Kathy Liebmann - Director of IR and Corporate Communications Kurt Darrow - Chairman, President, and CEO Mike Riccio - CFO.

John Baugh - Stifel Brad Thomas - KeyBanc Capital Markets Budd Bugatch - Raymond James.

Greetings and welcome to the La-Z-Boy's Fiscal 2018 Second Quarter Results Conference Call. At this time, all participants are in a listen-only-mode. A brief Question-and-Answer Session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to turn the conference over to Kathy Liebmann, Director of Investor Relations and Corporate Communications. Please go ahead, Ms. Liebmann. .

Good morning, Rob. Good morning and thank you for joining us to discuss our fiscal 2018 second quarter results. With us today are Kurt Darrow, La-Z-Boy's Chairman, President and Chief Executive Officer; and Mike Riccio, our Chief Financial Officer.

Kurt will begin this morning's call and then Mike will speak about the financials before turning the call back to Kurt for his concluding remarks. We will then open the call to questions. A telephone replay of the call will be available for one-week beginning this afternoon.

Slides will accompany this presentation and are available for viewing through our webcast link. These regular quarterly investor conference calls are one of La-Z-Boy's primary vehicles to communicate with investors about the Company's current operations and future prospects.

We will make forward-looking statements during this call, so I will repeat our usual Safe Harbor remark. While these statements reflect the best judgment of management at the present time, they are subject to numerous future risks and uncertainties as detailed in our regular SEC filings.

And they may differ materially from actual results due to a wide range of factors. We undertake no obligation to update any forward-looking statements made during this call. And with that, let me turn over the call to Kurt Darrow, La-Z-Boy's Chairman, President, and Chief Executive Officer.

Kurt?.

Thank you, Kathy and good morning everyone. Yesterday afternoon, we reported our results for the fiscal 2018 second quarter. We are pleased with our performance particularly in light of the headwinds we face from raw material pressures and the hurricanes.

For the quarter, we posted a 4.4% sales increase, written same store sales for the La-Z-Boy Furniture Galleries network increased for the third consecutive quarter and we generated $32 million in cash from operating activities an increase of 73% over the prior year quarter.

Also, we've returned $25 million to shareholders through dividends and share purchases, buying back almost 730,000 shares over the course of the quarter. And yesterday, our Board of Directors voted to increase our quarterly dividend to shareholders to $0.12 per share representing a 9% increase.

I feel positive about where and how our company is positioned in the marketplace as we move into the back half of our fiscal year, which is typically our strongest in terms of sales and earnings. Now let me take you through our review of our three operating segments for the quarter.

First, Upholstery, for the quarter sales in the Upholstery segment increased 3% to $305 million and the segment’s operating margin declined to 11% from 12.9% in last year's second quarter, primarily stemming from increases in raw material prices that negatively impact our gross margin by 0.7 percentage points.

For the past six months or so, this industry has been facing cost input pressures. For us, we have seen a lot of drawn-ups in three of our key components; steel, poly and lumber. We passed through the additional costs with an across the board price increase that we announced to customers at the October high point market.

The price increase goes into effect on incoming orders tomorrow December 1st, but generally speaking means it will be effective on deliveries beginning around the 1st of the calendar year. For the second quarter, however, this meant we had to absorb the raw material cost due to the gap in timing.

On the product side, we continue to be pleased with dealer response to our new Duo collection which is now canvas retail floors across North America. To support the product, earlier this month, we launched an integrated multi-channel marketing campaign that’s been television, print and digital media.

While it’s still too early to determine exactly how meaningful the Duo collection will be, early indications are very positive and we will provide an update in February once we have moved through the holiday period and have more data. We have spoken about the importance of innovation to La-Z-Boy which is part of our heritage.

Duo is a testament to the innovative spirit that continues to run through our company and our drive to continuingly bring quality, innovative products to the market is one of the many attributes that I believe differentiates La-Z-Boy from the competition.

