PVH Corp (PVH) 2007 Q3 法說會逐字稿

Good day, everyone.

And welcome to today's Phillips-Van Heusen Corporation third quarter 2007 earnings release conference call.

Today's call is being recorded.

This webcast and conference call is being recorded on behalf of PVH and consists of copy righted material.

It may not be recorded, reproduced, retransmitted, rebroadcast, downloaded or otherwise used without PVH's expressed written permission.

Your participation in the question and answer session constitutes your consent to have any comments or statements you make appear on any transcript or broadcast of this call.

The information made available on this webcast and conference call contains certain forward-looking statements which reflect PVH's view of future events and financial performance as of December 3, 2007.

Any such forward-looking statements are subject to risks and uncertainties indicated from time to time in the Company's SEC filings.

Therefore the Company's future results of operations could differ materially from historical results or current expectations as more fully discussed in our SEC filings.

The Company does not undertake any obligation to update publicly or any forward-looking statements including without limitation any estimate regarding revenues or earnings.

The information made available also includes certain non-GAAP financial measures as defined under SEC rules.

A reconciliation of these measures is included in the Company's earnings release which can be found on the Company's website, www.PVH.com and in the Company's current report on Form 8-K furnished to the SEC in advance of this webcasting call.

Now for opening remarks and introductions I would like to turn the call over to Emanuel Chirico.

Thank you very much.

Good morning, everyone.

First of all, I would like to apologize for the confusion we had with the conference call number.

I think that's all been resolved.

We have over 115 people on the call.

I think obviously the word got out about the miss print in the press release.

I just like to say joining me on the call is Allen Sirkin, our President and Chief Operating Officer; Michael Shaffer our Chief Financial Officer, and Pam Hootkin, our Senior Vice President and Treasurer and Director of Investor Relations.

Focusing in on the quarter, given the challenging retail environment that we're dealing with and some of the macroeconomic issues that we're also in challenges were dealing with, we were quite pleased with the results for the third quarter.

Let me try to get into each of our businesses individually.

I will start with Calvin Klein.

Our licensing business posted a 25% increase in royalty revenues in the third quarter and just about a 30% increase in operating earnings.

Just to start with, I guess the highlights of the quarter for Calvin Klein was the Calvin Klein week at Macy's.

It was a major success both from a marketing point of view and from the perspective of driving regular price selling through the Macy's doors.

Our Macy's business during that period of time across the board was up about 10%, and that was in a pretty difficult environment when it was unseasonably warm weather.

So clearly we felt that it was a major success for us both from a brand perspective and from a perspective of driving business.

Looking at our individual businesses, our fragrance business continued to post strong growth.

We had a 30% increase in the third quarter.

That would continue to be driven by the strength of the Euphoria franchise.

That business both men's and women's continues to grow.

It is up high double-digits in the mid-teens range.

Our CK IN2U business which launched in Spring of 2007 continued strong growth, particularly internationally.

The CK brand internationally is really a keystone for us from a branded point of view.

That business this year overall should approach between 130 and $140 million in wholesale sales for our licensing Coty, and the launch of Calvin Klein Man was very positive in the United States.

We started shipping that product in September.

It launched in Macy's beginning with the Calvin Klein Week, and selling has been very strong through October, and as we roll into the holiday season, that brand continues to do very well -- that launch continues to do very well for us.

Overall, fragrance a big business for us continues to grow very, very well.

Moving to Warnaco our underwear business posted a 30% increase in royalties for the quarter, strong growth with the launch of the new Steel product coupled with just an amazing marketing campaign featuring Djimon Hounsou.

That business continues to do very well for us.

We've gotten great reviews for the product as well as the marketing associated with the Steel launch.

There continues to be very strong growth on the women's side with our perfectly fit bra business.

That business continues to grow both domestically and international.

Business grew in the U.S.

just about 20% and international the business grew about 40%.

The international growth was fueled by new product, but also fueled by the continued opening of Calvin Klein underwear stores around the world, particularly throughout Asia.

Our jeans business was really driven by the international component of that.

Our international jeans business overall was up about 20%.

The U.S.

business was relatively flat.

It was up 2% for the third quarter, but the jeans business internationally, particularly Asia and as well Europe up about 20%, very strong business there.

Also a continuation of opening doors throughout Europe and Asia under the Calvin Klein jeans overall banner.

In outer wear we've had a very strong outer wear business in the U.S.

Business is up about 25%.

Our performance continues to be very strong.

We are one of the top performers in the outerwear category, particularly at Macy's.

Women's suits and dress business continues to grow extremely well.

It continues to be a real highlight for us, so overall we were very satisfied with the Calvin Klein business growing 25% overall in the top line and about 30% on the bottom line.

The only business that continues to struggle for us from a licensing point of view is our women's sportswear business.

We're starting to see some better sell throughs there and better positioning but still not anywhere reaching our goals and targets for that business, and we think it is an opportunity as we look out over the next 24 months that that business continues to be repositioned and grow.

Moving to our operating businesses, our combined retail and wholesale business posted a 22% sales increase and a 16% increase in operating earnings.

Let me start with our heritage business dress shirts.

Dress shirts had a very strong quarter from a sales and a margin point of view.

The business continues to run ahead of sales plans, and retail, our average unit retails are considerably higher than last year which helps to improve our overall margins and has increased the overall profitability of the business.

The business as we go into the fourth quarter of this year, the dress shirt business continues to perform very strongly and margins continue to hold up very positively.

Neck wear division, our Superba acquisition is exceeding all of our expectations.

The business is running well ahead of all of our initial plans.

We believe that the acquisition will have earnings accretion for the year of about $10 million pre-tax.

That's worth 10 to about $0.11 a share and is significantly higher than our original expectations and even higher than the updated guidance we gave in the second quarter.

We really feel good about how that business is integrated in.

We're seeing very strong selling.

We continue to improve the margin through sourcing moves that we make within the Company, so we're very happy with where that business synergies with dress shirts has come across.

On the Calvin Klein businesses that we run ourselves on the men's sportswear side, that business continues to perform exceedingly well.

We're running well ahead of last year and our on plan for the fourth quarter.

At department stores Calvin continues to be one of the best performing men's collection sportswear businesses when you measure it on a sales per square foot basis and maintain gross margin business.

That business continues to exceed our plans, continues to deliver.

We're in well over 500 doors.

I think it is 550 doors today, and we continue to garnish square footage in existing large stores that we maintain, so we're very happy with the performance of that business.

Our Calvin Klein retail outlet business had a very strong quarter.

Comps in the Calvin Klein business were up just about 10% for the third quarter.

