Rocky Brands Inc. Q4 2008 Earnings Call Transcript

Feb.19.09 | About: Rocky Brands, (RCKY)

Rocky Brands Inc. (NASDAQ:RCKY)

Q4 2008 Earnings Call

February 19, 2009 4:30 pm ET

Executives

Brendon Frey - IR, ICR, Inc.

Mike Brooks - Chairman and CEO

David Sharp - President and COO

Jim McDonald - CFO and Treasurer

Analysts

Kevin Kim - Robert W. Baird & Co.

Dan Meyers - D.A. Davidson & Company

Timothy Stavros - Stavros Associate Management

Operator

Welcome to the Rocky Brands Incorporated fourth quarter 2008 full year results conference call. (Operator Instructions).

I would now like to turn the conference over to Mr. Brendon Frey, please go ahead.

Brendon Frey

Thanks. Before we begin, please note that today's discussion, including the Q&A period, may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, such statements are based on information and assumptions available at this time, and are subject to change, risks and uncertainties, which may cause actual results to differ materially. We assume no obligation to update such statements.

For a complete discussion of the risks and uncertainties, please refer to today's press release and reports filed with the Securities and Exchange Commission, including Rocky's Form 10-K for the year ended December 31, 2007.

I'll now turn the conference over to Mr. Mike Brooks, Chairman and Chief Executive Officer of Rocky Brands.

Mike Brooks

Thank you Brendon, and thanks to everyone for joining us this afternoon to review our fourth quarter and 2008 full year results. With me on today's call is David Sharp, our President and Chief Operating Officer, and Jim McDonald, our Chief Financial Officer and Treasurer.

We are very pleased with our fourth quarter operating performance, which represents a solid finish to the year for our company. 2008 was clearly one of the most challenging periods that the footwear retail industry has ever faced. Particularly the last six months, as the economy contracted more than expected and the consumer environment deteriorated even further.

As we expected, fourth quarter sales were down versus a year ago. However, we were able to report a significant earnings improvement for the fourth quarter.

For the fourth quarter, diluted earnings per share excluding the non-cash charge detailed in our earnings release was $0.13 versus a loss of $0.02. For the full year, diluted earnings per share on an operational basis improved over 800% to $0.75 from $0.08 in 2007, despite selling decline of 5.7% to $259.5 million.

Our enhanced profitability was achieved through a number of actions taken over the past 18 months, aimed at rationalizing our operation platform and improving our wholesale gross margin. In the fourth quarter alone we reduced our selling, general and administrative expenses by $4.6 million or 18%, and for the year lowered it by $8.9 million or 9%.

The savings came from several areas of our organization, including lower distribution expenses, lower compensation, reduction in our total headcount, lower auditing fees, a reduction in certain marketing and advertising programs, a decrease in trade show expenses, and a decrease in consulting fees.

We are pleased with our ability to take cost out of business as we work to better realign our infrastructure with current sales volumes. That said we have been mindful to maintain a balance between driving profitability and properly supporting our brands with the resources they need to develop.

We are confident that the adjustments we have made to our operating platform have created a leaner, more efficient company from top to bottom and have us well positioned for future market share gains particularly when we exit this economic downturn.

In addition to our cost reduction, our bottom-line performance was positively impacted by the improvement of our gross margin for 2008. Our total gross margin was up 20 basis points and more notably our wholesale gross margin increased 180 basis points. This was accomplished as a combination of improved operating efficiency in our company owned manufacturing facility and better sales transaction terms with our retail partners.

Managing our inventory was another area where we showed solid improvements. We ended the year with inventory levels down 7%. This allowed a reduction in borrowing under our bank facility and helped contribute to a $2.3 million or 20% decline in our annual interest expense and a $15 million or 15% decreased in our overall yearend debt levels.

Before I turn the call over to David, I want to quickly touch on a couple of strategic decisions made recently that are worth noting.

