Benchmark Electronics Inc (BHE) 2002 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, thank you for standing by, welcome to the Pemstar first quarter 2003 earnings conference call. During the presentation, all participants will be in a listen-only moe, afterwards, you will be invited to participate in the question and answer session. At that time, if you have a question, please press the one, followed by the four on you telephone. As a reminder, this conference is being recorded Wenesday July 24th, 2002. I would now like to turn the conference over to Mr. Greg Lea, Executive Vice President and interim Chief Financial Officer. Please go ahead sir.

Thank you for joining us this afternoon. With me is Allen Berning, Pemstar's President and CEO. Before we start, I will perference our remarks with a Safe Harbor Statement. This call may contain forward-looking statements. These forward-looking statements include statements made by Mr. Berning, may contain statements of intend, believe, current expectations of Pemstar Inc Management. Such forward-looking statements are not gaurantee as the future results and involve risks and uncertainities that may cause actual results to differ materially from the potential results discussed in the forward-looking statements. These risk factors are listed from time-to-time in SEC filings including but not limited to '99 of the company's annual report on form 10-K for the fiscal year end in March 31st, 2002 and the quarterly report on form 10-Q. With that, I will turn the call over to Allen.

Thanks Greg. I would like to welcome our shareholders and others who follow the company. Well, many of you have already met and spoke with Greg over the phone. I would like to take this opportunity to formerly introduce him. Greg joined us 2-1/2 weeks ago and we elected him as Pemstar's interim Cheif Financial Officer. Greg is the Director of Pemstar, former Executive and General Manager and Financial Executive with IBM. We are excited to have him join our team and we will benefit from his 28 years of experience in business, financial, and management. Back with the business at hand, our agenda today is to review the June quarter performance in depth to provide an overview of our business and operational highlights for the quarter and breifly discuss our outlook and issues for the September quarter which is Pemstar's fiscal 2003 second quarter. Afterwards, we will take your questions. By this time most of you have seen the release that we have issued at market close as well as our first quarter outlook release issued on July 2nd.

The tech industry continues in the midst of recession Pemstar like it's peers is facing continuing economic pressures. We are taking active measures to align the cause of running our business with anticipated revenues. We have already implimented a number of restructuring initiatives. We are continuing to leverage our engineering strengths to build business with existing customers and attract new ones. First, however, I will have Greg discuss our financial results in more detail, then I will cover operational performance and other highlights for the quarter.

I would like to make a comment that my here of little over 3 weeks, I have asked a couple members in my staff to sit in with me during this call. By way of an overview, let me note that Pemstar has taken sizable charges for inventory and receivables. We also have implimented significant restructuring program. Our result todate the considerable saving as restructuring would eventually generate.Now let us turn to sales. For the June quarter, Pemstar reported a net sales of 153.1 million down from a 167.2 million for the prior year period, it is higher than our guidance over 135 million for the quarter. Bring down our sales mix for the quarter, Pemstar's engineering business was 22.6 percent of the total revenue, up strongly from 12.3 percent in the prior year, reflecting in part of the acquistion of the Pacific Consultants. The engineering was 21.3 percent in the last quarter. This segment of our business has expanded during the down turn and it carries good margins.

Sales in the communications accounted for 34.3 percent of total sales in the June quarter, reduced from a year ago period in Communications industry total of 50 percent. This is about the reflection of the challenging conditions that communications companies are facing and Pemstar as well diversifying our business phase by focusing on develping, initiatives onf other industry, strategic industries segments. The remaining 65.7 percent of sales were to the following industries: Computing 29.7 percent versus 26 percent in last year's June quarter. Industrial equipment 17.8 percent versus 14 percent. Data storage 13.9 percent versus 8 percent and medical 4.3 percent versus just 2 percent.

From a geographic prospective 69.5 percent of our fiscal first quarter revenue was derived from products manufactured in North America, where 22.6 percent generated in Asia, 7.7 percent in Europe, and 2 times of 1 percent from Pemstar's Brazil facility.

For the June quarter, the company reported a net loss of 19.8 million or a negative 54 cents per diluted share on a GAAP basis, compared to net income of 2.5 million or 8 cents per diluted share for last year's first fiscal quarter.