Written same-store sales for the La-Z-Boy Furniture Galleries network increased 1.9% for the quarter. Again, this is the third consecutive quarterly increase and our team is working hard through merchandising, marketing and price development strategies to keep this momentum going.

With respect to our 4-4-5 store buildup program, for fiscal ‘18, we anticipate executing approximately 25 store projects across the network between the company and our independent dealers. We expect to end fiscal ‘18 with 354 stores which would include seven net new stores this year.

During the second quarter across the network, three new stores were opened, two were relocated, four stores were remodeled and one was closed. We ended the period with 350 La-Z-Boy Furniture Gallery stores, of which 125 are in the new design concept format.

That 350-store opening was a milestone for the company and was also particularly warming because it was a company-owned La-Z-Boy Furniture Gallery store that we opened in Rockford, Illinois in October. We now have 16 stores in the Greater Chicago area and look forward to continuing to update and expand our presence in this vibrant and growing market.

Before turning to Casegoods, I want to provide a brief update on the initiatives we are executing to position La-Z-Boy solidly for the future including the e-commerce strategy that I outlined for you in August as well as four capital projects that we have underway. First, a brief recap on what we are doing to build an Internet business.

La-Z-Boy has a dual strategy to reach two distinct groups of consumers. The first, our core customer, it seems to prefer to shop either in the La-Z-Boy Furniture Gallery store or had another retail store carrying the La-Z-Boy brand. And the second a younger customer who seem to preferred to shop online for furniture.

We believe, we can grow sales to both of these consumer groups simultaneously. Our three-pronged ecommerce strategy addresses both the younger market, while providing a wealth of information, access and buying opportunity for the La-Z-Boy brand to all consumers.

Now to provide a quick synopsis of our internet strategy for those of you who maybe new to our story. Our three ecommerce opportunities are as follows.

The first is the increased online sales of La-Z-Boy furniture through la-z-boy.com and other digital companies such as Wayfair, we’ve been selling for a few years and Amazon is when we are in discussions and expect to be selling the La-Z-Boy branded product on their side in the spring.

The second is deliveries the strength of our world class supply chain to support other ecommerce brands which we are already doing. And the third is to invest the new online company and as of today, we’ve invested almost $9 million into start-up companies.

Remains to be seen how this initiative will evolve, but we are committed to diversifying our go-to-market strategy through different avenues to capture new consumer and new consumer based for La-Z-Boy Incorporated.

We are excited with the comprehensive strategy we have developed and the opportunity that have been presented to us due to the strength of our supply chain. We will continue to provide periodic updates to you as things progress. With respect to capital projects, we are making investments to strength in our domestic of both remanufacturing operations.

Ongoing investment across our plan is essential as we continue enhance plan productivity and efficiencies. Ensuring, we have state-of-the-art facilities and processes, will enable us to continue to bring exciting products to consumers and maintain our competitive advantage of mass customization with unparalleled speed to market.

Construction on a new 70,000 square foot innovation center in Dayton, Tennessee is well underway and will house a model shop, technology center, test lab and three-dimensional printing labs. As we seek to enable our business with new state-of-the-art innovation center will enable us to attract the best talent to our team.

We are also making a number of improvements to our Dayton campus, all of our largest manufacturing facility, which total more than 1.2 million square feet.

It is also the only La-Z-Boy branded plan that manufactures furniture and all of our three major categories recliners, motion sofas and stationary upholstery making nearly 90% of the various frame styles in our manufactured La-Z-Boy product line.

Additionally, with our England subsidiary exhibiting steady growth in the spring will be given expansion of its manufacturing operation adding some 85,000 square feet to meet the demand England is enjoying as it continues to grow its footprint across the United States.

And finally, we also plan to breakdown at about the same time on a new corporate office building for England to replace the building we lost this spring due to fire.