That trend continues being up for the fourth quarter for the month of November our comps in the Calvin Klein business are up about 8%, so we feel very good about the Calvin Klein retail businesses.

Margins are running ahead of plan, profitability running ahead of plan, very positive about that.

One of the businesses that we launched in the third quarter of this year, the IZOD women's business has gotten off to a very good start.

The business will ship over $30 million in second half of this year, and we're estimating next year that sales will be in excess of $60 million as we go into the year.

Besides experiencing very strong sell ins, we're having good sell throughs in this difficult retail environment.

Our sell throughs have been good and on plan, so that business is really exceeding the initial estimates that we put on it, and we feel good about how it goes into 2008.

The two businesses that are really being more impacted to us by the overall environment are our moderate-- is our moderate sportswear business and our heritage outlet businesses, and I think clearly from a competitive set point of view, both of those business categories are out performing the competition.

Our moderate brands, Van Heusen, Aero and Bass and to a much limited extent significantly IZOD are being impacted by the difficult environment in the third quarter.

In the third quarter the unseasonably warm weather in September and October impacted our wholesale sportswear businesses from a margin point of view.

We saw some price compression and promotion and we dealt with that.

It also impacted us in our retail stores from a comp store point of view given the trends that we had been experiencing.

Our comp stores and our heritage business for the third quarter were down about 2%.

Overall our comps for the third quarter were up 1% combined with Calvin Klein, but our heritage business was down about 2%.

Gross margins overall for both wholesale and retail, when you look at our businesses, was down about 200 basis points overall, and that's really dealing with the environment and the promotional selling that's in place.

As we turn into the fourth quarter for these two businesses, we're planning our business and the estimates that we put together are planning for an aggressive fourth quarter promotional environment.

We have the markdowns in our plan.

We feel very comfortable with that.

Our allowances are in our plan.

We feel very comfortable with that.

We feel we're well-positioned from an inventory point of view and we're well-positioned from an appropriate markdown allowances and markdowns at retail that we need to take.

Our inventory is exceedingly clean.

We're very comfortable with our inventory position at the end of the third quarter.

If you look at our businesses and take out the new businesses coupled with the calendar shift, our inventories are right a plan, exactly where they need to be, and we feel very good about the inventories.

From a marketing point of view as we go into the fourth quarter, we continue to spend our marketing budgets.

Our marketing budgets for the year are up on a dollar basis somewhat, and on a percentage of sales basis are down slightly, but overall our advertising expense budgets for the year are up about 3 to $5 million in total for the year, and that's off of a very high base in 2006.

We continue to invest in our brands.

There was a real intensification in marketing in the third quarter and that intensification will continue into the fourth quarter for all our brands, our own brands, Calvin Klein, IZOD, Van Heusen, and Aero.

Looking at the fourth quarter, we're very comfortable with the guidance we gave the Street.

We have factored in what we believe is more than efficient markdowns to deal with the promotional environment that we're dealing with, so we're very comfortable we'll deliver our guidance.

We believe it is conservative and that we're in good position to deliver the fourth quarter.

2008, if I could just touch on it, Mike will quantify some of this in more detail, but we are planning the first half flat.

The big drivers of that are we're planning the environment in a conservative fashion as you look at retail in general, as we come out, so we're taking a cautious view on the economy and the consumer as we go into the first half of next year.

We're also being impacted by start-up costs in our Timberland business and our IZOD and our Calvin Klein specialty business.

Our start-up costs for the year are flat overall at about 8 to $8.5 million, but this year 2007 our start-up costs are all back ended meaning third and fourth quarter with in 2008 we're planning for $8 million of start-up costs in the first half of the year against just about zero for 2007 last year, so from a timing point of view start up is worth about $8 million in the first half coupled with a conservative view of the retail environment and the consumer.

In the second half we're being -- we feel good about the second half and we're planning for growth in excess of 20% on the bottom line.

Some of the contributing factors that give us confidence to do that is the timing of the start-up costs of about $8 million coming out of the second half, moving into the first half, the new business that is we're launching, Timberland, IZOD women's, Calvin Klein specialty, in the second half of next year they begin to contribute more significantly than profitability of the company and actually begin to instead of being a negative drain actually become a positive force for us.

We also have the benefit of stock buyback program which the way it is being planned is more second half weighted as we're planning for the buyback to occur ratably over the next 12 months as opposed to being front end loaded, so clearly more benefit on the second half of the year than it will in the first half of the year, and then finally we are assuming a somewhat better overall retail consumer environment as we turn into the third and fourth quarter of next year.

Our comps for the first half of the year are being planned flat to up 1%, and our comps for the second half of the year are being planned up 2 to 3%.

When you look at it from that point of view, I think we're hopeful we'll see uptick with the consumer.

We're also planning our gross margins more conservatively in the first half given the environment and more flattish towards the second half of next year.

With that I am going to turn it over to Michael Shaffer to quantify some of what I just reported.

Thanks, Manny.

As Manny said, we're pleased with our third quarter results.

EBIT to the third quarter increased approximately 21% over the prior year to 102.3 million.

This EBIT improvement was driven by strong EBIT growth in our Calvin Klein licensing segment of 29% as well as strong growth in dress shirts, Calvin Klein men's sportswear, and our new IZOD women's sportswear and neck wear businesses.

Our EBIT margins for the quarter under pressure and declined 20 basis points to the prior year.

This decrease was a result of gross margin rate declines in our wholesale sportswear and our outlet retail divisions as a result of the lackluster retail environment Manny earlier described.

Also contributing to the operating margin decline for the quarter was the shift of the $10 million in advertising expenses from the fourth quarter to the third quarter.

The advertising shift was most evident in the Calvin Klein licensing segment where we had very strong revenues and earnings growth of 29% over the prior year but operating margins remained flat.

Revenues for the third quarter were 696 million, a 23% increase over the prior year.

The calendar shift impact as a result of the extra week in 2006 impacted the quarter favorably.

If we exclude the calendar shift, the revenue increase was 16% for the quarter.

Revenues for the quarter were favorably impacted by strong sales in Calvin Klein licensing, dress shirts, Calvin Klein men's sportswear and our new IZOD women's sportswear and neck wear businesses.

Earnings per share increased 18% to $1.05 per share and were $0.02 ahead of the consensus estimate and $0.02 ahead of the (inaudible - background noise) end of our previous guidance.

From a balance sheet perspective we ended the quarter with a healthy balance sheet.

We had 337 million of cash on hand at the end of the third quarter and are projecting year end cash to be over 450 million prior to any impact from the announced stock buyback program.