Going forward, we will be recording Pemstar's financials on a GAAP basis as it provides a clear and accurate measure of our performance. Our first call's consensus estimate for Pemstar's report on a cash basis, nil accounting regulations went through the GAAP and cash distention immaterial. The cash basis measurement the substantial equivalent to our GAAP results. As we report on July 2nd, fiscal first call results include the impact of restructuring charges and posing additional research on inventory and accounts receivable totaling approximately 8 million dollars or 22 cents per diluted share.

The company falls on a pro forma loss of about 11.8 million or a negative 32 cents per diluted share for the quarter. As we have previously stated when Pemstar restructuring program is fully implemented we expect to realize savings in excess of 2 to 3 million dollars per quarter. The restructuring is on track and the 4.6 million in charges for it for the restructuring coincides with our guidance. Far and far we will continue assess additional restructuring activities. Recently the company terminated its two institutional investors for the private placement of up to 50 million of our company's 6.5 percent of convertible notes with a cash to warrants to purchase common stock. This initial installment of 5 million or 6.5 percent convertible notes with attached warrants was issued in May 2002 and will remain outstanding. Based on our current forecast for the next 12 months we believe that we have sufficient liquidity to fund operations at least till June 30th of 2003 without the need for additional insurances for convertible notes under the agreement.

Turning to the balance sheet, cash flow from operations for the fiscal quarter was 3.7 million representing the fourth consecutive quarter where Pemstar was operating cash flow positive. Looking at specific balance sheet items net inventory of 95.5 million was up slightly from 92.9 million from the march quarter with a turn rate of 6.4 times compared to 6.3 times on March 31st. Accounts receivables decreased 2.5 million in the quarter with days sales outstanding declining from 76 days at March 31st to 71 days at June 30th. Our objective is to restore inventory turns in DSO to historical levels. As we mentioned a special task force is in place to focus on these areas. Management is focusing on key accounts and we're seeing improvement each quarter

Bank debt including capitalized leased obligations in reflecting the new facilities in Thailand was 98.5 million in the June quarter versus 99.3 million in the end of the March quarter. Debt-to-total capital was 35.8 percent on June 30th; net book value was 4 dollars 80 cents per share. With respect to guidance our current economic uncertainties make it difficult to project future results and the following statements are based on current expectations. Pemstar expects net sales in the fiscal year 2003 second quarter of 155 to 160 million with a net loss of 6 to 10 million dollars. The company expects to be cash flow positive and currently estimates that the charges totaling approximately 4 million will be taken in the second quarter for reductions and potential increase in reserves with accounts receivable and inventory 6 to 10 million loss. While Pemstars financial results for the June quarter were in compliance with the bank covenants and projected net operating loss in the September quarter would put the company out of compliance with certain covenants in its existing credit facilities. We currently are in discussion with our lenders to obtain waivers of those covenants. Now I will turn it back to Allen.

Thanks Greg. There is no denying that our current operating environment is tough. It's our job to take actions that we return Pemstar to profitability and growth. The date we have taken the following steps we have reduced the companies work force by approximately 350 people worldwide, particularly in the U.S. For consolidating the engineering and manufacturing centers in which is expected to result in more engineering overhead in greater manufacturing capacity utilization. We are also combining our Thailand manufacturing facilities and we consolidate Pemstar manufacturing and engineering organizations.

Going forward we will continue to assess additional restricting actions and we will update you on those as they take place. As I said last quarter, our target is to operate and break even in the 145 to 150 million quarterly revenue range we have actions in place to achieve that target. During the revenues flat-end market demand persists in many of our industries. However, we are strengthening our presence in other key areas such as medical and Pemstar is winning customers in similar rates to prior periods. For the quarter we won seven new engineering customers and 8 new manufacturing customers. During the quarter Pemstar announced an exclusive agreement to provide production equipment and manufacturing services for Cordis Corporations, CYPHER Stent program. The CYPHER stent is the worlds first drug-eluding stent and is specifically designed to uniformly deliver a pharmaceutical agent into a coronary artery via proprietary controlled-release system and stent.