Once completed these investments will not only strengthen our manufacturing operations, but will provide the great flexibility in the future, which is necessary in today's dynamic marketplace. We are applying the strength approximately $22 million on these four projects in fiscal '18, representing about 45% of our CapEx for this fiscal year.

Now let me turn to Casegoods. Sales in the Casegoods segment for fiscal '18 were $28 million, an increase of 8.4% from last year's second quarter, and the operating margin for the segment increased to 11.8% from 11% in the comparable period of fiscal 2017.

I cannot say enough about the excellent work the Casegoods team has done to turn around this business. With a revamped portfolio marked by a more transition of product mix, the product collections are resonating better with today's consumer.

On the supply chain side, we are flowing [project] better and are in stock 95% of the time with our bestsellers and are in a high stock position on most items allowing us to service our customers very, very well. In fact, the team has been improved every service metric dramatically over the past couple of years.

The combination of improved product offerings and excellent service has allowed us to expand our floor space with many key retailers. While our operating performance had improved significant once we became a pure importer, we are pleased to see that we are now growing sales in this business.

And we proud of the team and with today's operating structure combined with the number of well received collections introduced at the past couple of furniture markets, I believe this business is well positioned moving forward. Now moving on to retail.

Sales for the 2018 second quarter increased 8.7% to $117 million and the operating margin increased to 3.3% from 2.8% in the prior year period.

On the core base of 130 stores included in last year's second quarter delivered sales declined 1.3% versus the prior year mainly due to a decrease in traffic which was somewhat offset by an improvement in average ticket driven by increased designed services, custom orders and higher convergence.

Now during the quarter, the company opened two new La-Z-Boy Furniture Gallery stores one in Cedar Rapids, Iowa and the Rockford, Illinois store that I referred to earlier, bringing the company owned store count to 147 of the 350 stores in our North American network.

I will now turn over the call to Mike to review the numbers for the quarter in much more detail. .

Thank you, Kurt. Consolidated sales for the fiscal 2018 second quarter were $393 million, up 4.4% from $377 million in last year's second quarter.

Consolidated operating income for the quarter was $34.3 million versus $33.9 million in the fiscal 2017 second quarter and the consolidated operating margin was 8.7% in the current period versus 9% in last year's quarter.

The company reported net income attributable to La-Z-Boy incorporated of $22.9 million or $0.49 per diluted share versus $20.8 million or $0.42 per diluted share in the prior year period. The fiscal 2018 second quarter results included a $0.03 per share benefit for discrete tax items.

As we mentioned in our press release, we believe the hurricanes impacted our EPS negatively by about a penny for the quarter. Our consolidated gross margin decreased 0.3 percentage points in the second quarter compared with last year’s comparable period.

This was primarily result of the decline in gross margin in our Upholstery segment due to the increases in raw material prices that Kurt mentioned earlier which impacted gross margin by 0.6 percentage points.

Partially offsetting this was a 0.3 percentage point benefit for the quarter due to the change in our consolidated sales mix as our retail segment is increasing in size and it carries a higher gross margin compared to the Wholesale segment.

SG&A as a percent of sales was flat in the second quarter of fiscal 2018 compared with the same period of fiscal 2017. As noted a moment ago, as our retail business becomes a larger component of consolidated sales, our SG&A as a percent of sales will also increase as retail carries a higher level of SG&A compared to the wholesale businesses.

For the quarter, this accounted for 0.5 percentage point increase in our SG&A expense. Offsetting the impact of the growth of the retail business for the quarter was a gain from the insurance proceeds from the England’s office building fire which decreased SG&A by 0.4 percentage points.

The gain occurred because the first things we expect to receive exceed the building’s net book value. Turning to the balance sheet. During the quarter, we generated $31.7 million in cash from operating activities.

We ended the quarter with $122.3 million in cash and cash equivalents, $35.3 million in investments to enhanced returns on our cash, and $2.4 million in restricted cash.

