Allient Inc (ALNT) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter and year-end 2009 Allied Motion Technologies, Inc.

earnings conference call.

My name is Shameka, and I will be your Operator for today.

At this time all participants are in listen only mode.

We will conduct a question and answer session towards the end of today's conference.

(Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Ms.

Sue Chiarmonte, Vice President, Secretary and Treasurer.

Please proceed.

Thank you, Operator.

Welcome to Allied Motions conference call to discuss the quarter and year-ended December 31, 2009.

We appreciate you joining us for this call.

We distributed the press release earlier today and a copy is available on our website at www.AlliedMotion.com.

Today's call is being broadcast live on the Internet, and will be available for replay immediately after the call for 90 days.

To access the internet broadcast and replay, go to the Company's website and click on the webcast icon.

As a reminder, please note that the Safe Harbor statements included in our press release also apply to all comments made on this conference call.

I will now turn the call over to Dick Warzala, President and CEO of Allied Motion Technologies.

Thank you, Sue.

Welcome, everyone to our conference call this quarter.

The format that we're going to be using here today is I will review the operations and the year 2009 and the fourth quarter 2009, and move on to the future, discuss that, and then I'll turn the call over to Dick Smith, who will cover the financial results and then we'll bring it back to the shareholders for any questions they might have and then a wrap up.

Starting with a little history here as we know, the recession has affected our business, and we saw the recession starting to affect us in mid 2008, end of the second quarter and into the third quarter of 2008 and as we started our planning process in 2008 for the 2009 plan year, we were looking at what we expected to be about a 20% reduction in sales in 2009 versus 2008.

In fact, the recession ended up steeper than we had expected, and it did impact our sales by about 29% and that was in all of our served markets.

The results for 2009 included asset impairment charges, inventory adjustments, and some restructuring.

The goal that we established for the year was to manage our business for positive cash flow.

We recognize that the adjustments that were going to be necessary based upon the steep reduction in sales were clearly going to affect our business and significant cost reductions were going to be necessary, so right from the outset, we said the best thing for us to do to keep the business intact and give us the opportunity to grow in the future was to manage it on a cash flow basis, and I think as you can see, the cash flow did improve in each and every quarter last year.

Additionally, even though we are going to make these cost reductions, we decided to protect our key technical resources and in fact we not only protected those resources, we did strengthen in those areas during the year, and from prior recessionary periods that we've experienced in the Motion business, this one being the worst that we've ever seen and I have 25 years experience in this area, prior ones, I guess you could say that some of the companies that reacted to the recessionary period had key technical resources, and then when time came as business started to come back and grow, they were forced to go out and rehire and retrain and that proved to be quite difficult, so we did make a conscious decision not to do that and I think it's going to pay benefits for us here in the future.

The other area that we really concentrated on in 2009 as we have in the past, but continued to even through the reductions was the Allied Systematic Tools, or AST as we call it, which is our lean enterprise solutions to continuously improve the productivity in the Company.

We didn't back off of those initiatives, and all of our business units continued to make improvements through the year and did help us in becoming more productive and improving some efficiencies.

As I look at the fourth quarter of 2009, we did see an uptick which led us to agree that there were some positive signs in the marketplace.

Although the vehicle industrial in aerospace and defense markets were down from 2009 quarter four when compared to 2008 quarter four, the medical and electronic markets did grow.

If we looked at the 2009 Q4 versus 2009 Q3, all markets except the aerospace and defense market were up.

In Q4, we did complete a move which was our copy encoder business to Tulsa, Oklahoma where Emoteq is housed and all financial results for the move that were included -- expensed directly in the fourth quarter, although we do expect some carryover here in the first quarter of 2010.

And as we talked about with our goal going into the year to maintain positive cash flow, the cash flow in the fourth quarter was the strongest quarter through the year.

As we move forward in 2010, I'll give you some feel what we currently see.

Unlike 2009 first quarter, where the business started to deteriorate faster than we had expected, as I said earlier we're looking at about a 20% drop as planned and then we saw a 29% drop in sales for the year, we had to act fairly quickly in 2009 to make some adjustments to again continue to get the costs in line and prepare for the entire year.

This quarter, or I would say 2010 quarter one, we see the opposite effect.

We built our plans and we do build our plans on a bottoms up planning process, meaning that we work with our customers, we do customer by customer, part by part and we build a top line sales plan and what happened this year is that the customers were fairly conservative in their forecasts, but as the year turned, we saw some quick spikes in demand.

