CTS Corp (CTS) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CTS Fourth Quarter and Full Year 2010 Financial Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Mitch Walorski, Director of Investor Relations. Please go ahead.

Thank you, Joshua. I'm Mitch Walorski, Director of Investor Relations, and I will host the CTS Corporation Fourth Quarter and Full Year 2010 Earnings Conference Call. Thank you for joining us today. Participating from the Company today are Vinod Khilnani, Chairman of the Board and CEO; and Donna Belusar, our Senior Vice President and Chief Financial Officer.

Before beginning the business discussion, I would like to remind our listeners that the conference call contains forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information regarding these risks and uncertainties was set forth in last evening's press release and more information can be found in the Company's SEC filings. To the extent that today's discussion refers to any non-GAAP measures relative to Regulation G, the required explanations and reconciliation are available on our website in the Investor Relations' section.

I will now turn the discussion over to our Chairman and CEO, Vinod Khilnani.

Thanks, Mitch, and good morning, everyone. Last evening, we released our fourth quarter and full year 2010 financial results. I'm pleased to report that full year sales were up 11%, which was within our guidance range and adjusted earnings per share of $0.66, which was slightly higher than our guidance range of $0.60 to $0.65.

We continued to win new business and invest heavily in our engineering and new product development activities to position the Company for double-digit top and bottom line growth over the next several years. We also acquired Fordahl SA, a small electronic components company in Switzerland, which will considerably enhance our capabilities and product offerings in the wireless communications arena. We continued to strengthen our research and development capabilities, increase our patent portfolio, and launched new products in the fourth quarter of 2010.

Sales in the fourth quarter of 2010 at $145 million were up 8.3% from the fourth quarter of 2009. Full year sales of $552.6 million were up 10.8% year over year. Our Components and Sensors segment sales were $65.4 million in the fourth quarter. Breaking down the various components of our total sales, sales of automotive sensors and actuators were $39.8 million and, as expected, were somewhat lower in the fourth quarter due to timing of certain programs and slowdown in the global industry unit sales after a very robust bounce back in the first half of 2010.

On a full-year basis, our sensors and actuator sales were up 30% year over year, again from industry backdrop of 10% unit sales increase and 24% unit production increase in the light vehicles. This represents an increased market share driven by a roughly 33% increase in the sales of our accelerator pedal modules to our top three Japanese customers. New turbo charger sensor sales increased from approximate $1 million in 2009 to more than $7 million in full year 2010. Our success in turbo charger sensors is an example of our growth through diversification strategy. We expect that continued growth in the turbo-charged vehicles will benefit sales of CTS sensing products going forward.

We won 4 new production programs and 11 replacement programs in the fourth quarter of 2010. We further strengthened our engineering and R&D capabilities in sensors and actuators in the fourth quarter. In 2010, we spent approximate $4 million or $0.08 per share in engineering and new product development activities that were specifically targeted to launch our new product family of smart actuators in late 2012, a major initiative to penetrate commercial markets.

Continuing with our Components and Sensors segment, sales of electronic components in the fourth quarter of 2010 were $25.6 million, up 21.3% from the fourth quarter of 2009 as we saw sales of our piezoceramic products increase by 87% and distribution up 22%. Key applications for our piezoceramic products include medical ultrasound, commercial inkjet printers, hydrophone, and going forward, high-density disk drive applications. CTS is launching its new piezo product for the next-generation of high-density disk drives. A Class 1K clean-room capability has now been commissioned in our Tianjin, China, facility. We will begin to ship the new products starting this year.

On a full-year basis, electronic component sales were up an impressive 37.9%, driven by our new piezoceramic products and increased penetration in the distribution channel.

We continued to record increased infrastructure design wins with 80 new wins in the fourth quarter of 2010 versus 76 last year. Full-year 2010 design wins were 254 versus 238 in 2009. We maintained our focus on increased research and development activities and investments. Increased R&D focus in our Components and Sensors segment is not only helping us develop new products, but also increasing our portfolio of intellectual property. In 2010, we were granted 25 new patents versus 23 in 2009 and only 16 in 2008. More importantly, we filed 66 new patent applications in 2010, indicating a further acceleration of future patent grants in the coming years. Overall, we grew our Components and Sensors segment sales by 33% in 2010. They now represent 51% of total CTS sales in 2010 versus 43% in 2009.

