Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Jeff Stein with Soleil Securities.
Jeff Stein – Soleil Securities
First of all, if you could just talk a little bit about where the upside is coming from relative to your internal forecast because clearly in the first quarter, you had great improvement gross margin, not quite as good in Q2, I guess probably because of the Canadian issue you had in Q1 last year, but it seems that on the selling, distribution, and marketing line there is some geography issues with regard to the disposal of retail and acquisition of RPG and Papyrus, but away from that, where is the upside relative to expectations, and then if you can also address the issue on your free cash flow revised guidance, is most of the improvement that you’re seeing relative to where you thought, is it mainly net income related or are there also some working capital and tax issues that had not been contemplated previously?
Zev Weiss
Jeff, I would say that when you look at the performance relative to expectations, I think it would be pretty much what you’re probably thinking. In terms of sales, it’s a bit better than we expected, and if you look it from a year over year perspective, they’re hanging in there very nicely, and in this environment, that’s pretty good especially given some of the things we were seeing towards the end of last year, so I think we are very pleased with that, and we think that a combination of product work that we are doing in our core lines as well as the innovation products is really helping us on a topline basis, and then from a bottom line perspective which is probably what’s generating the impact, it is the cost savings some of which when you think that perhaps things are going to be a bit softer, you really watch your cost, and when the revenues come through just fine, you get the extra benefit of the gross margin, but if you’re watching your fixed cost as well, you get basically a double benefit, and I think that’s what’s going on. The group is doing really a great job on the product side, and they are watching their costs really hard, and the combination of the two is the having the effect on the earnings, and I think that’s a big part of what’s driving the cash flow. There is some benefit. Obviously, you look at what’s happening year to date, we’re hoping that there will be some benefit on the balance sheet side and on the tax side, but the net income is clearly going to help the free cash flow as well.
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