So the problems that we're experiencing now is how do we handle the quick increase in demand and the spikes so we could allow for and realize the benefits of the growth opportunity.

That's a nice problem to have, and we all agree with that.

What we are seeing though, is that the markets that our suppliers aren't necessarily able to respond as quickly, and there is a shortage, there are material shortages that are cropping up, and they are especially in the electronic components area, and we've even seen allocations in those areas, so the challenge now is to satisfy the flow of materials so we can meet the increased demand or the demand spikes I'll call it which are greater than even our customers forecasted it late last year.

What we're careful about in an environment of this type is that having seen this before, when we come out of a recession there is some pent-up demand, there is some rebuilding of inventories, but we do have to be careful that there isn't some panic buying and over buying going on, and -- because if that is the case, then what will happen is it will just be a matter of time, whether it's four, five, six months down the road, adjustments will occur, and demand will then go down, so we're being very careful on how we're staffing.

We're certainly going to staff as required to meet this demand, but we are also using overtime as a way to be confident and careful that it is real and sustainable.

Looking at some of our markets, we still see customers are uncertain and therefore, we're uncertain and those economic conditions go beyond what we're able to control and I think all of us as we read and hear in the news today about the industrial markets, especially which we call industrial, one of the large segments for us is commercial construction equipment and there's still some uncertainty although there are some signs of hope there.

Aerospace and defense, another market of ours that's a key market, what we see is concerned about, with the change in administration, the concern about funding of projects either active projects or future projects.

In the medical markets, those held up fairly well through the recession, with now the concern being with the US being a strong market for us in medical and what's going to happen to those markets and the ability to invest based on healthcare reform, so again, those are issues beyond our control, but they are affecting how our customers are looking at investing in the future.

The vehicle market, just remind everyone, that we are not a supplier to the mainstream automotive market.

We supply products to specialty, some specialty automotive applications and the other part of that that we call automotive or vehicle would be construction equipment, off road equipment, primarily in construction and agricultural applications, so there does seem to be some positive signs in that market and we should benefit from those also.

In ongoing, as we are a technology/know how Company and that's what we call our driving force to our strategy, our new project design initiatives which we are actively involved with our customers, what we've seen there is is there is a pick up in demand for new projects, customers where looking at how do they make improvements during the recessionary period so they come out stronger in terms of being more cost effective, higher performance, and so we actually saw an increase in those projects.

Now what we're seeing a little bit of is the resources are being shifted to meet the increasing demands or the spikes in demand that have come about here in the first quarter.

That's not saying that the projects aren't continuing but some of them seem to have slowed down a bit here as the resources at our customers are being shifted to help meet their increasing demand also.

What do we see as opportunities for Allied?

Some of the opportunities I guess we could point out to you here as we move forward is that our sales team is now in place.

What that means is if you go back in history, Allied was made up of a number of business units that had their own salesforce.

We started to and we have in the past put together salesforces that first we called commercial motion solutions and industrial motion solutions.

We then last year moved from the two legged salesforce to a single Company-wide salesforce.

You may ask, well what does that mean?

Well, what that means is that our salesforce is really geared towards applying solutions that maximize or utilize more of the Allied Motion solution base.

It takes some time to build that.

We have improved the resources in those areas.

We have added people.

We've upgraded resources and I think we can honestly say that our sales team is very experienced and -- in the industry and we expect good growth based on this.

Another opportunity that as we have developed and is emerging for us is our electronic motion control capability.

This started as a skunk works project for us in the third quarter of 2008.

We hired a few individuals highly experienced engineers in the Motion area and we decided that we were going to develop a platform of products to meet the needs of our market segments.

We're already seeing many new opportunities here and our approach has been geared towards developing those types of products that will enhance the sales opportunities of our motors.

Moving forward as I said, nicely, and significant new opportunities are opening up for us in those areas.

The new product development efforts throughout the Company.

We have always talked about and maintained that we will develop motion solutions that raise the bar of performance.

We challenge our teams to do that.

What we are now challenging our teams to do is to leverage the technology in each one of the business units to come up with a more integrated motion control solutions.

We do have some projects that are on the drawing boards and some products that are integrated solutions on the drawing Boards that we think will effectively meet the demands of our market segments and help us grow the Company even quicker.

