Question-and-Answer Session
Operator
Yes I am. (Operator Instructions) Your first question comes from Peter Bye - Jefferies & Co.
Peter Bye - Jefferies & Co.
The first question would be I guess then there is no management bonus in the guidance?
Robert S. Weiss
I’ll pass that question to Gene.
Eugene Midlock
That’s correct, Peter. The accounting rules would not allow us to accrue a bonus this quarter. To be able to accrue a bonus it has to be probable and [estimatable]. Since our target bonus is driven by objective criteria which before the bonus accrual can begin, our earnings per share number that’s projected would not get us to the $2.29 on a GAAP basis. So unless the Board of Directors subsequently decides later in the year to add a discretionary element, there will be no bonus accrual.
Peter Bye - Jefferies & Co.
This is a GAAP year, right? Isn’t that the whole sort of new turn the page? And you know we’ve taken some charges and then we’re quick to find some other ones as well now and I guess just how are investors supposed to look at you know the free cash flow is great but ’97 to ’05 probably proved to be a pure under investment in the business. You know about the 2%, 1% R&D reinvestment rate, maybe you weren’t investing enough in the business at that time. And now you’ve got a 2.7% R&D rate and CapEx dropping with gross margins dropping. What do you say to investors about how you’re maybe sacrificing the short term to the long term for some cash flow? Just maybe if you could address that question.
Robert S. Weiss
Sure, Peter. I think there is a perception that we’re somehow limiting capital that we need to spend. And I don’t know how clearer to say it than to say.
Peter Bye - Jefferies & Co.
I guess just wrapping R&D into the question too a little bit Bob, too, just the fact that when you want to capitalize R&D in a manufacturing, call R&D manufacturing expertise. The gross margin is obviously concerning. It’s been concerning for a bit of time, not just CapEx but also R&D.
Robert S. Weiss
Okay. Well, I’ll put them all together. You’ve got R&D, you have CapEx and you have the gross margins. And clearly when it comes to concerns about generating cash by cutting back on capital expenditures I think we’ve been pretty clear that when you’re running a business at 60% capacity, you don’t need more plant, you need to utilize that plant. So hopefully there’s no real perception out there that we’re not spending money we need to allow us to build products in the future and go forward.
- To read the full transcript on Seeking Alpha, click here »
