Steven Nichols: I would say, if I had to give it A, B, C, D. I give it a C minus. It has not been successful, that has not failed. It has got a passing mark, but just belly and what we are doing with FREE RUNNING is we are kind of investing. We are creating something new and it is not easy and the question is whether ever be done. If we pull this off it could be important to us, but it will not be easy and it is not guaranteed.

John Shanley (SFG): The FootLocker number is 8% of backlog currently versus 15% a year ago. Was that FootLocker global or is that just the domestic FootLocker?

Steven Nichols: We report global.

John Shanley (SFG): Is their business in Europe about the same, as it is domestically?

Steven Nichols: Yes, with us it is about the same it is a mirror.

John Shanley (SFG): Is this the first time that Royal Elastics has broken even?

Steven Nichols: It might be the first quarter that ever broken even. That is a starting point, but we are not runaway express train.

John Shanley (SFG): Are you still indicating your loss for the years or assume that?

Steven Nichols: Yes, we are still indicating 6 cents as the maximum loss for the year.

Virginia Genereux (Merrill Lynch): The gross margin outlook is down in the quarter. Is that clearance or is it some of the manufacturing cost pressures?

Steven Nichols: As our business declined, you saw our inventory was up 2% and a business is down. We have to some degree more shoes that we cleared up. Yes, there are all kinds of currency and raw material cost and labor cost going up in Asia, so we are affected by that. But if you take half a step back, the difference in 47 and 46 is rounding error. It has not changed dramatically. The average price of our shoes has gone up. We are not just running by a sale, in fact, our strategy is quite. We have told everyone in the office about a year and half ago that we withdrew our Classic from about 40% of our distribution. The vast majority of the decline in our sales is because there is less demand for our brand. Added on to that is us contracting our distribution and our getting rid lower end shoes. We are looking for premium sports position for our brand, those are the words we use, but the actions are what back it up. It has got to be unusual for a business to decline as much as we have and the average price prepared to go up. We are so fortunate that we could say some nice high up scale words and do it and we are doing it. In the short run there is a tremendous disadvantage. Most companies going on hard times will quickly come out with promotional shoes and lower price shoes and then find business at the lower end of the market that they never did business with. We are running in the opposite direction. This is the third time we have had a significant downturn in my 20-plus years here. That is essentially what we did the other two times. It is all counter-intuitive. In the short run, it hurts your business. In the long run, however, it greatly resuscitated the brand, and we ended up hitting totally new heights the first two times. Any time you get an indication from a stockbroker of a stock, they always say past performance is no indication of what will happen in the future. It is the same story here. Past performance is no indication. We have been here twice. We have done it and it worked and we are hoping that would work again. But we can not guarantee it.

Virginia Genereux (Merrill Lynch): Is this the beginning of more substantive gross margin pressure?

Steven Nichols: Everything comes from demand for the brand. And if we can not create demand for the brand, then the normal market forces will work against us. If we can, they will not. We are not knuckling under and chasing quick volume at any cost. When you look beyond that and you say, a total time on backlog moved up three days in a horrible retail climate, so the retailers are not paying us. The statistics behind our business, even though the top and bottom line is not good in the middle, we have the type of business that we manage the way we think it should be managed and we are sticking to it.

Virginia Genereux (Merrill Lynch): Why are you trying to reposition the brand as a performance brand whereas these prior turns have been more sport style oriented?

Steven Nichols: We are not looking to do anything different than we have always done before. For the 20 years that I have been here we have spent a hugely disproportionate amount of our advertising budget on performance tennis. If you would allocate out advertising and marketing spending, we never a made a dime on tennis in 20 years. Our feeling is that we want to be a performance-based company. The largest casual athletic shoe company in the world is a company called Nike. Maybe the number two casual athletic company in the world is Adidas. The beauty of athletics is the feeling and the association of the consumer surrounding sports. We are saying that number one tennis can just take us so far, it is 6% of the total market worldwide and running is about 30%. Tennis is upscale. It is premium and through running is also like that. We think that it is ultimate sport. If you can get a reputation in running, it rubs off to your everyday footwear that we are good at selling. The danger point would be for us to be a company like old L.A. Gear or Heelys. These are non-performing gear-maker companies and we do not want to go there. We want to stress that we have long-term athletic qualities about us and we do and that our Heritage shoes were once athletic shoes as the Classic was and a bunch of our other shoes are. This is a personification and a honing in and what we have done for 20 years and with a wholesale announcing at this level, announcing it better. At the consumer level, the ads will look more performance orientated and with real athletes that are good looking was opposed to models. This is not a strategy that we invented. This has been around in athletics for many, many years.

Virginia Genereux (Merrill Lynch): If international is slowing, and it was 63% of the backlog, can your 2009 results be much better?

Steven Nichols: In bad times, we do not do the short-term things like get the retailers and the consumers upset with us. We have got a big customer in the UK and our business is down with them. We have got a wonderful relationship and they made a lot of money on our shoes and they are desperately helping us to figure out what can we do to get the fire and the magic back. We have a wonderful relationship with Foot Locker, and our business is down. It was engineered down as much by us as by them. We do not want to send them shoes that they have to put on sale. We are cautious what goes into their stores. The FREE RUNNING launch happened two months ago worldwide with Foot Locker. They took a chance just as we did with something new and different and unusual. We know that this was not what is known as a slam dunk. We were out on a limb. It was not the runaway success, but the question is did we plant the seeds of something that will be a success in 2009. I think an answer to the big question, we do the long-term things, hopefully well thought out and hopefully it will be correct. And we do not play the short-term game. We turned down low margin business everyday. We turned down business with the people. You will always hear about our select distribution. All the people that we set are below the line that we want to sell in bad times. We still do not sell them. Retailers, once we can get our product and brand, both backed favorably in the mind at consumer, the retailers will come onboard rapidly or at least that is what happened in the past.

Virginia Genereux (Merrill Lynch): How do you think about the tax rate?

George Powlick: We do not pay a great deal of tax. Our bottom line is almost all interest income. We are almost a bank.

Virginia Genereux (Merrill Lynch): If the core business starts generating higher profits next year, you will pay some taxes again?