And we also see now that into the future and as we've come through the recession, that acquisition opportunities are again -- are once again going to emerge.

We'll caution everyone and let you know that we do, we are very confident about the growth capabilities organically within the Company, so therefore, any acquisitions will have to stand on their own merits.

We will be careful not to do an acquisition that's going to lead us down the wrong path or divert the resources in the Company.

So it's not acquisitions for acquisition sake.

It will be strategic acquisitions that will help us grow the Company even faster.

Another opportunity we could identify is you've heard me talk about AST, Allied Systematic Tools, our lean enterprise solutions.

That continues to provide us opportunities for process improvement, productivity improvements and cost reductions.

We will focus on that and remain focused on that and our team is getting stronger every year in its ability to apply those tools.

So in summary, we stated that we wanted to improve our cash flow and we did improve it every quarter last year.

We maintained a net cash positive position through the year.

We reduced our debt and we even increased our cash on hand.

We restructured our business to lower our operating costs.

We maintained and improved our technical resources to develop product solutions that will continually raise the bar of performance in our served markets.

We positioned our sales team to leverage all product capabilities and grow as a Company, not as just individual business units.

We are capable of growing organically and we have a balance sheet that will allow us to make strategic acquisitions as appropriate in the future.

We believe strongly in the abilities of our people to grow our Company in the future.

We stated about the key resources that we continue to add.

We will do so and we will continue to feed this.

And we want to thank you, our shareholders, for the confidence that you have placed in our team, as evidenced by your investment in our Company.

Now I'm going to turn the call over to Dick Smith, who will review the financial results for the quarter and the year-ended December 2009.

Thank you, Dick.

As was reflected in our press release that was put out this morning, the Company achieved $335,000 of net income before non-recurring charges or $0.04 per diluted share for the fourth quarter ended December 31, 2009, compared to $176,000 of net income before non-recurring charges, or $0.02 per share for the fourth quarter last year.

Revenues for the quarter decreased 3% from $17.5 million last year but was up 17.7% from the third quarter of 2009 which had revenues of $15 million.

Now, net income for the fourth quarter including all non-recurring charges was $117,000 or $0.02 per diluted share compared to net income of $280,000 or $0.04 per diluted share last year.

Now, net income for the fourth quarter includes two non-recurring items that we did spell out in the press release that I'll just summarize quickly here.

The first one was a pre-tax restructuring charge of $710,000 that related to our relocation of our computer optical products encoder operation located in Chatsworth, California to our Emoteq facility in Tulsa, Oklahoma and then we also had a $380,000 net insurance recovery that was related to the fire loss that was sustained at our COPI manufacturing facility in the fourth quarter of 2008, and the net insurance recoveries that were included in the fourth quarter of last year of 2008 was $157,000.

So there was two items this year and one item last year that was included in the fourth quarters that were non-recurring charges.

The 3% decrease in revenues in our fourth quarter reflect the downturn in all of our markets to varying degrees caused by the global economic downturn.

55% of our sales for the quarter were to US customers with a balance of our sales to customers primarily in Europe, Canada, and Asia.

Sales to our US customers were down 8% for the quarter while sales to customers outside of the US were up 4% for the quarter.

Of the 3% decrease in sales in the fourth quarter, 6% was due to decreases in sales volume and that was partially offset by 3% favorable currency change as the dollar weakened against the euro.

For the year-ended December 31, 2009, the Company had a net loss of $12.449 million or $1.65 per diluted share compared to net income of $2.9 million or $0.39 per diluted share for 2008.

Now, the 2009 net loss includes four non-recurring items.

Those items are a $15.986 million asset impairment charge that was recorded in the second quarter that we previously reported, $600,000 of inventory adjustments primarily for excess and obsolete inventories that was also recorded in the second quarter as a result of declining inventory usage because of the declining sales, and then the two items that we recorded in the fourth quarter that I just mentioned, the $710,000 of restructuring charges and the $431,000 of net insurance recoveries.

Excluding these four non-recurring items, the net loss for 2009 would be $742,000 compared to net income of $2.8 million last year.

Now, revenues for the year decreased $24.7 million or 29% as Dick had mentioned and that was from $86 million for 2008 to $61.2 million for 2009.

Backlog at the end of December was $21 million, which was down 11% from the same time last year and bookings for the quarter were $12.2 million which was down 10% when compared to the $13.6 million that was booked in the same quarter of last year.