Cordis Corporation is a Johnson & Johnson company. This product which is great news for angioplasty patients is on the marketing that is expected to receive FDA approval early in this calendar 2003. Our Cordis relationship demonstrates Pemstars growing presence in the medical industry. It's also proved the investments and facilities, certifications, equipment and training continue to set us part in the EMS industry specifically in the medical arena. Additionally we extended our engineering and manufacturing agreement with electronic test tools with Fluke for an additional 3-year. Fluke a long-time Pemstar customer is the world leader in compact professional electronic test tool. Recently Pemstar signed a multi-year contract with a leading semiconductor capital equipment OEM Company.

Best known for its ion implant and rapid thermal processing capabilities. Under the terms of the contract Pemstar will be responsible for the complex electromechanical assembly of several modules for the OEM's implanters and other equipment. With signing of this agreement our third major win with OEM's in the semiconductor industry demonstrates our ability to translate prospective program into long-term, profitable contracts particularly in the large-scale capital equipment sector. Stepping back we continue to see sales to the communications industry decline. This is not new one as we focus more on further developing business in our other strategic industries we expect this trend to continue.

In addition to the new customs that I just talked about, we're continue a strong support from existing customers, and putting IBM, Texas Instruments and Motorola. Let me elaborate on Motorola. Pemstar and Motorola mutually signed a manufacturing services agreement with the PCBA and sub December programs as Pemstar's manufacturing Motorola's trainer facility. The contract is intended to serve multiple manufacturing projects during the term of the agreement. Initial term of the agreement is for two years, with subsequent one-year extensions including the term of the agreement. Pemstar has been a supplier to Motorola for over six years and will continue to support them.

In the June card is good engineering revenue rose to 22.6 percent that are up total revenues from 12.3 percent of it period last year. Our engineering strength increases our business through the existing customers and attracts new ones. By delivering value added services to all of our customers we expect to emerge from the current downturn position for long-term growth across several key industries including medical devices. We recently added a team of members to our Board of Directors. Kenneth Hendrickson, our director of QLogic Corporation, Former Chairman and Chief Executive Officer of Ancor Communications, Michael Odrich, Managing Director, Head of Lehman's Venture Capital fund. Michael previously served as Pemstar's Director from 1998 until 2001.

Pemstar expects to continue its efforts to add outside Directors to its board as suitable candidates are identified and vacancies arrive. We are excited to have both Ken and Michael joined the company, and with their addition, Pemstar's board is now comprised of a majority of outside Directors. In closing, there's nothing that I would like better to do than to deliver positive results, as we did for 28 consecutive quarters prior to the down turn. The last several quarters have been tough on Pemstar and the tech industry. Please note that we have taken every possible action to make Pemstar efficient, profitable, and valuable to our customers. Successful companies change and evolve during tough times; they emerge stronger because of that. And that's what Pemstar is doing. Once again, I firmly believe in the EMS opportunity, long term, our prospects and Pemstar's ability to succeed. With that I'd like to thank you for your time and we will take any questions you have.

Thank you. Ladies and gentlemen if you would like to register a question, please press the one, followed by the four on your telephone. You will hear a three tone prompt to acknowledge your request. If your question has been answered and you'd like to withdraw your registration, please press the one followed by the three. If you are using a speakerphone, please pick up your handset before entering your request. One moment please for the first question. The first question comes from Brian White with Merrill Lynch. Please go ahead with your question.

Yes. Greg, I'm wondering if you could break up the accounts receivable on inventories reserve charge in the cards industry and A lines for us?

We, we are getting it, just hold on a minute. Currents receivable is there, that is 1.9 million, the inventory is there it is 3.4 million. Accounts receivable, is that SG&A, is in SG&A.

Okay, anything

Could you talk a little bit about your liquidity in May, I think you mentioned there was about 30 million in liquidity available excluding the, the convertible deal and I think you broke it down, credit available was 5, and tax refund was 5. You had a borrowing facility of 8 and you had a cash of 12. What has been used and what is available right now?

We still, we still have similar levels and each one of those categories fluctuates day to day. The tax funds has been cleared but from a loan capacity and a cash capacity, they are very similar. They do change day to day but we feel comfortable with our quarter view at this point.

So when your cash balance right now, the tax refund is already included in there.

That is correct.

Okay and may be you can just talk about the potential size of the semiconductor equipment program and where you will be ramping that and when you will be ramping that?

Well the semiconductor equipment will,will, this year we believe would be in the 3-5 million for the new project we mentioned and we would launch it in the you know MidWest operation.