Moving on to our EMS segment, sales in the fourth quarter of $79.6 million were up 16% over the fourth quarter of 2009 and 18% higher sequentially. Our EMS segment sales have steadily improved from a low level of $56 million in the first quarter of 2010 to around $67 million in the second and third quarters each to approximately $80 million in the fourth quarter. As you know, 2010 was a difficult year for our EMS business with several program delays and weak inflow of new customers and programs in the first half of 2010. I believe many of those issues are now behind us. We have added several new customers in the last few months and expect to grow our EMS sales by 12% to 15% in 2011 and also improve our profitability in that segment. Some of the growth drivers going forward include green product initiatives like charging stations for electric vehicles and biometric personal identity systems.

Looking ahead to 2011, we expect the financials to demonstrate our normal seasonality with stronger second quarter and fourth quarter compared to the first and third quarters. This quarterly sales pattern was not seen in 2009 and '10 due to unusual pre and post recession dynamics and inventory builds, etc. We believe the recovery will continue at a steady pace in North American and European markets. Asian markets will continue to grow at a faster rate than North America and Europe. But Asian growth rate will moderate somewhat from its rapid expansion in 2010. We expect our sales to grow in the range of 9% to 13% in 2011 and earnings per share to a range of $0.70 to $0.75 per share. Our plans are to continue to invest aggressively in R&D and still grow earnings by approximately 10% year over year, which is roughly the midpoint of our earnings guidance range.

And now I will turn the meeting over to Donna Belusar, our Chief Financial Officer, who will provide further details regarding our financial results. Donna?

Thank you very much, Vinod. Welcome to all of you today for our discussion on the 2010 fourth quarter and full-year results. Our 2010 fourth quarter financial results capstone a year of recovery from the prior year's recessionary environment that impacted both the business and financial markets. 2010 was a year that delivered full-year, double-digit sales growth, expanded growth in operating margins, and delivered full-year adjusted earnings per share of $0.66 per share, up 83% year over year. It has indeed been a busy and exciting year for CTS. As Vinod has discussed with new product and new customer wins, our top line sales have demonstrated positive momentum.

Before I review the financial details of the quarter and the year-end results, I will address two items. The first is the restructuring actions that we implemented in the fourth quarter totaling approximately $1.7 million pretax or roughly $0.03 per share. These restructuring actions were geared towards enhancing our productivity, making us more nimble in our new product introductions for our EMS customers, and capturing cost improvements from reducing resources. The fourth quarter restructuring of $1.7 million was primarily cash and we anticipate a payback within 12 months.

The second item I wish to discuss upfront is our capital structure. CTS had one debt facility, a US-based $100 million, 5-year unsecured revolving credit agreement due to expire in June of 2011. In the fourth quarter, we renewed a 5-year unsecured credit agreement with the same basic covenants and terms and though with higher pricing spreads than the expired agreements, the pricing is still very competitive.

Favorable market conditions and increased bank interest in our credit provided us the opportunity to increase the size of the agreement from $100 million to $150 million. The additional capacity is opportunistic, providing us with flexibility to pursue further shareholder value enhancements. However, there are no immediate plans for using the additional debt capacity.

Now, let's discuss our results. Our fourth quarter 2010 sales were $145 million, up 8% from prior year, bringing total 2010 full-year sales to $552.6 million, up 10.8% from full year 2009. With a full year-over-year revenue growth more pronounced in Components and Sensors segment, segment mix was more heavily weighted towards Components and Sensors, coming in at 51.2% of total sales for full year 2010, despite a higher percentage of the fourth quarter sales in the EMS segment.

Our total fourth quarter 2010 gross margin was 20.1% of sales, down from 23.1% in the fourth quarter 2009, impacted by the higher level of EMS segment sales in the quarter. Most of this year-over-year change can be attributed to the impact of segment mix as last year's fourth quarter did have a higher percentage of sales in Components and Sensors. There was also some impact from the reinstatement of certain compensation costs that were temporarily suspended in 2009 as we addressed the recession.