For 2009, bookings were down 26% to 58 million from 78.1 million of 2008 and that 26 million is comparable to the 29% drop in revenues.

Our gross profit margin improved to 25% for the quarter this year compared to 23% last year and this 2% increase in gross profit was due to two items, a 1% improvement in our variable margins reflecting success in reducing the cost of manufacturing our products plus 1% was due to a 9% reduction in our fixed manufacturing cost.

Our gross profit margin for the year decreased to 21.4% compared to 25.8% for 2008.

Of the 4.4% decrease in gross margin for the year, that was based upon three different items, 2.3% of that was due to fixed manufacturing overheads being a higher percent of the significantly lower sales despite our success in reducing our fixed overhead cost by 14% for the year.

Another part of the 4.4% decrease, 1% was due to the $600,000 of additional inventory reserves that were recorded in the second quarter and then the remaining 1.1% was due to a decrease in variable margin as we were not quite able to reduce our manufacturing labor and variable overheads at the same pace as our revenues dropped; however, considering the significance of the 29% drop in revenues, only dropping 1.1% in variable margin reflects our timely cost reduction efforts that enabled us to maintain our variable margins through this downturn.

Selling, general and administrative and engineering cost as a percent of sales for the fourth quarter increased to 22% this year compared to 20% last year, and also increased to 23% for 2009 for the year compared with 19% for 2008.

That 4% increase for the year was due to the significant drop in sales and the fact that we did not decrease our expenses in proportion to our drop in revenues as we maintained our investment in our engineering and sales resources; however the total operating costs and expenses for the year excluding the non-recurring items were reduced by $2.8 million or 16.7% from last year.

As part of that, administrative costs were reduced $1.6 million or 20.6% from 2008 as a result of reductions in compensation expense including incentive bonuses and certain discretionary expenditures.

Depreciation and amortization expense decreased $328,000 for the quarter to a total of $537,000 from $865,000 last year and decreased $595,000 for the year to a total of $2.918 million from $3.5 million for 2008.

For the quarter, interest expense was down $32,000 to a total expense of $13,000 for the quarter and for the year was down $122,000 to a total expense of $55,000 reflecting less debt outstanding and lower borrowing cost.

Now, as I had indicated earlier and as reported previously for the second quarter, the Company did record a total $15.986 million of asset impairment charges during the second quarter which is the result of the continued downturn in our business resulting from the downturn in the global economy and the slower than originally expected recovery.

This reduction in intangible and fixed assets will reduce depreciation and amortization expense by approximately $1 million for the year subsequent to the recording of the impairment.

EBITDA before impairment, restructuring and the fire related charges and recoveries for the year decreased to $1.64 million this year from $7.85 million for 2008.

We had $865,000 of capital expenditures during 2009 compared with $2.1 million in 2008.

The Company generated $.720 million of cash during the fourth quarter and $274,000 in cash during 2009 of which $2.8 million was generated from operating activities.

The Company ended the year with $4.5 million in cash and $600,000 in bank debt or a net cash and debt position of $3.9 million which compares to a net cash and debt position of $1.4 million at December 31, of 2008, and this is a $2.5 million improvement in our net cash and debt position for the year.

Based on the cost reductions made throughout the year and the operating results for the last two quarters, the annualized sales required to breakeven at the EBITDA level is approximately $54 million or $13.5 million per quarter and to breakeven at the pre-tax level would require approximately $60 million of annualized sales or $15 million per quarter.

Our stockholders equity at December 31, 2009 was $25 million or $3.30 per share and our tangible book value is $23.7 million or $3.12 per share.

Okay, I will now turn the meeting back over to Dick.

Well, thank you, Dick.

I think what we would like to do at this point is to turn it over to the shareholders to see if they have any questions and we certainly do encourage those, so let's please open it up for questions.

(Operator Instructions).

You have a question from the line of Jason Wells of Wit SoundView.

Please proceed.

Hi.

Can you provide the break down between cost of goods and operating expenses of the $710,000 charge and the $380,000 insurance recovery?

Dick?

I'm sorry, between cost of, I'm sorry, between cost of goods sold and operating expenses?

Right.

Sue, do you have that break down?

None of those amounts are included in our cost of goods sold.

They are all included in operating expenses.

Thank you.

And then can you provide an update on what you're seeing in the competitive environment?

When you say provide an update?

Has anything changed?