Communication market by an optical and wireless?

Communication is 18.7 percent to wireless and optical is 11 percent.

Okay okay and in terms of your new you talked about that but I was wondering more or so given your financial liquidity issues, the last customer relationship outside of the top two customers, we heard that the majority of your top ten customers are seeking other contract manufactures at this point going of to has there been any from that group or do you expect some of these other customers to potentially look else where?

No we we I guess we would disagree with the comment of the other top ten looking for other alternatives, there is always some going activity going on but we have not seen any significant change other than the customers that either have filed bankrupt to your phone and other financial issues and were as I said my comments and we are continuing to win new customers at rates similar to you had to have to see historical and bring in new projects from existing customers.

And the increase in revenue this quarter from the optical segment nearly doubled from 8.4 million to 16.8 million it seems. Is that the rebound in the phase we also the program?

That's the primary driver in that .

Are there other drivers in that are driving communications, but it appears that you said channel way facility, the utilization rates, as well as you would have thought, but with the optical going up so much I was wondering if you could comment?

The rest that there are small changes but it is primarily to the project, the changed for the quarter.

Okay. Okay thank you.

Yeah.

Our next question comes from John McManus with Needham & Company, Inc, please go ahead with your question.

Yes, in reference that your guidance, what is the operating loss guidance for the fiscal second quarter?

The operating loss guidance if you take off for 4 million that we estimate for restructuring and additional potential resource would be our range of the operating loss.

That would be 2 to 6 million?

Correct that's correct.

And what are your assumptions there on the gross margins and SG&A to get to those numbers please?

The same. The assumption on SG&A would be a slight decrease from the current quarter to state based on we we there were some one time charges in relate to financing and quarter close of in the year end close of there were in this quarter and then from a gross margin stand point we are currently expecting that with the restructuring activities that are taking place, right now we would that we will see the results the initial results of those restructuring activities this quarter.

lead in the 4-5 percent range to drive to that drive to that operating range of you know guidance?

And just to make sure, the SG&A on a adjusted basis there in the first quarter was 14.4 million minus the 1.9 million reserves so it is about 12.5 million and you expected the slightly lower than that 12.5 million.

I would take a million off in the 12.5.

Okay. And could you discuss there what covenants were in violation there according there to the guidance they have given us?

Well currrently, none of our occured covenants are in non-compliance. If if we fall in that range, we would have the non-compliance on our EBITDA covenants.

And what is that covenants?

The bulk breakeven?

Yes it is breakeven?

Right. Very close to it. Yes.

Okay. Thank you vey much.

Thank you.

The next question comes from Roger Norberg with J.P. Morgan. Please go ahead with your question.

Hai good afternoon.Could you tell me on the receivables, Bob could you just give us atleast may be into the rough brakes out of the ageing of what is greater than 30, what is greater than 60, what is greater than 90 days?

I have I have got greater than 90 days here. I do not have with me the greater than 30 or 60. Greater than 90 is about 7.9.

Okay. Can you give us some idea of what what is being collected since the end of the quarter or what rough receivable balance would be at the end of July?

I would say 3 million.

So receivables will be down by 3 million?

comments. We have initiated the project office and we are working that on a daily basis with with specifically with zeroing on customers at 60 or 90.

What, ca you give us an idea about what are your general terms to customers across the border? You are not 30 or you are not 45?

It is mix between 30 and 45.

So the coming expense set up, did you have some 6th goals, at the end of each quarter, where the SO's going to be?

We are also focusing on tightening those credit limits we've issued a new credit policy. We will be looking on that as we go forward and hope to reduce those number of days sales outstanding to a level, that is we experience historically.

Okay, just a last question. Can you update us on the Cordis situation, can you, are you able to tells us if thats going to remain as strictly on automation contracts or if you might be manufacturing revenue stream associated with it?

The Cordis current operations is both automation toolings and manufacturing, we believe, we are doing the coding in our Rochester facility.

Okay thank you.

Our next question comes from Sam with Prudential Securities . Please go ahead with your question.

Something you could cover, CAPEX in the quarter and also give a little bit of color around the decision not to proceed with private placement?

The CAPEX was 2.7 million and this additional background on the convertable offerings, as you look at the... our current liquidity situation and looked at the terms associated with the convertible offerings, which is concluded that did not make sense to leave that as an open vehicle. It is time, naturally December 15th, so we decided to pull out ahead and take that uncertainity off the table.