Our inventories for the quarter were on plan and 18% greater than the prior year.

Half of the inventory increase or about 9% was driven by our new businesses.

The balance of the increase or the other 9% is related to the impact of the calendar shift primarily on our outlet store divisions.

The calendar shift caused the month to end up for October to be one week later ending this year November 4, versus last year October 29, and one week close to the peak Christmas selling.

This resulted in the planned increase to the prior year in our outlet store inventories.

If you strip out the new businesses and the calendar shift, our inventories are flat on a comparative basis.

We are projecting fourth quarter earnings of 51 to $0.53 per share which is 9 to 13 % greater than the prior year EPS.

Our revenues for the fourth quarter are estimated to be 600 million or an increase of approximately 8% before adjusting for the calendar shift or 23% after adjusting for the calendar shift.

For the year we're raising our 2007 earnings per share guidance to 3.16 to 3.18 which represents an increase of about 21% over the prior year with corresponding revenues estimated at about 2.44 billion or an increase of about 17%.

Our fourth quarter and full year 2007 earnings guidance does not reflect any impact from authorization to buy back 200 million of our common stock.

The stock buyback was approved on November 30 and is valid through the end of fiscal 2008.

Looking out beyond this year to 2008, we're projecting earnings to grow 12 to 16% to a range of 3.55 to $3.65 with corresponding revenue increases of 7 to 8%.

Included in our guidance for 2008 is the impact from our stock buyback authorization which reflects 2 to 3 million weighted average common shares being purchased.

In addition, our start-up costs for our new businesses, Calvin Klein specialty and Timberland Sportswear will approach 7 to 8 million in 2008, approximately flat to the net start-up costs in 2007.

However, 2008 start-up costs will be incurred in the first half of the year.

This means that our first half start-up costs for 2008 will be 7.5 million greater than 2007.

With that, we'll turn it over for questions.

(OPERATOR INSTRUCTIONS) We'll take our first question from Jeff Edelman with UBS.

Thank you.

Good morning.

Good morning.

Question on the guidance, Mike.

Is the first half will have more of a hit than the fourth quarter.

Is this because of the seasonality of the retail business being much less profitable in the quarter getting hit with weak comps or something else we should think about in terms of potential buildup of inventory and liquidation?

There is no build up of inventory and liquidation.

As I explained, our inventories are -- Manny may talk about it too, inventories are really clean and on plan with increases reflecting just the new businesses as well as this calendar shift issue.

There is no buildup.

Jeff, the only other think I would say is our comp store performance last year through the first and second quarter we were up 4 to 5%, so we're up against much more difficult comparisons in the first half of the year, and you're absolutely right from a profitability point of view as you expect.

Our first quarter, February to April retail is not a major contributor of profitability, so it does put more pressure on it on how you plan the comps.

One short follow-up.

In terms of your own production planning process, have you cut back on receipts for the first part of the year or just expecting to flow that normally?

Well, no.

We would expect -- we're going to flow according to our sales projections and expectations.

There is no issue there that we are in any way caught having to over produce by in any way, shape or form.

We're very comfortable with our production flow.

We've gotten projections -- we have projections from our retail partners, orders and projections on EDI, and resale goods, and they're clearly being cautious as they go into the first quarter of next year.

Even if they're planning for sales increases, they're trying to do it on the same or less inventory, so that's part of a challenge that I think the whole industry is dealing with in trying to manage that, so we're doing that trying to improve overall inventory turns at retail and we're also managing our inventories and managing our gross margin as we go forward, so that's all factored in.

I think at the end of the year you'll see our inventories up 5 to 6% at the end of the year, and that will be totally in align with whatever our sales increases are being planned for the first half of the year given some of the new businesses we're in first half of the year versus last year.

Great.

Thank you.

You're welcome.

Our next question comes from Jennifer Black with Jennifer Black & Associates.

Congratulations on a great quarter in a tough environment.

I wondered if you could give us a little bit more color on the outlet business overall.

You guys are really veterans in the business, and I heard that there are retailers discounting that have never discounted before in that channel, and then I wondered if you could give us an update on the open of Calvin Klein Outlet stores?

Thanks.

Sure.

Just the outlet environment, the outlet environment as I said, our comps in the third quarter were flattish.

I will give you a real over revenue and take you through the period of time.

I think that's the best way to do it.

Our comps, if you were to -- the month of August our comps were up about 2.5%.

September and October combined were negative.

When you put it altogether or comps for the period were up 1%.

As we came out of the third quarter and moved into November, the first three weeks of November we were feeling very good about our business overall, business up about -- comps up about 2%.

The weather turned beginning of November, cold weather came in.

We seem to get more than our fair share of the business and the traffic.

As we got into the black Friday Thanksgiving day weekend, I think a couple of things occurred.

Black Friday was good.

We made our plan.

We had a good Black Friday.

Saturday and Sunday we misplanned and ran negative comps.

I think if you looked at what happened in the environment outside the outlet environment, I think clearly some of the large retailers, the big box retailers, department store retailers, mid-tier retailers, all of those really duke their advertising voice and really hit home with the consumer.

I think a number of them in mid-November had re-estimated their earnings and really put more promotional markdowns into the selling mix, and they really went after the business at Black Friday, and I think they won the share of voice for that holiday period, and I think they drove traffic to the malls and to the Big Box retailers, and I think it had somewhat of a negative effect on the outlet environment in general.

Our business came back post the Black Friday period, and we were having a nice business.

I think everybody that runs outdoor retail got hurt over this last weekend given the weather and the storms we dealt with, but we feel pretty good as we turn towards home.

I gave you that whole background more or less to say it has been a little schizophrenic, up and down, unsettled.

The one thing I can say, the environment is very promotional.

It is not just an outlet environment.

Outlet is really a function of what happens around it, but I think if you look at traditional retail and the Big Box retailers, a number of them are very promotional, and in order to drive traffic and drive units, our first priority as we go into this fourth quarter is to come out clean as we go into 2008, and I think we've more than provided for the markdowns we need in order to get us there.

We're very comfortable with the fourth quarter estimate.

We have plenty of room if comps are a little softer that we can still deliver the year given the gross margin and the proceed promotional markdowns we put into our plan.

We're comfortable we can deliver against the results in the fourth quarter.

Overall I think the Calvin Klein retail openings --

The outlet.

On the outlet side, that continues.

We opened about seven stores this year.

That's on plan, on target.

Those stores, Calvin Klein continues to out perform across the board.

The new openings are exceeding our plans.

The Calvin Klein comps are exceeding our plans and their profitability, so it flowed very positive at Calvin Klein.