Has anything changed in the competitive environment in terms of competitors, markets, costs, what?

All of the above.

Okay, well I'd say that certainly not unlike us, our competition has been focusing on reducing costs in our operations and some of those cases we have had the opportunity to pick up additional resources that we think will be key for our growth in the future.

We've seen at least one competitor and I'm sure there's more but at least one where it's had an impact on our business, in fact where they are no longer in business and we have enjoyed the luxury of picking up the customers that they used to support.

I think we could also say that when the market turns down, everybody has a higher emphasis and greater emphasis on trying to attract new business, therefore, you will see more competition or the same piece of business.

As far as looking at acquisitions, divestitures and so fourth, a few have occurred and although I wouldn't say that the doors are wide open now and people are stampeding to the marketplace to buy, I think there is certainly still a caution and we will proceed the same way.

So I think in summary, it's still business as usual.

There is a loss of a few competitors, there's increased competition for the business that remains and I think everybody is in the same boat where they have been forced to reduce and those that are stronger than others that have been able to improve their Resource positions and I would like to think of us as being one of those that have done that.

And the business that you picked up from the Company that exited the market, how much is that a year in revenue do you think?

$3 million to $4 million.

Okay, now you seen the effect of that already in the first quarter revenues?

Yes, we have.

Okay, and then what about the pricing environment?

Has that changed much?

Again, it's by market.

We serve a wide variety of markets.

Where the markets had already been in a fairly difficult situation in terms of from a competitive standpoint, those aren't lessening at all.

They are continuing to remain competitive and so I wouldn't say that it's changed.

I would say it's still the same.

In terms of where we have been moving our business and I would say to you moving our business not literally but if you're looking at from the types of markets that we are serving, our emphasis and focus on the higher technology solutions and we believe that those are less price sensitive and they are more performance based and that's really where our emphasis has been, so competitive, yes, but as competitive as some of the existing traditional markets we had been servicing or continued to serve, no.

Okay, and I would have expected with the increase in volumes that gross margin would be up a little bit versus the third quarter.

I think it was down 20 basis points or so.

Is that mix or what was behind that?

Dick, do you want to respond to that?

Well, there is probably some mix, there was also, well part of that was mix between material decreases and some variable overhead increases that we experienced and then also obviously a mix of sales that were shipped during that quarter as well.

Would you expect variable margin to go back up in future quarters?

Well the variable margin didn't, when you say it came down from the third quarter, it didn't come down that much.

It came down less than 1% in the third quarter.

So it's a combination of lower variable gross margin plus a little more fixed overhead?

Yes, right.

Okay, and so as revenues increase, will you need to add more fixed overhead or will that flow to the bottom line?

Most of it should flow to the bottom line.

There might be, as it depends on how fast the revenues to grow but we should be able to not have to add much fixed overhead as it does grow but periodically you do have to add some fixed overhead.

Okay.

Jason, let me just add one point to this, as I'm looking at the margins and so fourth and cost, fixed cost.

We did have mandatory furlough days during the year and we did not have any in the fourth quarter so as we maintained our workforce, there were some shut down days and furlough days that we saw, work without pay days let's call it to help us maintain the workforce and reduce our costs but those were eliminated in the fourth quarter.

Everybody worked their full work week.

Okay, is there a particular gross margin target that you have?

Well there's targets for each of our businesses and we have a wide range of gross margins in our own business units and quite frankly, we would like to strive to have the gross margin that we have the highest level that we have in any one of our businesses and that's one of the reasons you see us focusing and emphasizing on certain markets versus others.

In addition to that, so I'm not throwing a target out there for you and say here is the number that's the target but I could tell you it's substantially above our average and we are doing everything we can to insure that we move in that direction.

We didn't talk about our Asian production operations, and we did move another production line to Asia that is starting up here in the first quarter of this year.

Reason for that is that some of the traditional markets we had serviced the price continues to remain competitive and the only way we do see an ability to improve margins there is to produce in a low cost region, so we have identified certain markets that our competition is coming from Asia and fortunately for us, we have been well established there for a number of years now and we have the ability to move production into that region so that we can improve our margins to acceptable levels as we would call it to meet those targets that are being established by some of our other companies.

Okay, and then can you update us on what the bookings look like this quarter?

No.

By saying no, I'm just teasing with you.

I'm playing with you a little bit here, but I think we did mention or I did mention early on that we did see spikes in our business and so I think you could expect that because of those spikes that the bookings would be better than we have seen in the past.