First, we have decided to pull back from our initial entry into the women's Euro comfort casual footwear market and entering a licensing agreement with Zumfoot. Since the development of the brand in June 2006, we had produced a compelling product line and received positive feedback from a number of wholesale accounts.

However, the challenging economic conditions have made it increasingly difficult to build this business in a meaningful way and current level of retail commitment did not justify us moving forward at this time.

We still believe we can compete in the causal footwear market and will revaluate our opportunities once the economy improves. I think it is important to point out that we had structured our investment in Zumfoot to be low risk and as a result there is little or no cost associated with the exiting of this business.

Secondly, last year, we entered into a new licensing agreement with HAAS Outdoors to be the exclusive manufacturer and marketer of Mossy Oak branded hunting boots. Mossy Oak is one of the best known and well respected names in camouflaged development and design today. We’ve been using several of their most popular patterns in our Rocky hunting boots for over 30 years and they have historically been some of our best selling models.

We believe our expertise in designing and marketing along with the strength and popularity of Mossy Oak will be a winning combination. And lower operating price points will allow us to reach a segment of the market we currently do not serve with the Rocky brand. Like Zumfoot, this agreement has minimal risk particularly from an inventory standpoint and the product is seasonal and will only be made to order.

I will now turn the call over to David who'll review each of the operating segments in more detail.

David Sharp

Thanks Mike. The fourth quarter, wholesale sales were $49.4 million compared to $52 million in the corresponding period a year ago. And for the year, our wholesale sales were $187.3 million versus $202.6 million in 2007.

Within our work category, which includes footwear under our own brands Georgia and Rocky, and our licensed brands Dickies and Michelin, sales were $23.7 million in the fourth quarter compared with $25.3 million in the prior year period. For the full year, work sales decreased to $89.5 million from $92.2 million the year before.

Now turning to the Western category, fourth quarter sales were $8.5 million versus $9.9 million a year ago. For the full year, sales were $31.1 million down from $37.3 million in 2007. All of these declines were due to the disruption in supply that we suffered due to a dispute with a supplier. This dispute is resolved.

Now to our hunting footwear. Fourth quarter sales were flat year-on-year at $7.3 million. For the year sales were $29.8 million, down from $32.4 million in 2007.

Sales of our duty footwear in the fourth quarter were $4.9 million versus $5 million a year ago. For the year sales increased slightly to $17.9 million from $17.5 million in 2007.

Apparel sales in the fourth quarter increased 43.6% to $5.2 million versus $3.6 million a year ago, and declined slightly to $16 million in 2008 versus $16.1 million in 2007.

Now to our retail division. Fourth quarter sales were $15.4 million versus $19 million the year before. For the full year, retail sales were down 7% to $65.8 million from $70.7 million last year.

Finally we reported approximately $1.2 million in sales for the military versus $1.5 million in the same period last year.

I will now turn the call over to Jim who will review the financials.

Jim McDonald

Thanks, David. For the fourth quarter, net sales decreased 8.9% to $66 million compared to $72.5 million for the corresponding period a year ago.

Gross profit in the fourth quarter was $24.8 million, or 37.6% of sales compared to $28.7 million, or 39.6% of sales for the same period last year. Wholesale gross margin for the fourth quarter was $16.8 million, or 34% of net sales compared to $19.1 million, or 36.8% of net sales in the same period last year.

Retail gross margin for the fourth quarter was $7.9 million, or 51% of net sales compared to $9.5 million, or 49.9% of net sales for the same period in 2007. Military gross margin for the fourth quarter was $100,000 or 9.5% of net sales versus $100,000 or 8% of net sales in the fourth quarter a year ago.

Selling, general and administrative expenses decreased 17.5% or $4.6 million, to $21.6 million or 32.7% of sales for the fourth quarter of 2008 compared to $26.2 million or 36.1% of sales a year ago. The decrease in SG&A expenses is primarily the result of reductions in compensation, distribution, and trade show expenses.