Turning to expenses, selling, general, and administrative or SG&A expenses were approximately $17.4 million or 12% of sales for fourth quarter 2010 compared to 14% in the fourth quarter of 2009. Full-year SG&A expenses were $72.3 million or 13.1% of sales versus full year 2009 of $67.1 million or 13.5% of sales. The year-over-year improvement in expenses as a percentage of sales reflects controlled spending levels across a higher level of sales despite the previously-mentioned reinstatement of certain compensation-related items that had been suspended in 2009.

Research and development or R&D expenses were $4.3 million for fourth quarter 2010 compared to $3.9 million in fourth quarter 2009. Full-year R&D was $18.3 million for 2010 compared to $14.2 million in 2009. As previously discussed, R&D essentially occurs in Components and Sensors segment and on a full-year basis is approximately 6.5% of Components and Sensors segment sales. These R&D expenses reflect continued investment in our technology and product platforms with 2010 expenses at the highest level since 2004.

Total operating earnings were $6 million for the fourth quarter. Adjusted operating earnings, which exclude the fourth quarter restructuring and related charges, were $7.7 million. Components and Sensors continued with its fifth consecutive quarter of double-digit operating earnings coming in at 10.2% of sales in the fourth quarter to finish full year 2010 at 11.1% of sales. The EMS segment was also profitable with operating earnings for fourth quarter at $1 million or 1.2% of sales. The EMS segment demonstrated steady progress in operating earnings performance throughout 2010, recovering from the first quarter 2010 loss to profitability in the fourth quarter.

Total fourth quarter 2010 other expenses were $0.3 million, which include interest income, interest expenses and currency translation gain or loss or other non-operational gains or expenses. This is essentially flat from fourth quarter 2009 and is more normalized than the prior third quarter 2010 where, as you may recall, we had a positive gain driven by the volatility in the currency markets, especially the Euro-based markets. We had anticipated that this third quarter benefit would not reoccur in the fourth quarter.

The effective full-year adjusted tax rate was 22.1%, which is within our guidance of 22% to 24% for 2010.

Fourth quarter net earnings were $4.8 million or $0.14 per diluted share with full year at $22 million or $0.63 per diluted share. Excluding restructuring and related charges, adjusted net earnings were $5.9 million or $0.17 per share for the fourth quarter and $23.1 million for full year 2010 or $0.66 per share.

Now I will move the discussion to a review of our balance sheet. First though let's start with cash flow. Cash provided by operating activities for the full-year 2010 was $19.3 million compared to $46.6 million in 2009. There were primarily three reasons for lower operating cash flow. First, the economic slowdown in 2009 brought the working capital down, making 2009 cash flow high whereas the economic recovery in 2010 required a building back of our working capital. Second, we had high year-end 2010 shipments. And thirdly, new programs and some component shortages meant that we finished 2010 with more inventory.

Controllable working capital, which includes accounts receivable plus inventory less accounts payable, was 16.8% of sales in 2010 compared to 13.8% at the end of 2009. We expect 2011 to be in the range of 14% to 15% of sales.

Capital expenditures for 2010 were $13.3 million of 2.4% of sales, up from $6.5 million or 1.3% of sales in 2009. Capital expenditures in 2009 were simply too low on a sustainable level as we prudently pushed [off] total investments as a recessionary action. The 2010 increase in total capital expenditures was primarily due to increased investments in new product introductions, key equipment upgrades as well as transferring certain capacities to lower-cost regions. Overall though, total capital expenditures are lower than our annual depreciation of approximately $15 million.

We expect 2011 free cash flow, which is cash from operations less capital expenditures, to be somewhat higher in the $30 million to $35 million range as we expect a more normalized pattern.

CTS ended the year with $73.3 million of cash and cash equivalents, up $22.1 million from year end 2009. Long-term debt decreased from the prior quarter by $7.1 million to an ending 2010 balance of $70 million, making us essentially debt free. We finished with a debt-to-capitalization ratio of 20.3%, down from the prior quarter of 22.5% and up from year end 2009 of 16.9%. CTS is confident in the strength of its balance sheet and remains financially flexible and strong and well positioned to support our growing businesses in 2011 and beyond.

This concludes the financial overall of our results. With that, I will now open the call for your questions and thank you.

(Operator Instructions) John Franzreb from Sidoti & Company.

My first question is I guess surrounding the automotive production. Rates in the fourth quarter seem generally good I guess industry wide but your sales are down about 10%. You alluded to some timing of certain programs. Could you provide a little color as to what's going on there and when you expect to capture those sales?