One last question, Manny.

In the outlet business did you see any great weakness in certain areas of the country?

You know, I guess the Florida continues -- and this is nothing new.

Florida continues to be a region that's challenged.

With the Thanksgiving week, the Midwest was hit negatively, driven by I think all weather between snowstorms, unbelievably cold weather compared to the prior year which was unseasonably warm, so all of that put together that's what we've seen geographically but I want to be honest with you.

With the exception of Florida which has been consistently an under performing area, the geographic spins month to month, week to week, have been pretty volatile as well.

Northeast is great, and it backs off.

California has been great and then will have a couple of bad days.

It is very unsettled in general.

That's the best I can do from a geographic point of view.

Thank you very much.

Very helpful.

Good luck.

Thank you.

We'll take our next question from Emily Shanks with Lehman Brothers.

Good morning.

Just a couple of questions.

I wanted to see if you could speak specifically to the new Calvin Klein specialty retail stores, not the outlet ones, how the performance has been and in terms of the plans for next year, what the number of store openings are that you're targeting .

Sure.

Just to remind everybody, our plan is to open five stores in the fourth quarter this year, two stores have opened, they've been open less than approximately 10 days, the two stores, we're very happy the way the stores look, very happy the way the product has been presented.

One store is in a new center in Partridge Creek, Michigan.

One store is in a new wing in the Lenox Mall.

We're very happy the way the stores have initially started off, but again it is a handful of data and information.

The other three stores this year will open probably right before Christmas if they've been delayed with construction issues and permit issues, but more or less it is really not causing us much of an issue, and the plan for next year is to probably open five stores and that plan is unchanged at this point in time, and just to remind everybody, the Calvin Klein specialty stores are a test.

They're really both a test from a marketing point of view and a test from a sales/profitability point of view.

We're really positioning these stores as show cases for our white label products so we can really present to the consumer in some of the best real estate in America the Calvin Klein Brand, and we'll see what the opportunity for that store might be down the road over the next four to five years.

It is a very long-term focused strategy.

Great.

Thank you.

That's all extremely helpful.

Just my second question is really around SG&A.

Looks like you guys did quite a nice job this quarter controlling it.

I wondered if you could just give us a little bit of detail around that as well as just help us understand a bit of the commentary and the guidance around the fact that while 10 million was shifted from 4Q into 3Q, ad spend is going to be up year-over-year in fourth quarter.

Sure.

Mike will talk about SG&A in total, and I will talk about the advertising.

The advertising and spend for the year is up about $4 million, 2007 versus 2006.

For the fourth quarter given the calendar shift that the first week of November moved, given what happened -- given that last year we really intensified so excessively the fourth quarter, from the beginning of the year we've been saying that we're going to spread the advertising more ratably, particularly over the third and fourth quarter, so the biggest impact was our third quarter advertising spend is up about $10 million over last year, and we expect our fourth quarter advertising spend to be down somewhere between 8 to $10 million, but overall up 4, and then I will turn to Mike.

There are a couple of things going on in SG&A.

Manny mentioned and you mentioned the move of the advertisers from the fourth quarter to the third quarter is one piece.

Two, we're growing our wholesale businesses at a faster rate than our retail businesses and it does affect our SG&A in the power segment and overall for the Company.

We're expecting about a 30 or 40 to 50-point decline on SG&A for the year related to the shift into the wholesale because at faster growth in the wholesale businesses and lastly overall with the tough economic environment we have made some adjustments and pulled back wherever we can and continue to look for way to say pull back on SG&A and maximize our cash.

Great.

That's what we're looking for.

Actually if I could squeeze in one quick one.

Can you give us what D&A was for the quarter?

Sure.

For the quarter we were about $11.5 million.

Great.

Thank you.

Our next question comes from Sean Naughton with Piper Jaffray.

Good morning.

I have a quick question for you on how you plan -- how you're planning the are sportswear segment both from the moderate sportswear and also on the Calvin Klein side for 2008?

Let me start with Calvin Klein.

On the Calvin Klein side of the business we continue to grow square footage.

That's a combination of new doors, but it is also a growing the square footage of the business.

We're planning for the Calvin Klein business to continue to grow somewhere in the 10 to 15% range on the top line, probably close to 15% next year on the top line, so that business will continue to grow, planning it aggressively, and there is really no pulling back on that at all.

We haven't been impacted on the open to buy side or whatever, so a lot of my comments about how we're managing some of the orders and flows really deals much more with more moderate businesses.

When you look at more moderate business, our Aero business in particular, we're really planning that business in the first half of next year to actually be down slightly.

We're really managing inventories and managing gross margins and managing our markdown allowances.

We want to get more out of the inventory that we put into there and drive more regular price selling and less promotion and one-way to do that is manage the in-flow and the overall profitability of the business.

We're being much more focused.

We want to increase our average unit retails out the door and increase the overall profitability of that business.

In a similar vein and to a much less extend IZOD men's, given the environment and where we are, we're being very cautious as we flow inventory into the wholesale channel of distribution and we're really trying to manage that business and manage our gross margins and manage our markdown allowances, so given that way we're being more cautious than we would be in other years with that business as we turn into 2008 to try to improve the overall profitability of the business by profitability percentages by really improving the model and improving sell throughs.

That's great color.

Thank you.

A question on international from kind of the licensing side.

Do you expect mor of your Calvin Klein licensing growth to come from obviously the international with Warnaco and potentially Coty with the fragrance side as well?

Do you see how fast do you see that business potentially growing?

I think it is about mid-50% of the Calvin Klein revenue today on the licensing side, and then additionally are there any other brand opportunities for licensing going forward?

Okay.

On Calvin Klein you're absolutely right.

Our business is about 50%.

North American based, 50% internationally based, Europe, Asia, South America.

When you look at the business, we've been surprised with how incredibly strong the U.S.

Calvin Klein business has been.

We would have said that we would have expected the international business because there is just more growth opportunity there, not the brand you would say is not as developed outside the U.S.

as it is in the U.S., we would have said there was more opportunity.

That hasn't been the case through the third quarter of 2007.

The growth has been pretty consistent between international and domestic, but as we plan 2008, we're planning for the growth to be a little more aggressive coming internationally, about 60% of our growth coming from international growth and about 40% of our growth coming from U.S.

growth of the business.

A lot of that additional growth we're talking about is really being driven by new markets, India, China, some of the Asian and developing markets, Middle East, with Calvin Klein brand very well known, under developed, and really have got a good foothold in those markets and seems to really be growing very well.

That's a sense of where we're coming from international point of view.