During the fourth quarter of 2008, we recorded a non-cash charge of $3 million net of tax benefit, or $0.54 per diluted share for the write-down of the Lehigh and Gates trademark. This compares to a non-cash charge of $23.5 million net of tax benefit or $4.29 per diluted share for goodwill impairment recorded in the fourth quarter of 2007.

Excluding these charges, income from operations was $3.2 million or 4.9% of net sales for the fourth quarter of 2008 compared to income from operations of $2.5 million or 3.5% of net sales for the fourth quarter of 2007. Interest expense for the forth quarter decreased 22.4% to $2.2 million from $2.9 million in the fourth quarter of 2007 as a result of lower borrowings under our credit facility.

For the quarter excluding the charges, we reported net income of $700,000 or $0.13 per diluted share in the fourth quarter of 2008 compared to a net loss of $100,000 or $0.02 per diluted share in the fourth quarter of 2007.

For the year ended December 31st 2008, net sales decreased 5.7% to $259.5 million compared to $275.3 million for the corresponding period a year ago. Gross profit was $102.2 million or 39.4% of sales compared with gross profit of $108 million or 39.2% of sales a year ago.

Selling, general and administrative expenses decreased 9.2% or $8.9 million to $87.5 million for 2008 compared to $96.4 million in 2007. Expressed as a percentage of net sales, SG&A expenses decreased to 33.7% of net sales for the year from 35% last year as a result of the cost reductions Mike detailed earlier.

Income from operations including the non-cash impairment charges recorded in the fourth quarter of 2008 increased to $14.7 million or 5.7% for the full year compared to income from operations excluding non-cash impairment charge recorded in the fourth quarter of 2007 or $11.6 million or 4.2% last year.

Interest expense for 2008 decreased 20% or $2.3 million to $9.3 million versus $11.6 million for the same period last year. The decrease in interest expense was due to reduced borrowings under the Company’s line of credit as the result of better inventory management and to a lesser extent, lower interest rates compared to the same period last year. For the full year, excluding the impairment charges, we reported net income of $4.1 million or 75% per diluted share compared to net income of $400,000 or $0.08 per diluted shares of 2007.

Funded debt as of December 31st 2008 decreased 15.3% or $15.8 million to $87.7 million compared to $103.5 million at December 31st 2007. We remain comfortable with our current debt structure which consists of a $100 million revolving line of credit and a $40 million term loan. The bank loan matures in 2010 and we are in the process of negotiating an extension. As of December 31st 2008, we had $44.8 million outstanding on the line.

Inventory decreased to $5.1 million or 6.8% to $70.3 million at December 31st 2008 compared to $75.4 million on the same date last year.

I will now turn the call back to Mike for some closing comments.

Mike Brooks

Thanks Jim. We began 2009 cautiously optimistic. There is little doubt that these are challenging times, but these are challenging times that we are focused on properly managing our business for this environment, while at the same time building our recent successes in a controlled and disciplined manner.

As we outlined earlier in the call, we made meaningful progress, improving the productivity of our wholesale business in 2008. We also began the process of restructuring our retail platform in order to drive greater operating expense leverage and this initiative continues as we begin this New Year.

The steel toes safety shoe business has currently been impacted by the economic slowdown with significant layoffs throughout the US manufacturing and service sectors. Our customers have come to us, looking for cost savings and we have been proactive by inviting them to make purchases over the internet where we can offer greater savings.

In a relatively short period of time, we have extended this program nicely. Of the 18,000 plus accounts, who have made purchases in 2008, approximately 35% has set up customized websites with us. Furthermore, we have quickly broadened the merchandising assortment since December. But, it's still early. Year-to-date orders are up significantly on our B2B websites.

As a result, we have made adjustments that should significantly lower our retail SG&A in 2009, including removing mobile shoe stores from the road and reducing headcount and we expect to see improved profitability from this division on a smaller revenue base going forward. We've always operated in a conservative manner and 2009 will be no different.