Good question. Thanks, John. John, we are estimating that timing of programs probably impacted us by $2 million to $3 million in the fourth quarter. And then adjusting inventory -- so our customers may order more or less in a particular quarter. So on a full-year basis, we probably track industry sales and production data a lot more but quarterly you can have that. So my guess is that there's probably mismatch in the order patterns, which will eventually catch up. And so there was probably a couple of million dollars impact because of that. If I adjusted for those 2 items, which will be adjusting my automotive sensor sales in the quarter by $4 million to $5 million, we would be up roughly 4% sequentially and 1% year over year. If I compare that with the global production and global sales numbers, global sales of light vehicles sequentially were down 1% and probably up a couple of percent. So the global sales and production numbers were anywhere from down a percent to up a percent. If we adjust for these things, our sales will be up 3% to 4%.

That kind of helps a lot.

To give you a little bit more forward-looking statement here, my guess is that our Q1 2011 automotive sensor sales will be up sequentially 12% to 15%. So, as some of those programs get bounced back and adjusted, my expectation would be that compared to the fourth quarter number of $40 million range in our automotive sensor, we'll be up 12% to 15% in the first quarter. But again, I will caution you that when you compare the first quarter 2011 with first quarter 2010 then you have to remember that first quarter 2010 still had a lot of extra service orders from Toyota and all that. So that's again a very unusual number. So, we have to be careful when we compare quarter over quarter. But we feel very good about our automotive sensors. New business launches, diversification towards turbo charger sensors and things like that, we believe that we have not lost any business and we continue to increase our market share in automotive sensors. In addition to carrying a pretty heavy burden for unusually high R&D expenses to launch the next generation of products, which take us into commercial markets, is pretty good progress from our point of view.

That's nice clarity, Vinod. I appreciate that. Next question is regarding Fordahl. Is that how I say it?

Yes.

Okay, could you give us a little color as to the revenue expectations for that new business? Do you expect it to be accretive or dilutive to EPS this year or when? And how much you pay for it?

Wow, you want me to tell you everything.

Yes.

Fordahl acquisition is a small acquisition. Their run rate of sales is roughly $4 million to $5 million. But that company had sales of close to $10 million couple of years back. The primary reason their sales are down is that they were in a tremendous cash squeeze, the way we understand it, and they had no working capital and they were getting squeezed. So we believe that synergistic advantage of CTS and Fordahl coming together, we should be able to take their sales up very quickly from $5 million to $10 million in the next couple, 3 years. We paid an unusually favorable valuation for it simply because of the synergies the company standalone was clearly not doing very well. With our global footprint and manufacturing capability in Asia will be a huge advantage to them.

We paid something around $0.50 on a $1.00 worth of sales for this company, which is considered extremely low.

Would it be accretive or diluted to earnings this year?

Our assumption is that in the first year, because we'll be putting new programs in place, it probably will be breakeven. There is a potential that it may be slightly accretive. But the size is so small that I'm not expecting it to move the needle in 2011.

Which I guess brings me to the -- I guess the tougher question then here. I'm assuming that $4 million to $5 million is included in the guidance of 9% to 13% on the top line. But you're not getting an awful lot of leverage on the bottom line, 4% to 12% if you exclude the one-time items, the restructuring charges. I have some suspicions but can you kind of walk through the lack of leverage in the profit profile that you're throwing out for next year?

For overall company or in the Components and Sensors or electronic components?

The overall company, just like guidance numbers?

So, overall we are projecting very roughly that we will grow top and bottom line both by 10%. Those are roughly the middle of our guidance ranges. The reason we are not projecting even a more robust bottom line improvement is because we expect a fairly healthy growth in EMS along with a fairly healthy growth in Components and Sensors. So we probably won't see a huge mix change in favor of Components and Sensors in 2011. However, in 2012 and '13 you will see our Components and Sensors business grow lot more because of our smart actuator product will get launched and our piezoceramic high-density disk drives will begin to ramp up starting from late 2011.