When you look at the -- some of the new product launches, when we look at Calvin Klein next year we'll be launching significantly the cosmetic business.

It is very soft launch internationally in the fourth quarter of this year, but really a more significant launch next year.

In the U.S.

a big piece of that launch next year with cosmetics will be with [Savora] and internationally with [Savora] for a and country by country we're seeing strong growth and feel very positive about the initial results we've seen from the cosmetic launch.

On the fragrance side of the business I can't speak to it because it hasn't been announced, but we have some significant new launches occurring with fragrance.

We'll have two new launches or relaunches of current fragrances, two major campaigns going forward next year we think will keep momentum in the business.

When you look at the Coty business, the last two years fragrance has grown between 20 and 30% a year on a very large business.

We're in no way planning for that business to continue at that trend.

It has exceeded our plans, and it would I am immaterial prudent to plan for that going forward.

We're looking for Coty in particular 5 to 7% growth overall with that category.

Could that be a little conservative, yes, but overall we think it is prudent given the phenomenal growth we've experienced with Coty.

With our jeans and underwear business, Warnaco particularly internationally continues to be very aggressive with that business, opening stores, both underwear and jeans stores and continuing to develop under developed markets in Europe, Northern Europe, and in Asia, so that business we think will continue to grow in the mid-teens range overall.

We feel good about that business as we go forward next year.

Overall we're planning top line growth in the Calvin Klein business next year of 8 to 10%, and that should drive 15 to 18% earnings growth for the year.

Great.

Thanks.

Best of luck for the balance of the year.

We'll take our next question from Robert Drbul with Lehman Brothers.

Good morning.

Good morning.

Two questions for you.

The first one is around your '08 assumptions, what do you think are the biggest risk to your initial preliminary expectations for '08, Manny?

Where do you think you could have some risk in those assumptions?

I guess let me start before I fall into a trap.

Let me start by saying I think there is as much opportunity as I think there is risk.

I think we've taken a very prudent outlook on 2008.

We're trying not to blow smoke -- we're trying not to give anybody a story.

We're trying to really call it the way we see it.

We think there is as much opportunity as risk.

I think it would be disingenuous to say I think the biggest risk is the overall environment we're dealing with.

It is unsettled.

It is hard to read right now because it is happening so fast, and numbers are moving so quickly.

Each day is very significant.

It is hard to get a read on it.

I think the fact that there is an extra weekend in December.

It only amount to say an extra day or so, but there is an extra weekend.

I think the Christmas Season or Christmas shopping is even going to come later than it did last year.

I think with all of that factored in, that's my concern about as we go into 2008 is the consumer.

I feel very comfortable the way we're planning the business, how we're managing the business, that we've given guidance that we feel we can reach and exceed as we go go forward, but the biggest risk is the consumer and the environment.

Okay.

And then with the decision to author a share repurchase program, can you address the M&A environment a bit in terms of opportunities or lack of opportunities in terms of where you're seeing things today and sort of the expectations as you go forward?

I think let me address it in two-ways.

We're going to end the year with at least -- we're going to end the year with $450 million in cash.

If you were to take out the full impact of the stock buyback, $200 million, we're going to end the year with in excess of $250 million in cash, unborrowed against our revolving credit facility which would give us another $200 million of borrowing capacity, so somewhere we have the capabilities based on our balance sheet to do an acquisition with out having to talk to a bank and just write a check of somewhere in the neighborhood of 400 to $450 million.

In addition, I guess when you look at the environment today of doing acquisitions, sellers both private and public haven't come to terms with the valuations that their companies are trading at today.

A private company, whatever the brand or the business might be, was told by a banker in June that his business was worth ten times EBITDA and today that business is worth 6.5 times, he is not a seller today, and what we basically see is the pipeline.

There is not a lot of deals out there.

There is not a lot of attractive acquisitions, particularly if you're not willing to pay huge premiums for the business, so when we looked at it, we put the best use of our capital given the acquisition environment, given where we are and given our stock price which I guess like everybody CEO I think is significantly under valued, we think the best use of our capital is to buy back our own stock to use it for that, so that's how we feel about it.

Thank you.

Good luck.

Our next question comes from David Glick with Buckingham Research Group.

Good morning.

Mike, I was wondering if you could get into a little more detail helping us break down the second half of '08 because on the surface looks like a mid-20s growth.

I think it is a much more conservative plan than it appears.

I was wondering if you could give us more granularity, breaking down what's your growth rate to the extent you can obviously in the organic business and the businesses that are going to become accretive in the first half of the year, the impact of the buyback, and the impact of the lower investment spending.

It seems like it is very low double-digit organic growth when you strip out the buyback and the decline in investment spending, so doesn't seem like it is assumptions that are too aggressive, but I am wondering if you could help us through that.

Am I looking at that correctly and if you could provide a little more detail?

I think you basically asked the question and answered it.

It was helpful from my point of view.

This is Manny.

I will turn it over to Mike in two seconds.

Look, we're one of the first company to say give a view of 2008, so the amount of granularity I tried to do that.

Mike will give you some sense on it, but everything that you said is absolutely true, and second half looks more aggressive than I think it really is when you back out the start-up, and I will make Mike take all of that into effect.

I think it is just to highlight some of the points you brought up are the start-up costs in the first half next year, we basically don't have start-up costs in the second half.

That's worth about 9 to $0.10.

In addition to that, we've got the new businesses, the IZOD women's and the Timberland business which should started to contribute towards in the second half.

In addition to that, we have the impact of the share repurchase which if you do the math is somewhere around 8 to -- 7 to $0.11, and with that it is going to be much -- it is all basically weighted towards the second half of the year.

It sounds like half of the growth is coming out of things that are obviously very controllable?

I guess if you do the math on average, you're saying 25% growth rate for the second half of the year if you back out the start-up costs, if you back out the impact of the stock buyback, if you back out the new businesses, I think then you're really looking at the businesses that the other businesses, the Calvin Klein licensing businesses and the dress shirts, neck wear business and our sportswear businesses really growing somewhere in the neighborhood of 10 to 11%, so I think it is much more -- very much in line with where our growth has historically been and where we've been, so it is nothing that we feel uncomfortable with as we look out to it.

The sheer numbers of it I can understand when they say they're planning 25% growth, but when you cut out some of the special items, the start-up costs, the new businesses starting to contribute and eliminating loss this is year, the fact that the stock buyback is significantly more second half weighted and that we are just planning that somewhat the environment will get more ratable, and we'll be up against much more reasonable comps in the second half of the year.