During the second quarter of fiscal 2018, we spent $7.2 million in capital expenditures, paid $5.3 million in dividends and spent $19.2 million purchasing almost 730,000 shares of stock in the open market under our existing share purchase program, almost double of that of the first quarter.

This leaves us with 7.6 million shares available for purchase in the program. Based on cash flows and other capital needs to invest in the business to drive growth, we plan to continue to be opportunistic in the market with respect to buyback activity.

Our current estimate for total CapEx spend for the year is in the range of $45 million to $50 million. Our effective tax rate was 30.8% for the quarter compared with 36.1% for last year’s second quarter.

Our effective tax rate varies from the 35% statutory rate, primarily due to state taxes, less the benefit of the US manufacturing deduction and foreign earnings in jurisdictions with lower tax rates than the US.

Additionally, our effective tax rate for the second quarter of fiscal 2018 was lower, primarily due to certain discrete tax items related to R&D credits of $1.3 million that related to tax returns for the fiscal years. Prior to fiscal 2018 that will be amended.

As a reminder, our effective tax rate was lower in last year’s third quarter primarily due to a tax benefit for state job tax credit in Tennessee and a tax benefit for releases of valuation allowances related to certain US state deferred tax assets.

These discrete items lowered the effective tax rate by 5.0 percentage points in the third quarter of fiscal 2017 which equates to about $0.03 per share. I'll now turn the call back to Kurt for his concluding remarks..

Thank you, Mike. As we look to the future we are seeing abundance of opportunity for La-Z-Boy Incorporated.

Our initiatives are focused on growing our core business through our independent dealers, the La-Z-Boy Furniture Gallery store network and through online sales, while we launch a separate ecommerce strategy that will provide a stream of revenue that is accretive to our existing business.

Additionally, we are making important investments to our four capital projects to ensure, we are solidly position for the long-term. As we grow, we will continue to leverage our world class global supply chain, which has demonstrated its ability to drive efficiencies and productivity gains throughout our manufacturing process as our volume increases.

We appreciate you being on the call today and your interest in La-Z-Boy. I’ll now turn things over to Kathy to provide instruction for getting into the queue for the questions.

Kathy?.

Thank you, Kurt. We will begin the question-and-answer period now. Rob, please review the instructions for getting into the queue to ask questions..

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of John Baugh with Stifel. Please proceed with your question..

Making a differ, was it, I don’t know strategic or high-level view. You’ve made, I think its $9 million of investments into Internet start-up. You just generate a lot of cash and regulation in the quarter and increased buybacks in the dividend. And the question simply is, how do you think about investing in buybacks or dividends versus chasing revenue.

My opinion is, it’s good to do the former, not the latter, but it seems like the stock market wants the revenue growth and is worried about the Internet. So, I’m just curious are you done making internet acquisition.

Should we expect more capital to go towards growth maybe increased spending on advertising that just drive traffic or now we’ll see the stock based here more buybacks and we’re comfortable with what we’ve invested?.

Let me try to [read] that question John. I think we have a strong balance sheet, we’re generating a lot of cash and we want to deploy that cash, where we think, we can get the best return for our shareholders.

And so, a combination of capital expenditures to strengthen the business, the combination of outside investments or acquisition always comes to mind. But absent that, we’re committed to not build more cash on our balance sheet and without other things to invest in, we think returning some money to the shareholders is a prudent option.

So, whether or not, we will do more with start-up internet companies or any other type of acquisitions depends on what comes our way or what we can find or what we think is strategic to us. And we will be opportunistic in that regard.

But it’s a balance of how do we deploy our capital through future activates, shareholder returns and what we need to do for the business. .

Okay. And appreciate the storm set an impact. I think that you said Upholstery was down 1.3%. You've made a comment that deal are in its early stages it's done really well, obviously we saw the written number positive comp.

And the question simply is as we look at the back half or the next quarter, would we expect unit production in Upholstery to be positive, not negative and enhanced gross margin is supposed to be slight drag?.