The other thing I would like to point out is, as Donna indicated, our R&D expenses have moved up from roughly $14 million in 2009, which was an unusually low number because of actions we took from a recession point of view. So there was some bounce back expected. But going from 14 to 18 to invest $4 million, which is roughly $0.08 per share in 2010 and we are assuming that we will ramp that number up from 18 to 21. That is not a normal increase. If you look at our earlier presentations, we are talking about between piezoceramic brand-new applications like high-density disk drives and launching smart actuators. Smart actuator initiative is equivalent to acquiring a company with $50 million sales per year in a brand new industry, brand new product and brand new set of customers. You'll normally pay $50 million, $60 million to acquire such a company with healthy margins. Those designs are locked in for the next eight, nine years on diesel engines.

The way we are going about doing it is we have a completely separate engineering organization, which is different from our traditional R&D department, which is working to launch this product. As I indicated, we are continuing to spend more money on that in preparation for launch in late 2012. So if you would look at our underlying operating performance in 2010 or '11 guidance, you can comfortably add probably $0.04 to $0.05 this year and $0.06 to $0.08 next year because of very different, very new, very unique R&D initiative which Company has launched.

I guess just to follow up on what you said. Would you expect that those related expenses to drop in late 2012 as you start to roll out the smart actuator or would they remain elevated?

Yes, I think they will drop off. The way they will drop off is today those expenses are getting incurred with no revenues to support them. But as the revenues come in, for all practical purposes, they will drop because the incremental revenues will support a normal level of R&D. So these will get absorbed in their normal SG&A and R&D expense percent. And so yes you will see clearly a step function improvement in the bottom line starting from fourth quarter 2012, early 2013.

Thanks a lot, Vinod. I'll get back into queue.

Hendi Susanto from Gabelli & Co.

You provided a solid sales growth outlook for 2011. Provide more granularities on your target of 9% to 13% sales growth. You did mention that you expect EMS sales to increase by 12% to 15%, which implies 6% to 11% growth in Components and Sensors. In EMS, where will that sales growth come from? Could you break it down where the growth comes from in terms of segment product mix and markets, organic growth versus recent acquisitions?

So very roughly the way we look at it is that both the segments of CTS will probably grow 9%, 10%, 11%, 12% range. The reason EMS is growing little faster than our earlier comment that in the long term, next 4 or 5 years, we expect Components and Sensors to grow double digit but EMS to grow 5%, 6%. You remember throughout 2010, we kept saying that our EMS sales are not growing because of the timing of the programs and things like that. So 2011 from an EMS sales growth point of view is slightly unique because to some extent it's catching up for the shortfall we had in 2010. You will see 2011 growing faster than what longer-term projections we have for EMS. And then once it catches up in 2011, you will see EMS growth rates to probably more normalized to 5%, 6%, 7% range because as we have said in the past, we will be more selective in EMS and stay focused on the margins on the side.

In Component and Sensors, we believe that 2011 would be in line with our earlier comments, which we have made that we will grow our Component and Sensor business much faster than the underlying economic growth. I estimate that the underlying economic growth or the growth in the markets in Component and Sensors will be probably more in 5%, 6% range in 2011. And we will shoot for 9%, 10%, 11% growth. So not quite double, but almost double the underlying economic growth. That is driven primarily by new programs and new customers, which we have already won.

Then you also expect stronger and seasonal second and fourth quarter in 2011. Is that for both segments? Could you elaborate on that, Vinod?

You talking about the mix between quarters in 2011?

Yes. You said that I think the press release that you expect stronger and seasonal second and fourth quarters.

Yes, we don't have a very pronounced seasonality in our business per say. However, because first quarter normally have Chinese New Year and we do have growing business in Asia, we do see some softness in the first quarter and then again in the third quarter. In some parts of our business, like automotive, we sometimes see that due to plant shutdowns, summer plant shutdowns. We normally see a small dip in the third quarter. So overall, I was just trying to give some flavor that we will expect first and third quarters probably a tad lower and second and fourth quarter a tad higher overall.

Vinod, with regard to Fordahl acquisition, could you specify some examples of end products that the products-- that Fordahl are [designed into]?

Okay. So Fordahl product has things like crystal oscillators, which are primarily going into wireless communication, wireless infrastructure kind of markets. The Fordahl acquisition product range broadens our offerings, our current offering of TCXOs and OCXOs. We believe their product has more and more LTE and 4G telecom applications, which is the growing new area. And because their product has characteristics which are slightly different from our characteristics, their product can handle full range of industrial temperature. So their product can go on equipment for outdoor applications when traditionally CTS product has been more suitable for indoor application. So it broadens our offering and we think it'll be over the longer run a very synergistic acquisition and will help grow not only their product range but will help our product range penetrate new customers.