Okay thank you.

The next question comes from Louis Miscioscia with Lehman Brothers. Please go ahead with your question.

Thank you. Al, with the August 14th date approaching, have you spend enough time I guess with the numbers, to feel comfortable, I guess for you, and the new CEYPHER filing offer, I mean, is there any possibility to waive that or push that off and just trying to get your thinling on that?

Our initial thinking is, I see no problem with meeting that date, where based on the timing by announcement obviously have almost a month to continue doing review and investigation, to understand what is, what goes along with the sign off. But our initial action is, will not be an issue.

Okay. I guess, you know, to the Balance Sheet, in DSO's we are going from 76 to 71, was that, a reducion is because of the different write off you have taken or it is that a real reduction, much of you adjusted to that, and haven't had chance to look through it.

Our sales did go up for the quarter and you know so it is it is a reflection of the real reduction in in receivables coming in and then still combine with the reduction .

Can you talk about the engineering 21 percent of your revenues are obviously significant. Can you talk about the margin structure there? Is that area performing well if you could and can you talk about the gross in the operating margin and for ?

The gross margins which is always historically attractive and have state in the ranges they have historically in this you know 15 to 25 percent depending on what is a more equipment oriented or appear labor oriented. So those those margins are staying where we have seen this historically.

Okay and how about I guess would be aSG&A to try and get an operating margin?

SG&A, we do not split it out separately. There is some additional SG&A that would go along with that but that will be the range of it, a percent or 2 percent rate, higher than the normal when we have done incremental analysis.

Okay now that you had a really to deserve take a step back and if you look at the years when we were private and forthcoming public the number of quarters have consecutively improving results and you know where did where and when the things sort of start to I guess get more difficult and can you name a couple of things that you put in place now to ensure that that does not happen again?

Well the the significant shifts start happening in the December quarter and so so we have been adjusting our power model of our business model over the last 3 quarters and we are confident that with the actions we have taken both from our restructuring standpoint and changing our business model relative to our mix the mix of business within the industries and help our our you know point that business in the Pemstar what we are confident that we can get back to that business as I said like my comments to 28 consequetive profitable quarters that we have you know achieved prior to the December quarter.

Okay is that anything to do with ensuring that I guess a bit some of their customers you saw in update that are if to ensure that you do not take them the loss if the cash-on delivery or something?

Well is is we as we said in the July 2nd priviledge as we got to look our accounts receivables and inventory. We are confident with the you know with the reserves we have taken that we have you know we have now you know in if you were less than 10 percent would be emerging customers so it is you know small percent of the total AR inventory in overall business so so so that is first back. Second point is is at going forward if it is particularly in this environment which is which you know which everyone needs . We have strengthened our credit and are looking more more carefully and more closely at any emerging customers always still open to emerging customers and given given of very example of you know there are emerging customers out there that are very confident which will be successful in their categories so so we we believe we have adjusted properly to the turn economic conditions relative to bring new customers in and as we bring them in, you know, we we will make sure that there is a properly managed and appropriately positioned from the credit standpoint.

Our next question comes from Dave Miller with Kaufman Brothers, please go ahead with your question.

Hi guys. Just following up on that, when you're talking about an additional 4 million of charges in the September quarter possibly and if you are an inventory exposure to emerging technology companies is less than 10 percent, would you assume that 4 million of charges would be the majority you will be restructuring versus the additional reserves?

It will be a combination of both. And we will determine the appropriate balance of that but we still have on our side, from my view as interim CFO we still have an issue with and we're trying to make sure that we've got all of our issues behind us on receivables and inventory as well.

So, its not totally flushed as I just may have said. I mean, there's still risk to, are those numbers coming down?

The 4 million will be used for both and at this point you could say, as 50-50 would be a reasonable judgment relative that how we position it.

Okay, and just could you give a little bit of a breakdown between the end markets from the 7 new engineering customers and the 8 new manufacturing customers?

Sure, I don't have a split exactly but I can give you a rough estimate of where it is, there will be prime markets that the customers are coming in with the industrial equivalent market as I mentioned one of the key once was a semi-conductor equipment manufacturer, there will be two that would be in the stock and then the balance would be in the computing marketplace with one in the communications market.