So, the real drag on our Upholstery margin which is still at 11% is top quartile in the furniture business. But the drag on it is primarily John, the result of the raw material run up and the timing difference of getting our price increases pass through. So, our plans are not less efficient doing anything different.

If we said it was more volume at the right input cost, our margins would be where they historically were in the last couple of years. And we think we will get a little benefit from the increase in January and the full benefit for the whole fourth quarter. So that's really the miss for us is the timing differential with raw materials. .

Okay.

Is it just too early to -- I mean you seem excited about [do] on the early success, could you refresh us where is that product now on floors both your own floors as well as independent retailers? Any additional color on the tractions so far?.

So, it is the fully distributed throughout North America to any of our retailers who wanted to buy it. We ran the first our television commercials on our National Media program in mid-November. And then our own retail stores that we have immediate data, we saw a pretty significant lift in the sale of Duo when the marketing campaign started.

But again, it's been tracking for three or four weeks. We think the data we will have you for February will be much more meaningful after we conclude through the holidays. .

Okay. And my last question relates to Casegoods, which is something we sort of beat you up on over the years and is putting up some great margins and some growth and you mentioned [indiscernible] on that the certain retailers are I don't know, increasing business I guess with you.

I'm curious as to what types of retailers and why are they coming to you specifically, is it just in stock position or you hit the products right or any color there, thank you. .

Well first of all, I appreciate you acknowledging you beat me up on Casegoods for a long time. So that's a good start.

But we have a great team in our Casegoods Group being led by a very solid executive [indiscernible] and he's duplicated the model that he has at England of outstanding service and quick turnaround and that's been one of the key successes.

We've also increased the sales of Casegoods on our La-Z-Boy store network, we are selling some casual dining in our stores today which has been beneficial.

But John, you know La-Z-Boy and all of our companies have relationships with a number of dealers throughout North America and building on those relationships to sell other categories of our products is one of the reasons we have more than one company.

So, dealers that we have great relationships with from one company to another, help open the doors to get that product. So, with a combination of more on trend product at competitive price points and the great service that we are providing on a category that’s really not known for that..

Our next question is from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed with your question..

Thank you. Good morning, Kurt, Mike and Kathy. I want to follow-up on a couple of John’s questions. With respect to the Duo, Kurt, may be could you give us a little bit more color on may be how we might see the financial benefits of the line flow through, for example, as it relates to some of your national accounts and your ships.

Are you seeing any increase in the floor space with these customers? And then in your own stores where you have a little bit more data at this point, can you share with us any early learnings on what it’s meant in terms of conversion rate or ticket that might be easier to extrapolate out and just what you are seeing on transactions at this point?.

Well I don’t have the data in front of me Brad on the floor space question. I am sure Duo was in most case additive because it was so different. And in some cases, I know a few of our big dealers put Duo in both the stationary sofa section of their store as well as the motion section of their store because the product does have a dual feature.

Secondly, the Duo product line is display in the La-Z-Boy stores right upfront when you come into the store and I think one of the other added benefits of innovation is it’s where our sales people are taking the customer when they come into store to kind of show them the capabilities that La-Z-Boy has and how cool this product line is.

And so, it’s getting a lot of exposure in the floor when people come in. On the other hand, it is in a top echelon of our pricing. So, it has dual motion on each side, double motors and it's not expensive for what you get but it is at the higher end of our price point.

So, the unit volume probably won’t be as much as the dollar volume because it has such a higher average selling price, and all that will be beneficial. But at the price point that it’s selling at versus other things that we’ve had at those price points in the past, we are very optimistic. .

Great. That’s very helpful, Kurt. And then on the raw materials, I guess if I am doing the math right and correct me here. I think 70 basis points on the upholstery side, with back into about $0.03 of drag on earnings in this quarter.

If you’ve put through the price increase here on December 1st, can you help me just think about the timing, would we be seeing a similar drag in your third quarter? Because you’ve still got orders that are already in the pipeline that you have to fill before the price increase goes through.