Now whether that's sustainable is another question.

Back to 2007, early 2008 levels?

We're not done yet.

When you say are we back to those levels, I wouldn't go that far to say that we're back to those levels yet.

Okay, and then--

Well, remember what I had said was that our bookings this year are down 26% from 2008 so we have to see a 26% increase to be back to 2008 level and we're not back up to that level yet.

As Dick said we're seeing some improvements in bookings but not to that extent.

Okay, and that occurred like you said in the preamble after the end of the year because when I look at the fourth quarter bookings, they were light.

Correct.

You're absolutely right.

And so basically the fourth quarter bookings are not a good indicator of what's going forward.

Well, bookings, we have to be careful too because we do have customers that will place a blanket order at a particular point in time, so all it takes is a shift of a couple weeks from one quarter to the next that makes it look good or bad and we're reporting to you on a quarterly basis and we're reporting to you well behind in this case, we're reporting in March or something that ended in December, so I wouldn't look at that as an absolute term because if you go back and look over time, you'll see that there are certain quarters that are historically stronger than others but those, that changed during the last 12 to 15 months as the market conditions changed, so we think we've covered that to say we've seen some spikes, we've built our forecast from the bottom up, working directly with our customers and in some cases, so we've exceeded those forecasts quite significantly.

Now there's uncertainty out there and the accelerated increase that we saw from some customers, we're being cautious about that because we're not sure whether this is just if it's a panic situation, over buy situation, selling inventory levels or will it come back here three, four, five, six months down the road and level itself out.

Let's just say let's remain cautiously optimistic about it right now.

Okay thanks for the color and good job last year I thought.

Well Jason, thank you very much.

Appreciate it.

Thank you, Jason.

(Operator Instructions).

There are no further questions at this time.

I would like to turn the call back over to Mr.

Dick Warzala.

Please proceed.

Well, thank you, Operator.

I think we want to thank Jason for asking some questions and if anyone else has a question don't be bashful about asking it now.

I think a couple of points of emphasis here is we did discuss based on the probing by Jason, the Asian operations and adding additional product line over there, talking about margins and margin improvement, that is certainly at the top of our list and we do have a strategy between our low cost region, our LCR operations and our domestic operations.

What you see occurring that as the competition is coming from a low cost region in certain markets, the necessity for us to manufacture there has also increased but beyond that, many of our customers have established manufacturing in the low cost region and sees those as growth markets and we are there to support them.

Right now what's occurring that if you look back at what we have put into the LCR, it's been cost competitive products, higher volume, repetitive run products, the second line going in there is still what we would consider higher volume repetitive products but I would say there is some customization and differentiation that is going to occur at some level.

The domestic North American European operations classified both of those as domestic so make sure I clarify that, they are focusing on the higher value add quick turnaround and our new technology business, so the LCR in domestic operations work hand in hand in coming up with an effective solution for our customers.

Dick emphasized the breakeven sales improvement and we would like to mention that we are really committed to our AST tools and lean enterprise.

That will continue to help us in the future to improve productivity and to reduce cost and we don't feel that we've gone as far as we can go in those areas and we will continue to strive and make more inroads in those areas.

The overhead reductions we've made through consolidation of one of our facilities, it's just not a overhead cost reduction I think as you listened to the call, listened to how our sales team has developed, how our solutions are being developed to go to the marketplace, we're looking at higher value-added, more complete solutions and we know this is right because our customers continue to ask for that.

So we're going to use the resources.

We've built a stronger balance sheet, we accumulated cash, we're interested in investing that cash and continued growth and we look at acquisitions but we won't make an acquisition for acquisition's sake.

We will invest our capital internally to help us grow the Company in the future.

So I think as heard here, we're confident about our future growth and we again thank you for participating with us.

I will give one more chance, Operator, for questions?

And if there are no questions then we'll end it.

You do have a question from the line of Charles Neuhauser .

Please

Hi Charles.

Hi, how are you?

Sorry, I didn't push the button fast enough before you started your wrap up there.

Okay, well I gave you a chance still.

Thanks.

I guess if I could try to get at this margin question in a slightly different way, once before I threw out the number of about 10% EBIT margin and I believe your response was somewhat taken aback that I would use such a low number but if we go back to whenever you can remember things running nicely or when times were good, what was sort of a respectable EBIT margin that the business should produce?