That's on the manufacturing side? Was that in total?

That would be in total. Excuse me and then there were three in the medical arena.

Okay, great, thanks a lot.

So they're fairly balanced with a little lighter on the communication.

Okay, thank you.

Our next question comes from Ben with J.P. Morgan, please go ahead with your question.

Hello, I had a quick balance sheet question. On your asset side you have an unbilled services of 17.6 million dollars, I was wondering if you could help me understand what that is and may be compare the collect ability of that item with your accounts receivable?

Yeah there is a percent of completion work primarily on the engineering side and what was the second part of that question?

Would you expect that the collect ability of that item is roughly equivalent to your accounts receivable?

Absolutely or better.

Or better?

Yes.

Okay. Just a customer question, would you anticipate having another 10 percent customer any time in the fiscal year?

We have atleast one that could potentially become a 10 percent customer.

And may I ask what sector that customer might be in.

In the communication's.

With communication, ok. And my last question, the most recent set of credit amendments, amendments to your credit agreement, I think Greg mentioned that you guy's expected to violate the EBITDA covenant, is that the only one that you would expect violating next, next quarter or is there perhaps another.

There could be some others, the primary focus is on our income EBITDA measurement and frankly that is, that is what we have looked at so far, we will, we will enter into that discussion, we are into that discussion now and we will continue that discussion with the lenders in the next few week's.

Ok,very good thank you.

Once again ladies and gentleman, if you do have a question at this time please press the one followed by the four on your telephone. Our next question comes from Michael Gleason with Robert. W.Bears.Please go ahead with your follow up question.

Regarding the fixed price contracts, did you have any reversals on this quarter or on any, on any contracts?

No, reversal from a, from a price stand point.

Just in terms of assured, assumed profitability, and then a major reversal on the income structure.

No, not that I am aware of, no, no.

Ok, and then the SG&A expenses excluding a lot of those charges, it appears to have climbed roughly $3.0 million dollars versus the March quarter. Could you provide some break down as to what caused that increase? Excluding the charges that are in the inventory reserves and the AR reserves, from the March quarter and the AR reserves from this quarter

We have had some increases in our corporate operations, as it relates to our investments in IT, obviously there is some insurance increases moving forward, but it caused us some increases and the financing costs from our financing had created some increases. The financing costs are below the SG&A, and then the legal, legal costs had risen as we go on through the year, along with some required company costs that have caused our SG&A to increase.

And that is from the acquisitions that you did in mid 2001, the company costs.

2002. From the current March to March correct?

Or just in the count of 2001.You only had MTS and Pacific consultants were your last acquisitions and that occurred in September and November time frame, are you still doing work on those acquisitions.

No, that, that, that would have been, that would have been an increase from 2001June to June, you are talking about from March 2002 you mean.

Right.

Stay with me one minute.

Okay.

Well, could you repeat your question again?

You had said that the part of SG&A increase are from acquired company cost.

Excuse me that was quarter-on-quarter, I was confused with your question?

Okay. And then another question related to July 2nd, guidance. You had stated a 145 million in revenue at the time you had borrowed the revenue range. What cause the doubts are between 3 weeks ago and now? And actually show a 8 million in revenue.

It was, as the last few days came in. Particularly with several larger customers, more came in than we expected.

Okay. Thats it I think.

Thanks.

Our next question comes from Louis Miscioscia with Lehman Brothers. Please go ahead with your follow up question.

This refers to the fact that you got depreciation for the quarter and I guess the expectation for your depreciation and CAPEX for the year?

Depreciation for the quarter is 5 million and thats it, continue. Is that the question?

Yes. Then CAPEX for the year?

So far for the year is 2.7. .

They expectation is 12/18.

As we discussed before, we have made significant investments in last two years, particularly on equipment and supply chain enhancement tools and we are in a great position to leverage those investments during this year, and thats what we are going to do.

Could you also mention are you ramping LogicTech down your location. I think that I saw a headline that had a good quarter this year. Where are things going with them?

LogicTech continues running well and it is certainly is on track with our expectations as a new customer. So that, that project's going well and we are seeing very solid business from LogicTech.

Okay. Thanks.

Our next question comes from Brian White with Merrill Lynch. Please go ahead with your followup question.