So just when you think of the similar drag in this current quarter before maybe you catch-up and are more inline and mitigate that margin impact I guess for your fourth quarter.

Is that how we should be thinking of the timing?.

I think you’re 90% on their Brad, we do have a backlog that we will ship in December at the old pricing. We should get some benefit in January to the degree that it is a penny, I don’t know at this point.

But you’re right, it was a $0.03 drag this quarter, it will be hopefully a little less of a drag in the third quarter and if everything stays the same it should not be a drag in the fourth quarter, that’s how you should look at.

The wild card being how much influence and depending on the holidays and when we take our vacation shutdown, we may not have a full month of deliveries. So, it’s might not have quite the impact that a normal month would have.

But it should progress the way you talked about, I mean this should all be behind us in the next 60-75 days and we should be back on a normal pace. .

[Operator Instructions]. The next question is from the line of Bobby Griffin with Raymond James. Please proceed with your question. .

Good morning, it’s actually Budd for Bobby. How are you all? And happy holidays to everybody. Kurt, I want to just explore the difference between the system performance at least as we see it on the written sales and the company owned retail performance as we see it on the delivered sales for the company-owned stores.

Which looks like this declined consecutively now for the sixth consecutive quarters year-over-year and yet the written business looks like it's okay.

What accounts for that difference between the system performance or is there a difference or are we just misreading it and when does that likely turnaround?.

Its good question, Budd I’ll give you some data points on that. So, we have almost 150 stores that we own today and the more stores you run, you’re going to have a myriad of performance from very good to not so good. So, we have some straggler stores that we’re not happy with.

We also have some stores that we have acquired in the last few years and our acquisition that need to be moved and will be moved here shortly.

But we have some lease obligations that we have to get out of and so we think in the next 18 months, a number of our core performing stores are coming off lease and they are also going to give us the chance to reposition those and that’s been a drag on our performance.

Secondly, we’ve talk about this before that the company in various market is willing to accept a little more cannibalization in their markets because we make the profit on both the wholesale and the retail side and we have more density of our stores than perhaps a normal retailer will have.

And I think as we disclosed in the last few quarters and it’s consistent, our cannibalization has been running about 0.7% for the last year and a half and so we have some of that. And finally, in a number of cases, we have a little more other distribution in markets that the company has its own stores.

And we, again because we get the wholesale margin with our other customers who are I would say, we're a little more liberal with our distribution decisions based on those opportunities. And us really do we want to have a much faster growing retail business, higher profits all that, we do.

On the other hand, we make all our decisions with our integrated margin, and driver is how much volume can we put through our Upholstery plans which makes 11%, 12%, 13% as appose to just our Upholstery business that with our retail business that would be in the mid-single digits.

And I think the final element by this, I would say that we are running our network of stores as well as our average independent dealer who owns La-Z-Boy Stores.

We're probably not quite as good as our best dealers who have been in the business a long time, have skin in the game, have that Entrepreneurial edge, and we have a number of outstanding independent Furniture Gallery owners that’s certainly our target.

And we've got some stores that perform as well as they do we just don't have all 150 stores performing at a level let's say somewhat it owns 10 stores does. So those are all factors that, and we're working to improve that every month, every quarter.

Early indications that we will have a positive same store sale in our corporate owned store with the month of November which is a big month with the Thanksgiving holiday, and we're pleased with that. So, we're showing progress, we know where our gaps are and our team is working feverishly to close those gaps. .

Thank you for the color. [Lastly there are] 132 company owned stores. So, there is a delta of 15 but I would have thought that 1.9 was showing or the delta and the deliver was only on the 132 is maybe adjusted for whatever is out of the system this year. .

That's correct. And I think -- but we've now anniversaried all the acquisitions we've made at stores and probably won't have that call out anymore. What you see in our delivered sales compared to the previous year is our same store delivery because now we've anniversaried all acquisitions. .

