Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from David Goldberg – UBS.
David Goldberg – UBS
First question is actually on free cash flow generation as you look forward, I know you kind of gave some guidelines and I’m just wondering where the additional free cash flow is going to come from? Is it mostly from further inventory reduction? And, kind of where do you think that can go generally in terms of how well you can bring the inventory level given the sales pace right now?
Stephen F. Reeves
Well, the incremental free cash flow is really driven from working capital outperformance. Where we brought the inventory levels to in the second quarter was really in line with our historical targets on inventory turns and forward coverage so we are reasonably aligned right now for the demand environment that we see. So, I would expect as we go through the back half you’ll see production mirror the sell out as we go forward.
I think as we’ve taken inventory down here in the second quarter, we’ve obviously stopped the intake of products and our payables have decreased accordingly. As we accelerate the production to match the outflow of sales then you should see payables build back up again and provide incremental cash flow.
Mark M. Rothleitner
Dave, the fourth quarter is usually a strong free cash flow for us or a positive free cash flow because it’s one of our bigger selling seasons.
David Goldberg – UBS
Just a follow up question, you guys mentioned bolt on acquisitions as a possible use of cash and I’m wondering if you can just talk about the acquisition pipeline and kind of what you’re seeing, where pricing is there, if you’re finding attractive deals now given the macro environment and what specifically you might kind of be, I guess not specifically but generally, what we might be looking for right now?
Stephen F. Reeves
Sure, with respect to bolt ons we’re looking at small transactions. Typically that would be product line extensions where there would be some significant cost synergies. We continue to see some out there. Pricing has not fully come in line with what our expectations are in this environment so we continue to look for compelling valuations. We believe that if we’re patient the valuations will come back to us.
David Goldberg – UBS
Have you seen things start to come down a little bit though?
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