This coming year will be about protecting our assets and maintaining the leadership position our brands have established. As always we look to maximize productivity and run the business as efficiently as possible in order to preserve cash and drive down our borrowing and interest expense.

We feel good about our recent performance and move forward committed to executing our strategy that we believe will result in long-term growth and profitability and increased shareholder value. Thank you. Operator?

Question-and-Answer Session

Operator

(Operator instructions). One moment please for our first question. And our first question comes from the line of Mitch Kummetz from Robert W. Baird & Co. Please go ahead.

Kevin Kim - Robert W. Baird & Co.

Hey guys, this is actually Kevin Kim calling for Mitch. Just a couple of quick questions as far as the supply chain disruption in Q4, I know you guys quantified impact of it on the Q3 call and David I think you mentioned a $1.4 million shortfall on the western business if I’m correct there. Can you guys quantify the total disruption there?

Mike Brooks

Well. The total was that the last number that David quoted for the whole year, you are talking about for the whole year, because we…

Kevin Kim - Robert W. Baird & Co.

No, just for Q4.

Mike Brooks

For Q4, okay. I don’t have that.

David Sharp

Q4 sales were $8.5 million versus $9.9 million a year ago. So $1.4 million, difference, over $9.9 million the year before.

Kevin Kim - Robert W. Baird & Co.

It just affected the western part of the business, is that correct.

David Sharp

Primarily yes.

Mike Brooks

Primarily there were some effects, but the western by far was the largest Kevin, but there were some other, this supplier made 20% of our shoes.

Kevin Kim - Robert W. Baird & Co.

Okay.

David Sharp

Over a million pair, 1,300,000 pairs.

Kevin Kim - Robert W. Baird & Co.

All right. And then, can you guys comment on the genuine Dickies launch at Wal-Mart. I know you guys were excited about that going in, I think November 15, I think about 400 stores. How did that perform if you can?

Mike Brooks

Kevin you have a great memory. We were excited, and the shoes did not get distributed as we had expected, in the time period right before Thanksgiving. Some shoes did not get out and so there was a slower start. And for some reason or other, our customer Wal-Mart increased the retail price by dollars a pair.

So the start has been less than we had hoped for as we got through the Christmas selling season and into January and now February we have been recently down at Wal-Mart in kind of restarting the distribution of those styles.

So the start did not kick off the way we hoped, we are restarting it, we are going to test 50 stores on top of the original 400 rollout with the agreed upon price point to see what that delivers. So we’re still going through a test.

Kevin Kim - Robert W. Baird & Co.

Okay. And then, as far as SG&A, you guys had a lot of positive momentum there in terms of '08 and cutting that 9% I think. How should we think of the wholesale business and the SG&A there for’09?

Jim McDonald

Kevin, this is Jim. I think that we should think of that. We're planning on attempting to make reductions there too in the wholesale business absent any sales increase, there's a variable cost that goes along with that, but we should think of that as I think at worst case flat with last year and hopefully down going forward.

So, we’re looking at all areas of the business. Just happens to be that retail was the first one based on the last four months sales trend, and shifting that business to the more of a web based business and not needing the assets that we had in the past.

Kevin Kim - Robert W. Baird & Co.

Okay. And then as far as ’09 tax rate and CapEx?

Jim McDonald

'09 tax rate should be at a normalized 36% and CapEx again, similar to ’08 in the $5 million to $5.5 million range.

Kevin Kim - Robert W. Baird & Co.

Okay. And I’m done. Thank you so much guys.

Mike Brooks

Thanks Kevin.

Operator

Thank you. And our next question comes from the line Reed Anderson from D.A. Davidson & Company. Please go ahead.

Dan Meyers - D.A. Davidson & Company

Hi this is Dan Meyers for Reed. I just had a question about the Mossy Oak program. What [call] you did that, but on that with the potential size and timing of the rollout? Thanks.

Mike Brooks

I didn't understand the question. In case you pick up the, maybe if you pick up the phone, so it's audible.