Alright. I certainly hope you make the few more acquisitions of those. I think that would get you to the 4-4-5 goal ultimately. But let me ask this question.

Since we don't have these metrics, can you give us maybe what the written sales comparable was on your company owned same store?.

We have that, but we think showing the network which is 350 stores it's broad based across North America. We think that's a better leading indicator within our 147 stores. So that's the number we give. .

I understand that. But I guess the question is was it positive or was it negative? That's the real question I guess.

Is that also as that as where the deliveries?.

Like I said, we're going to give you the net worth same store sales and not breakout the difference within that in the company. .

Okay. I'll keep trying. .

Yes, you do. .

And that's my job. Let me ask you a question on tax reform. If that happens, can you kind of frame peg for us how that will impact you, you do have some foreign issues in your taxes and you had a bunch of discrete items from time-to-time.

May be if Mike can give us a feel of what he thinks [indiscernible] on a domestic payer rate and what it would be with tax reform?.

Well I can’t give you numbers yet because every minute that goes by, the tax reform changes somewhat, what they’re actually got to pass. So, we have pluses and minuses everywhere because right now the foreign rates are less than what the corporate organized states. So that will change to be either flat or a little down in some cases.

We will lose our -- I think our manufacturing deduction which is part of our rate. Of course, we will start with a lower base rate. So those will all be reflected in our numbers. So, we are going through that now.

So, it will be lower than what it is today I just don’t have a final number on that yet because of all the puts and takes that we are looking at. And when they start -- because they’re obviously taking deductions away as well as lowering the rate and we just have to factor that all in.

It’s complicated when you start getting in to all the different deferred tax items and all the things are going to flip out for the rate change there as well. So obviously we’ll know better in next quarter. But I am not sure I can give you a number that’s going to -- that I can put my hat on yet since we don’t know all the puts and takes..

Okay.

But I was curious as to what is the manufacturing, what’s that -- look at the 35% rate, what does that bring it down to?.

I don’t have that answer yet. .

Okay, alright..

It’s in the 35%. So, if you look at the annual report, we have a table that shows the different rate changes that affected for last year. So, you can see at least what the manufacturing deduction was as a deduction for us over the past year. We do break that out. I don’t have that in front of me right here.

But it does show that it’s a couple of percentage points of our rate. I just can’t remember the exact number. You can pull -- that is in our footnotes for annual report. We’ll get back to you..

Yes, [indiscernible] of the two and of the -- of the twos in -- and the financials. You talk about also and not only the cost-based investment which I think is 10.9 million.

Is that all those two investments?.

Yes, those are. We have some because we -- as we talked about the gain that we reported in the first quarter, some of that was adjusted for that. But those are the total of the two investments yes..

And is -- in beginning I take it is, is the gain booked into that investment, I guess like it’s deferred into that investment?.

Yes, the gain is booked in the investment to change the basis of the investment. .

Okay. But there is also another, in the cost and available for share investments, you’ve called that for a couple of quarters, I think another investment for a privately held company. Is that material? Obviously, the number, the amount of the available for sale investments is material. But I don’t know if that is a material portion inside of that..

No individual investment that we have in the company we’d determine to be material. But the privately investment in the private companies is in those 10.9 million..

And it’s in the 10.9 million. You said it was in the available for cost, available for sale investments? Included in available for sale convertible debt security of a privately held company..

I will have to go back and look at it, there was a reclassification of that one investment, once they changed how they did there, how we accounted for it. I’ll get you sort of specifics on that.

But essentially, the way we did accounting before for the new round of financing, when we reinvest and then changed how we accounted for that costs of the basis on that investment. So, it’s left in the first quarter when we wrote it up. .

But just to be clear there is only the two companies that we’ve invested in..

Ladies and gentlemen, this will conclude today’s teleconference. You may now disconnect your lines at this time. And we thank you for your participation..