The first two quarters our comp store increases in our own stores were up about 5 -- between 4 and 6% depending on the quarter, and in our department store business was also much more aggressive, probably driven somewhat promotional but again much more aggressively, so we'll have a much easier comparison as we go into the second half of the year from a sales point of view, so it gives us some comfort we think we're looking at it the right way and not being overly aggressive in the second half of the year.

Thanks for that color and detail.

Appreciate that.

Just to follow up on the buyback, I mean, given the current valuation, why wouldn't you be more aggressive than what you've set out in your plan and have you or would you consider doing an accelerated stock repurchase which would obviously give shareholders the benefit much more quickly?

I think we will be aggressive -- at these price points, these stock levels before I walked in here, I almost threw up, but at these levels we will be aggressive buying stock.

Whenever that means, I don't want to commit either way how we might do that, but clearly we have the ability to do whatever we like to do from a stock buyback point of view, and more aggressive, and (inaudible) the benefit.

Thanks very much and good luck, guys.

We'll take our next question from Omar Saad with Credit Suisse.

Thanks.

Manny, can you give us a little bit of color in terms of what your economic assumptions are for next year for the environment?

I don't know if you're looking for a soft landing or soft landing in the back half or if you're really baking in a near full blown recession, and then can you contrast that with your sense of how your retail partners are looking at their businesses for next year and how they're planning their businesses for next year?

I think we're very consistent with our retail partners.

I think that the general feeling is that it is, I don't know, look, I'm not an economist.

I won't play that it will be a soft landing or hard landing.

I am not sure I am smart enough to really do that.

What I think we have focused on as a company is really managing inventory, managing the flow, trying to control what we can, control SG&A, and the inventory, so what that translates into is a much slower growth environment for the first half of the year.

I can't tell you that we've got a recession built into our model.

We don't.

We have a much more cautious environment, and given the way our retail partners are managing their inventory, which I think is very prudent, they're being very prudent about how they're buying inventory and flowing it, and I think we all are -- if business were to get better, I think we all know how to chase inventory and chase business.

This time last year we were much more aggressive about buying inventory, positioning ours, and we really were positioning ourselves to go after growth above and beyond what our plan might be because we felt it was there.

I think that was the way I think most people felt that way.

I think now you would be crazy to buy above what your sales expectations are, so we're being very cautious as we buy inventory, and we're buying what we have commitments for and we're not taking much of a risk anywhere, and the only place we're being a little bit more aggressive on inventory is in our Calvin Klein businesses because we know there is momentum behind those businesses.

Thank you.

I hope that answers the question.

Thank you.

I wanted to follow occupy a comment you made in the prepared remarks, the Calvin Klein business obviously is performing well.

You mentioned dress shirts are performing well and the average prices are actually going up.

Would you look at your portfolio and the exposure across channels and different types of customers whether it is lower income customers or higher income customers, how do you feel about where your portfolio is positioned, and do you see differences in the spending patterns and your expectations for spending patterns across the different brands within the different price points?

Okay.

I guess, look, the Calvin Klein business is very strong.

That's a statement.

I can't tell you how much of that is driven by just the strength of the brand and how well we've executed, and how much of that is because that higher end consumer is spending because I have talked -- I have seen reports that talked that the higher end consumer was under some pressure as well.

I can't give you direct answer to that.

What I can say is I think in this environment I am much more comfortable running a portfolio of brands as opposed to a single brand, and I am much more comfortable that we attack each of those channels of distribution.

I think clearly given price of gas, what's gone on in the world, consumer confidence, I think the more moderate consumer is under more pressure.

The opening price point consumer in all channels of distribution, be it Nordstroms, Macy's, JC Penny, Kohl's, all the way down, I think the opening price point is under more pressure.

I think private label is extremely well-positioned and promotional, and if you compete with private label, even if you're 10% higher or whatever, you're feeling more pressure, and I think that's why some of our more opening price point brands like Van Heusen and Aero are feeling more pressure and more pressure of price compression.

IZOD which is more in the middle and more upper is not feeling that same pressure.

It is dealing with the environment, but it doesn't see the same pressure, and Calvin Klein seems to be dealing very well with it against its competitive set.

That's how we break out our brands, and it is a very similar story in dress shirts and neck wear where we truly run anywhere from 15 to 20 labels from all the way at the top with Valentino and neck wear to Calvin Dress shirts, Kenneth Cole, it is across the board, and there is winners and losers, but we feel the way we have the inventory managed and how we're attacking each channel of distribution, that business which is much more of a replenishment business is not having significant pressure on gross margins.

I hope that answered that question.

Thank you.

Thank you.

We'll take our next question from Lee Backus with Buckingham Capital.

On the stock buyback, Manny, when are you able to start buying back the stock?

Technically, although it was approved because of blackouts and whatever, we probably can't start buying until the end of this week sometime, and that's when we would start considering it.

Is there anything that would preclude you buying back the vast majority of your stock buyback by the end of this year?

Was there anything -- no, except the vagaries of the market.

There are rules and regulations you can't exceed, X percentage of your shares, trade and all of that, so as long as it can be done efficiently and there is a lot of ways to deal with that if we so chose to be that aggressive, there is no reason why we couldn't be, and at these price levels I think we would be very aggressive.

And also on your -- on looking at the royalty revenue in an economically tough environment, I would expect there would be less volatility in the royalty revenue line which is a pretty significant share of your earnings?

I think on two levels it is a really good call out.

On two levels, you don't have the gross margin exposure.

I mean, if there is selling pressure, which there may or may not be, we're not anticipating that, particularly internationally which is half of the business, but even if you sell the product in, nice thing about the licensing business is you get paid on selling, you don't get paid on gross margin and it is our licensing responsibility to manage inventory and manage exposure.

It is significantly less volatile from a gross margin point of view, and it is significantly less volatile from a revenue point of view.

We've always talked about revenue growth with Calvin Klein licensing of 9 to 11% given the overall environment we're talking about 8 to 10%, so clearly it has minimal or no impact on it and should not impact that business, and that represents about 40 -- the licensing buy itself represents about 40% of our overall profitability.

Thank you.

We'll take our next question from Jeff Mintz with Wedbush Morgan.

Yes, a ---

Jeff, can you speak up.

Sure.

A couple of questions on the new businesses.

On the IZOD women's business how many doors was that in for fall and what are you planning in terms of growth for Spring and Fall next year?

We're in a little bit over 200 doors for fall 2007.

Those doors will grow next year.

Over time those doors will grow to 400 doors.

I think next year right now we're planning about 100-door expansion.

It could exceed that with some -- it could exceed that as the business continues to crawl out, but I think the best way to look at it is we did about $30 million for the second half of this year.