Dan Meyers - D.A. Davidson & Company

Sorry, this is Dan in for Reed.

Mike Brooks

Okay Dan.

Dan Meyers - D.A. Davidson & Company

Just had one follow-up question on the Mossy Oak program about the potential size and more on the timing of the rollout of that? Thanks.

Mike Brooks

Yes, okay, now I got you. The beauty here is that there’s a price point in the hunting boot category that we don’t want to reach down to. It’s too low of price items, so we have a long time. I have a long history with Mossy Oak and they’ve asked us to do this in the past and we felt it was the appropriate time to do it, little risk.

And this is not going to be kicked off to the tens of millions the first season, but I think that we’ve currently shown this to our key customers and I would say 60% of the key customers have shown strong interest and will buy some product and as I mentioned in my statement, there’s no inventory that we’ll carry. This is make and ship. So, we’ll build the shoes in our factory, we build them in the [Orient] and ship them directly to our customer, but it will be a low risk growing business over I think a two, three, or five-year period.

Dan Meyers - D.A. Davidson & Company

And bet it will start in June of this year.

Mike Brooks

Yeah, it will start shipping this fall.

Dan Meyers - D.A. Davidson & Company

Okay, thanks a lot.

Operator

(Operator Instructions). Our next question comes from the line of [Timothy Stavros from Stavros Associate Management]. Please go ahead.

Timothy Stavros - Stavros Associate Management

Yes, hello gentlemen. Congratulations, I think it’s a good quarter, stripping out the unusual items.

Mike Brooks

Well thank you. That’s nice to hear. We wanted more. We worked hard and our team worked hard and we’re pleased, we’re pleased in very difficult circumstances.

Timothy Stavros - Stavros Associate Management

I missed the first two or three minutes of the call, so I don’t know if you talked about this in more detail. I see in the press release, the SG&A reductions are really frankly impressive. Forgive the phraseology of this question, but was there a lot of fat in the company?

Mike Brooks

That’s a good one. I understand that phrase. We were building a company for the future and I don’t think there was fat in the company, but eighteen months ago, we got aggressive and started to bring the SG&A down aggressively over a 16 month period, so we had some fat sure.

Timothy Stavros - Stavros Associate Management

You certainly did it at the right time considering where the economy is at. It could have been a much more gruesome situation for Rockies.

Mike Brooks

Absolutely, I’m happy as I could be as we took those actions a long time ago, but the other part, I don’t know if you got or not, we’re continuing to look inside the company and say how we can combine jobs and we have to be mean and lean. The one thing we can control is cost.

Timothy Stavros - Stavros Associate Management

Are the reductions, it refers to reductions and compensation in the press release, are those mainly combinations of jobs and attrition and lay-offs and whatnot or is that outright wage freezes and/or salary reductions for people?

Mike Brooks

We have not done salary reductions. Those would be freeze on hiring. There would be a freeze on salary increases and

Timothy Stavros - Stavros Associate Management

Is that pretty much across the board for you guys?

Mike Brooks

We’ve done a [piecemeal] last year and we’ve done it in a number of different ways.

Timothy Stavros - Stavros Associate Management

Okay. Let’s see what else here, the write-off of some of the goodwill and intangibles, is that exclusively a common stock price issue and not a belief or an evaluation of margins part about a permanent impairment on potential returns of those operations that carry the goodwill and intangibles?

Mike Brooks

The goodwill that we wrote off in 2007 was strictly

Timothy Stavros - Stavros Associate Management

2008. Well forget 2007, 2008.

Mike Brooks

So, the trademarks were a result of the projected sales on those and where you can go with those projected sales based on the economy worked out now. So, I think that, it's a mathematical formula, you go through and I think it's a pretty common event right now. So, I don't think it has anything to do about the overall value in the marketplace of these trademarks.

Timothy Stavros - Stavros Associate Management

Okay. At what point do you anticipate wholesale gross margins getting back to their historical levels, indoor sales for that matter?

