with Grande would do as much as approximately $50 million without paperwork or notes or securities or advice to the Board of Directors.

What exactly did they do? Was there an investigation? If they withdrew money, have they repaid money? What has been done to make sure this doesn't happen in the past, because they can't use the Company as their own personal piggy bank.

I also found it really interesting that in the beginning of that month that they bought out the Singer family shareholders in the Company for $3.91 a share. They have been very vocal in the past with the Company. Was this bombshell dropped to drop the price of the stock so that Grande could buy it on the cheap?

That is quite a question I must say. Number one, everything has been disclosed regarding the related party transactions. And I would refer you to all our 10-Qs and Ks in that regard.

I really can't comment on the motivations of the Grande Group, which is outside of my purview of Emerson, as to comment about the Singer transaction. On that I really cannot comment. The Audit Committee investigation continues. We're looking to -- hopeful to see a conclusion to that in the near future.

Did they withdraw money?

Who?

Grande. Did they somehow get their hands on $50 million, or as much as approximately $50 million according to the letter?

I don't know what you -- I don't understand the basis for your question, but I again will direct you to all the 10-Qs and Ks that have been filed.

Basically my question has to do with the letter that was submitted to the Board of Directors by a Board member who resigned, Peter Bunger, who made allegations that basically Grande was using the Company as its own personal piggy bank.

I'm not going to comment on what Mr. Bunger said. He was a longtime Director since 1992 and that was a letter he wrote for motivation of which I am not aware.

Is the SEC looking into you guys at all? Do you know?

One thing I want to comment on that I think the shareholders should pay particular attention to is that Emerson is very focused on its governance and best practices. We have made enormous progress in this area. We are going to be certified SOX 404 compliant at the year-end this year, next month. And we have taken great strides. And that has been a very big focus of our Company. We will take the next question please.

Excuse me, one more question. One of your large shareholders has also filed a lawsuit.

I would like the next question please.

There are no additional questions at this time. I would now like to turn the presentation back over to management for closing remarks.

Thank you very much everyone for joining this call. It is the first time management has had the opportunity to talk to the shareholders in a long time, and we plan to do this every quarter. And I can assure you, we will be working very, very hard to give good results in the future. Thank you for your participation. We look forward to talking to you again soon.

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