Right now we're calling that we'll do in excess of 60, probably close to 65, so there could be some potential upside if we continue to perform like we're performing right now.

Okay.

Great.

And then on the Timberland business which you're launching in the second half, what size business are you looking for there in terms of revenues?

Is 30 million there as well kind of a decent first season number?

We talked about more like 25 right now, could be better than that.

We'll know better.

We have market week in January.

A lot of things have to flush out.

It is a little premature for me to talk more specifically about that.

The brand has got its issues from just positioning point of view, but where we think it seems to be very, very well received by the market, and I think they're really looking for somebody to make the brand and really grow with it and the right product in the department store channel distribution in the specialty store business we think it is a real opportunity for us.

Will it all come in fall 2008, I am not sure, but we feel good about everything we set against our expectations we set up for ourselves, so we think we can do better than how we laid it out, and we feel good about the business.

Okay.

Thanks for that.

Just on a CapEx plan for 2008, can you talk at all about what's going to go into it and if you can give us some kind of range for where the number might be on that?

I think we're going to be somewhere between 95 and $110 million.

Mike just wrote me a note.

That's a little bit below where we were this year.

Great.

Thanks very much and good luck.

Our next question comes from Brad Stevens with Morgan Keegan.

Hey, guys, good morning.

Next year I think historically you've talked about roughly 250 basis points of margin expansion in the CK royalty business and approaching 50% which by my math you will be somewhere in the 49 to 50% next year, so longer-term where do you think the business can go?

I think clearly over -- bear with me one second.

I think we're going to end this year pretty close to 49%.

I think your target of adding 100 to -- I think it is 100 to 200 basis points next year is reasonable, and I think long-term as long as the top line grows in that 9 to 11% range, we should be able to leverage against the expenses so the bottom line should grow 17 to 20% if it grows 9 to 11, so I think that converts to about 150 basis points a year, and it is just a question of what the size would be.

I think around 55% over the next three years by 2008, '09 and '10 would be our goal to get close to that.

All right, on the gross margin this quarter, I think it goes dow to 250 bips and if you strip out the licensing it's down like 260.

Given the launch of IZOD women's, I assume that had a negative drag on it given the wholesale product, so could you break down the 260, between maybe between channel and between markdowns?

Sure.

Let me just bear we me.

It is more than IZOD women.

Our wholesale businesses, neck wear, as well as it is doing and IZOD women's in particular, wholesale businesses by their nature run lower gross margins and higher SG&A.

The high -- and lower SG&A expenses.

Our wholesale businesses carry a higher operating income margin than our retail business overall, but probably by about 200 basis points, so our wholesale business are overall more profitable just by the models we run and the businesses we run.

So I think if you look at the 260 basis points, probably almost half of it has to do with just mix of business and and the wholesale/retail.

Probably about 150 basis points has to do with the fact of more promotional environment, more markdowns, and where it is coming.

We have the fourth quarter plan down also somewhere in the neighborhood of 150 to 200 basis points for gross margin.

We're going in with the understanding it is going to to be more promotional and more markdowns required both at wholesale and retail.

If it is better than that which I think is distinct possibility, we'll deliver against that.

Thanks.

Good luck.

We'll take our next question from Brian McGough with Morgan Stanley.

Hey, guides, thanks for taking my call.

Just kind of a big something for you, Manny, more big picture, really we've seen a bunch of examples where in other licensing agreements when times get tough like we have right now, you see a licensee that pulls back on brand investment and print a bigger margin than they probably should.

Would you just talk for a minute just about how you control your brand and how especially in times like these you can ensure that your partners are investing in an appropriate way to drive results in '08 and '09?

Yes.

That's a great question.

Our contracts require an advertising spend.

It is required advertising spend, be it 3 or 4% of sales.

We factor that in.

We also have a plan to committed to a front.

We control-- the other thing is we control the advertising spend, so if it is not a question of their spending the money, it is a question of we spend the money, and the only exception to that really is much significance is fragrance where we control the total creative function, and we control totally where the goods are being -- where the media is being spent, so everything has to be approved by us, but they actually spend the money, so we have not seen the only place where there is latitude on the part of the licensee levels of being spend is really in our fragrance business where they are spending significantly more than the contractual requirements for the business.

I think they're spending close to 80 million to $90 million on the marketing of the Calvin Klein fragrances around the world, and I think by contract it is a percentage of sales that will probably translate closer to 30, $35 million.

So clearly the model works for them.

The growth is there.

They continue to invest in those businesses, and we haven't seen any of our licensees come to us to try to pull back any of their marketing spend.

Is there any kind of oversight you have over non-marketing spend SG&A, whether it be design, merchandising, or any other costs it might take to plow a business forward?

Each of the businesses on a non- -- besides media spend and what goes on which are required by contract, each of the contracts of our licensing contracts have design requirements in them that require a separate design studio for the brand, a separate show room for the brand, if there is fashion shows, how those have to be run, all of the stores that are around the world, as of the end of this fiscal year will be operating , a licensees will be operating 400 Calvin Klein stores around the world, sportswear, jeans, underwear and accessories.

All of those stores are designed and had approved by Calvin Klein both from a design point of view, a presentation point of view, and a location point of view, so our contracts, our licensing agreements and our licensing vendors, because of the strength of the brand really give us tremendous control over the marketing and presentation of product around the world and I would like to hopefully you feel the same way, but I would like to think over the last three years we significantly increased our marketing spends, we significantly invested in the design and presentation of the product around the world, and I think it shows in the results and I don't see any reason why that won't back off one iota next year or in the

It is hard to argue that one.

Thanks and best of luck.

Thank you.

We'll take our next question from Clark Orsky with KDP Investment Advisors.

Just a quick question on the guidance for next year.

What tax rate are you using?

We're somewhere between 36.5 and 37% in 2008.

Okay.

And can you tell me for the third quarter what the gross interest expense was?

Sure.

The third quarter our gross interest expense was about 8 million.

Cool.

Thanks a lot.

Our next question comes from David Berman with Berman Capital.

Hi, guys.

Hi, David.

I was just wondering, you guys talk about buy back earlier.

Obviously from a shareholder standpoint it is much better for us if buy back shares personally, and I was wondering why you wouldn't be doing that since you sound so you wanted to be so aggressive with the Company's money I was wondering if personally would you be doing that?

We've been in a blackout period now four weeks, three and a half weeks, about five weeks ago I personally bought stock.

I can't speak to anyone, and I am not going to speak to anyone else in company.

I personally bought stock.

I continued to own stock.