Mike Brooks

Well, I think the wholesale gross margins this year are for the most part back to historical levels. I think that, if you look at our margin over the last five, six year of this company. We've only had one year, where they have been higher than they were this year and that was 2005, I believe or '06 I think, but we historically run in the high 36% to 38%, so we are right in there.

Timothy Stavros - Stavros Associate Management

Okay. So, the number, let’s say what was the number for the full year again in wholesale gross margin?

Mike Brooks

I believe 36.8%.

Timothy Stavros - Stavros Associate Management

So that's actually a reasonable, not a bad raise for your guys for a full year number. That’s not a bad range.

Mike Brooks

Not a bad range. Well predominantly, this is a fashion business or higher margin businesses, it’s branded, but this is pretty

Timothy Stavros - Stavros Associate Management

Okay. So the 35%, so the 34% you had in the fourth quarter, is something that you are rebounding from in the first quarter essentially?

Mike Brooks

We were rebounding from…

Jim McDonald

I think the fourth quarter was our lowest quarter margin of the year and part of that is that our hunting business, which goes out primarily in the third and fourth quarter that business based on the nature of that market is the lower margin goods.

Timothy Stavros - Stavros Associate Management

So it's more seasonal that you are 34%, that’s probably seasonal as well you are saying?

Jim McDonald

Partly yes.

Timothy Stavros - Stavros Associate Management

Okay. Just one another thing and I’ll get back in the queue here. The insider buying window, the stock closed at 303. I bought some shares before the market closed at 303 in fact. When does the window for insider buying open?

Mike Brooks

It will probably open on Monday.

Timothy Stavros - Stavros Associate Management

And there was considerable amount of buying in the $5 area by various insiders then it was kind of quiet, was the window closed for some reason or just?

Mike Brooks

The window was closed since December 9th.

Timothy Stavros - Stavros Associate Management

Okay, since December 9th. Good and then would we see insiders stepping up or can’t say?

Mike Brooks

Well my Chief Financial Officer is shaking his head, no we can’t say.

Jim McDonald

I mean we’ve taken advantage. I have taken advantage, well that we have a window different time periods every quarter and…

Timothy Stavros - Stavros Associate Management

Will the window open up? I mean there is nothing material going on right…

Mike Brooks

It will open up.

Timothy Stavros - Stavros Associate Management

It will open up. Okay, there is nothing material going on right now that you are aware of that would preclude you from opening.

Mike Brooks

Not that I am aware of.

Timothy Stavros - Stavros Associate Management

And then just a related question and I will get out. Is company buybacks, since your debt agreements you can't do a buyback right, of common stock?

Jim McDonald

We are certainly limited by, certainly yes.

Timothy Stavros - Stavros Associate Management

Can do it, you say limited.

Jim McDonald

Limited in the amount, I mean it’s very small.

Timothy Stavros - Stavros Associate Management

So we don’t have it, the Board is not going to be talking about an authorization?

Mike Brooks

We have talked about it in our last Board meeting. We talk about it, but there are limitations in capital we can use to buyback.

Timothy Stavros - Stavros Associate Management

Okay. Let me squeeze one more in if I can. Debt reduction goals for the year, do you guys have a number, a year-end ’09 debt number goal?

Mike Brooks

We have, but we are not going to tell you.

Timothy Stavros - Stavros Associate Management

Is it a single digit millions reduction, in debt, from year end ’08?

Jim McDonald

We haven’t issued any guidance on that Tim.

Mike Brooks

And the last year, I think last year, it was $11 million, what was it?

Jim McDonald

Last year we went up $7 million

Mike Brooks

$7 million this year $15 million.

Timothy Stavros - Stavros Associate Management

Okay.

Mike Brooks

It will be sizable.

Timothy Stavros - Stavros Associate Management

Okay, it will be sizable in the right direction down. Okay, thanks

Mike Brooks

Thank you.

