Question-and-Answer Session
Operator
Your first question comes from Timothy Conder - Wachovia Capital Markets
Timothy Conder - Wachovia Capital Markets
A couple of things; one on the first quarter operating expenses, Mike it appeared to be much better than what we were looking for and for the year you’re kind of guiding it flat, was there some timing going on between first second quarter on some items there?
Michael Malone
Nothing significant, the only timing thing I’m aware of is we perhaps deferred a little bit of our advertising that we expected in the first quarter to later quarters but other than that nothing significant. I guess the other thing I’d comment on is that related to our incentive based compensation with the share price being weak that does have an impact on some of our operating expenses relative to the compensation that hopefully will recover later in the year.
Timothy Conder - Wachovia Capital Markets
Okay that makes sense, thank you. And then you had mentioned that currency would be positive for the year and 14% of your business is outside North America in 2007, how – what’s your exposure the pound versus the euro as it relates to that 14% of revenue and obviously it sounds like you’re anticipating that percentage to grow both in Canada and outside of North America?
Michael Malone
Yes, remember when you say 14% that’s 14% outside of North America so our Canadian business is –
Timothy Conder - Wachovia Capital Markets
Twelve percent or so?
Michael Malone
Right, that’s in addition to that 14%. So the Canadian exchange rate is favorable year-over-year that we expect will continue throughout the year in some favorability. We are hedged on that currency through the third quarter so we’re confident about the impact of that at least through the third quarter on us. In Europe – you mentioned the pound, we do have some exposure in the UK but frankly that’s relatively small. Our largest exposure is in the euro as well as the Scandinavian currencies and that also has moved favorable. We don’t hedge those currencies because it’s more of a natural hedge for us but we will see benefit on sales certainly from the European currencies. The other thing I would comment on is offsetting those benefits are an increase in our costs related to the yen. We still have a fair amount of our engines that are denominated in yen and as you know the yen has changed significantly over the last few months so we are anticipating higher costs of our engines that will impact our gross margins particularly in the second half of the year as our hedges expire in the second quarter. We are hedged on the yen beyond the second quarter. So we will add a little bit of pressure both from the yen and frankly other commodity costs on our margins but net of the positive impact – all this was a positive impact in the first quarter and it will have a positive impact on sales for the full year but when you net it all it’s rather neutral for the full year on currency impact.
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