I have restricted stock in the Company, stock options in the company.

A substantial amount of my personal net worth is tied up in the Company's stock in one shape or form, so I think hopefully that speaks for itself.

Clearly with during the third quarter I was purchasing stock --

But with the stock down $4, $5 now, it obviously must be more appealing to you?

It certainly is more appealing to me, and I will consider that as I consider everything else.

Thank you.

As far as the balance sheet is concerned, I was just wondering if you could explain to me just not sure I have the Q in front of me, so I am trying to understand, you have an equal amount of assets, cash of 300 plus million and debt of 400 million.

Can you just -- the net of it is while the net of it is a slight amount of debt, like 60 million, the net of it is $4 million of interest expense because obviously interest expense is going to be greater than interest income, so I was wondering why you have that structured like that?

I am not sure if your question is asking me are we under levered or over levered?

No, first, two things.

I guess there is one question, but the other question is what we know, why is the cash -- why cash and why do you have cash when you have so much debt?

Is it long-term debt, sort of tenure stuff you got, what is it?

Let me take a step back.

The debt is 10 year debt and 8 year debt.

First, at 7 year debt.

The initially -- the first call date on the debt is for a chunk of piece of about 150 million is 2008, and then another 150 is quickly thereafter, so nothing is callable today by us.

Secondly, the debt was put in place and we significantly levered up the Company to buy Calvin Klein four years ago, so the debt was put in place under that range, so we delevered the balance sheet, put it in position, and we're looking at capital structure.

Our first move to really adjust the capital structure was to have a $200 million stock buyback.

As that completes and where he look at our capital structure, I have been very consistent.

Our first priority is to continue to invest in acquisitions.

They don't seem to be any on the foreseeable future and by that I mean the next six to nine months---

If you increase the debt by 200 million, aren't you restricting yourself from acquisition that might come along that might be a bit bigger?

No.

Hopefully I thought I answer this had before is this might be better.

Our balance sheet is significantly under levered.

Point one is if there is a very large acquisition, a $1 billion or $2 billion, clearly the capital markets are available to us to go from a debt point of view because we are significantly under leveraged, and we think we have a lot of flexibility to do a deal.

As far as a deal like a bolt-on acquisition like we did with Arrow which was about a $75 million acquisition, Superba, which is about $125 million all-in acquisition, IZOD, which was about $150 million acquisition, those acquisitions we can definitely do and continue to do as cash.

We can continue to do licensing arrangements, so we will without any additional cash flow coming into the Company, and if we were to pro forma and take the whole $200 million out, we would be left with $250 million in cash, and a borrowing capacity against our revolving credit facility which is totally under utilized from a borrowing point of view of about another 2 to $250 million, so we think over the next 12 months we have the capacity to do an acquisition of 400 to $500 million without having to go to the credit markets,without having to go to any of our banks.

And still do your $200 million buyback, right.

And have the $200 million buyback complete, and this time next year as we said we would continually do, we'll look at our capital structure again.

Question from earlier, when do you think we finished with the buyback?

I think-- who knows.

We've committed to get it done within the next 12 to 15 months, to get it done by December 2008.

The only thing that would stop us from doing that would be an acquisition that would come up in the very near-term that would be very appealing to us.

Absent that, I think given these price positions I can't say it any more aggressively is at this price points I think we'll be aggressive buyers of the stock.

In this environment quite a few retailers are waiting when they see the environment improves.

You're not worried about that?

From a stock point of view, no.

A couple of things.

I think our capital structure is very strong.

Even however anyone looks at the financial performance, on every level, our growth this year, our earnings per share is over 20%.

Next year even where we're trying to be prudent and conservative we're still looking at growth around 15%, so given our prospects, given our capital structure, I think it is appropriate for it to be somewhat aggressive with our capital structure.

And the last question related to that is that you're looking at $360, $3.60 for next year, and that's sort of taking into account the reduction on shares of 2 to 3 million shares.

What -- how much of the 3.60 is from the accretion from the buyback?

I think we're talking about 6 to 11, the estimate in the numbers, 6 to $0.11 a share.

6 to $0.11 a share.

Absent that-- the organic growth is 10 to 12%.

And 2 to 3 million shares would be I guess if you take 3 million shares at today's price, you're looking at about $120 million worth, so you're just assuming $120 million worth of --

No, I am not.

I guess the way the earnings per share calculation works, it's a weighted average, if you completed ratably and buy back all $200 million worth of the stock, ratably over the next 12 months, it is the average of whats outstanding.

And I am curious, another way, on a four-year basis, what is it, $0.12?

The accretion?

Assuming that it would be 3 million shares, it is $0.11.

Assuming that it was 2 million shares, it would be $0.07.

4 million shares would be $0.15.

All right.

And it is all about what price we buy it back, when we buy it, how aggressively we buy it.

Understand.

It is actually industry is helping you (inaudible) $0.11 or $0.12 a share on a permanent basis, correct?

Yes.

If you paid a one-time dividend you would be getting $2.15.

Wouldn't be that better for share holders to get $2.15 than to get $0.10, $0.12 of earnings accretion?

I think $0.10 to $0.12 is a partial year, full year would be $0.15 accretion at a multiple depending whatever multiple you decide to use, it is really a question of how you think the stock performance we believe in the performance, and we think it is better for our shareholders to increase their ownership percentage in the company by about taking shares off the market and we think that has a longer-term benefit than a one-time payment of capital back (inaudible).

That's an interesting discussion.

I think at an 11 multiple, which is what you are at today, $0.15 is a $1.65 in present value and the dividend would be 2.15.

That is an interesting calculation.

Six months ago at a 20% multiple in which we were trading at I think you get a lot different --- (inaudible)

Very different answer.

That's right.

Exactly.

I don't think the vagaries in the market, I don't think we consider ourselves 10 or 11 times --

No, I am understanding you, but in the to get the 2.14 a share and put it back into the Company if that's how you thought.

I guess taking what you said, the management team of this company feels very comfortable about the growth prospects, the long-term growth prospects of the company, and we think it is much better to invest that money in a share buyback than a one-time dividend that goes away.

It doesn't go away.

It goes into the pockets of the all the shareholders.

It is a one-time dividend that is not a permanent benefit.

It is a one-time benefit, so we think it is more efficient to do it that way.

Thank you very much.

I appreciate you taking the time to go through that.

Thanks a lot.

We have no further questions at this time.

I would like to turn the conference back over for any additional or closing remarks.

Thank you very much.

We look forward to speaking with you on our fourth quarter earnings release probably the end of March, and have a very nice day.

Take care.