Operator

Thank you. (Operator Instruction). And we do have a follow-up from the line of [Timothy Stavros from Stavros Associate Management]. Please go ahead.

Timothy Stavros - Stavros Associate Management

Hi, I always like being the follow-up right after myself. It stokes my grandiosity. Are there any concerns about price increases on product lines that you guys were passing through or whatever, being walked out or anything like that?

Mike Brooks

No more than normal. Nobody likes price increase, but nothing to be concerned.

Timothy Stavros - Stavros Associate Management

Okay. And as far as the compensation of the trade show and distribution expenses, are you guys potentially being penny wise and pound foolish in the trade show aspect and you’re saving money, but you’re not getting exposure out there like you should?

Mike Brooks

We’re basically sheep on this.

Timothy Stavros - Stavros Associate Management

I’m sorry, what, sheep?

Mike Brooks

Yeah, we’re following, there are also lot of the major players in the marketplace have abandoned the shows. We’re doing the same, yes.

David Sharp

Tim, this has been in the business a long time. This is a normal channel of movement. Trade shows come and trade shows go and we’re there when they’re important and we’re not there and save sizable funds when they’re not important. And so, we’ll do whatever it takes that’s prudent and can deliver returns for shareholders like you are one.

Timothy Stavros - Stavros Associate Management

Yes.

David Sharp

But, that should not be a concern.

Timothy Stavros - Stavros Associate Management

Okay. Just one or two others. What’s going on with Durango and then are you pleased with, I haven’t seen the new product. Are you pleased with the quality of what you’re seeing and style and what type of reaction are you getting out there in the market now that you’re coming back out there at full force?

Mike Brooks

We’ve really focused on Durango and the resorting efforts and we’re now in four factories versus one. And we have lots of new products which is being extremely well received in the marketplace.

Timothy Stavros - Stavros Associate Management

Four factories instead of one; its one supplier though, one company?

Mike Brooks

No; four suppliers versus one supplier.

Timothy Stavros - Stavros Associate Management

That’s a pretty diversified supply base. I guess you learned a lesson, yes.

Mike Brooks

Right.

Timothy Stavros - Stavros Associate Management

Okay. And then finally, I don’t know if you want to discuss any aspect of this online here like this. If not just say so, but the status of the former manufacturer, the product status or status of your pursuit of them or whatever, is that, maybe it’s not something you want to talk about here.

Mike Brooks

The lawsuit’s been settled and we’re moving forward and frankly we don’t pay a lot of attention what they’re doing or care less.

Timothy Stavros - Stavros Associate Management

And gain or any effect on the fourth quarter of that settlement of lawsuit?

Mike Brooks

No. No, not at all.

Timothy Stavros - Stavros Associate Management

Yeah and then are they going to have competing product out there or no?

Mike Brooks

If I have anything to do about it, no.

Timothy Stavros - Stavros Associate Management

That means, the settlement says that they’re not going to or have copycat product or?

Mike Brooks

I really can’t comment on what the settlement is.

Timothy Stavros - Stavros Associate Management

Okay.

Mike Brooks

I’m comfortable where we’re going forward.

Timothy Stavros - Stavros Associate Management

Okay and then finally, truly finally, do you anticipate a revenue increase for the year?

Mike Brooks

We’re anticipating a flat revenue. A revenue increase would be a very nice thing, but I see a very tough year.

Timothy Stavros - Stavros Associate Management

Okay, thanks a lot. I really think there’s a lot of value here and you guys are protecting the value and you’ve got a fair amount of debt and everything, but you did a nice job in reducing it and showing the market that you guys got staying power.

Mike Brooks

We just got to duplicate it again this year and we will. Thanks Tim.

Operator

Thank you and I’m showing that we have no further questions at this time. Please continue with any closing remarks.

Mike Brooks

Well, thank you for tuning in and listening in and we’ll stay in touch. Thank you very much.

Operator

And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.

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