Yes I wonder if you could discuss the capacity utilization overall and then by geography.

Our current capacity utilization would be, in continuation with the 50 percent range and we have been running roughly flat and running at 50 percent at date. We are taking some capacity out, as that happens that would roughly take us into the 55 percent range if nothing else changes. So we are well positioned as we bring additional projects and to be able to do it without adding any significant additional capacity. If I look at around the world, from that capacity depending on the specific side of the customer. They are all running in, what will say, a 50 to 60 percent range with the exepts of China. China is enhance gotten very busy in the last quarter, and it could be running depending on how we take a look at the snapshot, the course of and a quarter standpoint during the quarter will run and now it had been running in the 60 to 80 percent range.

Motorola in the May conference call for the second half of the year. How big can the company get as a percentage of revenue in the September and December quarter? You said it was 11 percent this quarter, how big do you think it can get?

Motorola could, historically they've been this high as 18 to 20 percent, so Motorola could get into the 15 to 20 percent range. In the quarter part that I would say will be subject to the specific demand dropped in on specific projects that we get a good mix of projects that are going into our facilities. We are very excited about ramping the new Motorola projects and could see the 15 to 20 percent range.

And how about the prospects for the Land Warrior program that's still in testing prototype development?

It is in test and prototype mode and they continue as the solid opportunity in one of our largest engineering projects and we continue to be very excited to be participating the Land Warrior project and you know, working hard with the government getting it through the test program.

Have they chosen a manufacturing partner yet?

No. It's currently in manufacturing and prototype, engineering and prototype and test stage.

Okay.

The conclusion of that will determine what manufacturing quantities are needed.

And do we have any idea when that might occur?

They have not announced any specifics on that and we're in terms of compliance with the army relative to information and that wont is in a position to disclose that at this point.

Okay, thank you.

Our next question comes from Ben with J.P. Morgan, please go ahead with your follow-up question.

Thank you. Based on your current restructuring initiative could you provide your current estimate to when the break-even at 145 to 150 range would be accomplished? Will be achieved?

The objective is to achieve it in the December quarter.

Okay, thank you. That's my only question.

Our next question comes from Jesse with Needham and Company, please go ahead with your question.

Just a quick question on Honeywell. Honeywell made some big announcements of some multi billion dollar wins so I was wondering if you expect Honeywell to ramp up, any indication there what's going to happen there in the next quarter or two?

In our discussions with Honeywell in the last two months we have been asked to look at potential increases in some of our programs so that possibility does exist and we're working closer with Honeywell to assess what their requirements are going to be over the next two to four quarters and we're confident we have a capacity place ticking.

Have there been any changes in your top ten customers?

Not significantly. There has just been one change. We typically see, part of it is based on a cyclical the nature of some of our customers will see one or two changes each quarter.

And lastly just, house keeping. Do you include the JDS business as part of IBM, since both Optical and IBM increased by about 8 million, sequentially?

No. We split that up separately this quarter.

Okay. Thank you very much.

Your next question comes from Roger Norberg with J.P.Morgan. Please go ahead with your follow-up question.

I think you mentioned that Brazil was 0.2 percent of your revenues this quarter? Is that correct?

That's correct.

Which equates to about three to four hundred thousand in revenue. How much money did that operation lose this quarter?

Actually we broke even in Brazil.

Okay. Can you tell us how many customers are there?

We currently have one customer in Brazil. Brazil is really a support center for a firm and repair . It is a small operation and historically has been breakeven or profitable.

Okay on the unbuilt services account that was referred to on a question earlier, is that percentage of completion accounting, that's surrounding. Is it primarily the army contract or is that several programs that are spread through your automation business.

It is spread over several programs in 1010 automation and is fired with the engineering. It is about 3 on the engineering and 13 on the automation and a few other things.

Sorry I got a number reversed there.Thank you.

I am sure there are no further questions at this time. Please continue with your presentation or any closing remarks.

Okay. Thank you. In the coming months we will continue with our restructuring efforts to reduce Pemstar's break-even points. Same time we will address and discuss new customer wins and work with existing customers to improve our capabilities. Thanks again for your participation. Please call us if you have any other questions.

Ladies and gentlemen, that does conclude your conference call for today. You may all disconnect and thank you for participating.