Okay, well I guess from a technical standpoint as far as your numbers interpretation I'll turn that over to Dick and then I'll respond to you, to Dick Smith and then I'll respond to you a little bit about my thoughts there too.

Okay, well, just to give you the history of the numbers I'm talking operating profit percentages here is 2007 which was a good year for us on a consolidated basis, we were at 6.2% and in 2008, we were also at 6.2%, so that is our history and of course obviously we were at a negative EBITDA, or I'm sorry, operating profit in 2009, because of the downturn in sales but 2007 and 2008 were our two best years from since we've restructured the Company back in 2002.

And is that margin before corporate overhead I guess?

No, that's after corporate overhead.

Okay, so it's before interest and taxes basically?

Yes.

I mean, the reason and where I'm going with this is similar to where I've been trying to get in the past which is simply to determine what the earning power of the business is under somewhat normal circumstances as opposed to the horrendously bad circumstances you found yourself in for the last 15-18 months, but you can look back at the past, you can see what the top line was, you can see what the bottom line was, but it seems to me that you've been trying to get the message across here that you've really improved the operations over the last 18 plus months and so there for, when things get back to normal you should expect to do much better than you used to do and then you made comments when you were talking about acquisitions earlier, you said something about how you felt you had terrific internal growth prospects so you didn't have to run out and make acquisitions and if that's true, then it's not only a question of taking the existing business and earning a better return because you're operating better than you used to but you should have some top line growth because of whatever the internal growth prospects are you're talking about all of which if you add them up should generate a better return more profitability than used to be the case and for me as an outsider it's really difficult for me to quantify that and that's where I'm trying to get at.

Well let me jump in here, Charles and I think Dick gave you the numbers and also we did give you the numbers in terms of breakeven sales from a net profit standpoint and from an EBITDA standpoint, and if you were to go back and look at 2007-2008 and where we are today, you will see a significant improvement in those areas, so I think it's fair to say that are we satisfied with the operating profit levels after corporate charges that we're achieving and the answer is no.

Those numbers, the breakeven numbers are real.

Those take into consideration the fixed cost structure of the Company and how we can improve upon that with top line growth, organic growth and of course an acquisition that has many other variables that come with it but top line organic growth, so I would say to you that we continue to strive for better than that and feel we can do better than that and what we have done historically starting with some reorganization, some restructuring, getting our costs in line, we believe there's more we can do in that area and we will do it so there for we expect to do better than what we've done historically.

Right, so--

We don't, as you know, we don't give forecasts, we don't give projections and it's difficult in times but I think but if you look at the breakeven analysis and do for yourself calculations based upon adding top line growth back, we will tell you that we feel we do have a structure in place that will allow us to grow without significantly adding new costs.

Right.

Again you look at the $61 million revenues generated in 09 and that's now your sort of general pre-tax breakeven and you look back one year to the $85 million, $86 million level, then theoretically several tens of millions of dollars of upside to get back to where you were 18 months ago should generate whatever your incremental profit margin is instead of whatever it did in the past.

We agree.

Okay, and then beyond that, I guess the only other mundane question I had was how are you doing as far as capital expenditures?

Obviously you tightened the screws last year and watched every nickel, but do you need to spend money to get yourself up to speed where you can take advantage of the growth opportunities or not necessarily?

Yes, yes, we do need to spend some money and we will spend some money and all of our capital expenditure perhaps everyone stands on its own merits and we look at those closely, we will continue to look at it closely but I think it's fair to say we would expect to spend more dollars but it's also fair to say that the dollars that we're going to be spending, will be careful dollars and Euros I don't want to offend our group in Europe, they had worthwhile projects that deserve investments so the money we will spend or we'll invest is to support organic growth and make improvements in some of our product lines and that's really the investment that we're making, if you're looking at heavy capital investment for production purposes, I don't see it.

It's design engineering tools, it's new tooling for new product lines or improvements to product lines that we have.

That's where the investments are coming and we have the resources to make those investments and we do see good cash flow again, we managed our business for that and we see that again and we will invest.

Okay, well I think you've done a remarkable job in a horrible environment and we'll keep our fingers crossed that times get better sooner rather than later but thank you very much.

Well thank you.

There are no further questions in the queue at this time.

Okay, well, that will wrap up our conference call this quarter.

We do thank you for your participation and we look forward to talking to you again here in the next quarterly summary.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.