This question is for Donna. Donna, did you have any share repurchase in fourth quarter of 2010?

No, we did not, Hendi.

And then in light of strong outlook for 2011 of 9% to 13% sales growth, when should we expect to see a share repurchase?

Hendi, let me answer that question. I'm glad you asked that question because that gives us an opportunity to comment on an aspect of our free cash flow, which we have generally not commented. Historically, CTS -- the reason CTS has high cash and high debt balances is because we tend to generate our cash in jurisdictions which are outside the US and, therefore, we have not used that cash to pay down debt. Donna's group and operations have several initiatives underway to change the mix of our business in such a way that we are projecting that we will have more cash generated in US than outside the US. Once we successfully implement those things and we have more cash flow generated in the US, I believe CTS Board of Directors will sit down once again and look at all the open options of increasing dividends and buybacks and those kind of shareholder value. So 2011 would be a very good year for the board to discuss those things once we have modified the mix of free cash flows in different jurisdictions.

Thank you all. I'll jump back to the queue.

Thanks, Hendi.

John Walthausen of Walthausen & Co.

On the EMS business, you've done a good job of making a major transformation there. I was wondering whether you could tell me what the margin objective should be for that business? Should it get back to the 3% that it had enjoyed a few years ago or higher? And what sort of timeframe would be reasonable?

John, in EMS business our target remains from operating margins to between 4% and 5%. We expect to move back up in 2.5% to 3% range in the next 18 months. We should see improvements as we go along and not see a hockey stick of staying at 1% and then jump to 3%. So, we expect that number to go up in 2 point some percent range in 2011 and in early 2012 we should see it back to where we traditionally have been between 2.5% and 3%. Then after that primarily with our improving mix more towards defense and industrial applications and better utilization of capacity and utilizing capacity in places like Mexico and Thailand, which we are expanding right now, we believe we will have a fair shot at taking the operating margins up to 4% range and all that.

Having said that, I will say that once the EMS operating margins get close to 3% range, they begin to provide us the same return on invested capital as our Components and Sensors businesses, which are closer to 10%. So there's a 1 to 3 relationship if Component and Sensor businesses are doing 10% operating margin and EMS does 3.1%, 3.2% operating margins. They both give us equal level of return on invested capital.

Okay, good, that's very helpful. The other question I had was about the investment in working capital, which recalled pretty substantially. I think you had commented in the press release that you expect that to moderate. But I was wondering what moderate means? What sort of the targets are?

The working capital should come down as a percent of sales by 100 to 200 basis points potentially. That is probably the main reason Donna gave a guidance on free cash flow of $30 million to $35 million in 2011. So the idea is that if you look at the cash flow generated in '09 with $40 million and then look at cash flow generated in 2010 of $6 million and then going back up to $32 million, $35 million in 2011, the 3-year average will become $27 million, which is roughly what our historical level of cash flow is. Because of recession first, which freed up a lot of working capital and then ramp up, which used up a lot of working capital and improving it further in 2011, we think that by then that 2011, you will see a pretty steady annual cash flow generation, which is pretty healthy. One of the drivers behind, as you know, is that we still have a tax loss carry forward in the US. So we don't pay taxes in the US. We have overfunded pensions, which means we don't really have any outflow of cash towards pensions either.

Okay, good. That helps a lot. Thank you very much.

John Franzreb from Sidoti & Company.

I guess I might have missed this, but Donna you said that there was $1.7 million in restructuring charges. On the P&L, there's $1.4 million identified. Where's the other $300,000?

$300,000 shows up in our cost of goods sold.

COGS. Okay and did you give a CapEx figure for 2011?

No, but we usually do anywhere from 2.5% to 3% of total sales as a CapEx. So that's what I would do in line for 2011, John.

Okay.

John, it would probably be closer to 2.5 than 3. The reason you are seeing a little bit of an increase in CapEx is primarily because -- due to recession, we tightened down everything and there's a little bit of bounce back because of that. But other than that, there's nothing unusual in our CapEx.

Okay and the restructuring efforts, when -- what are those actions and when do you expect to see the returns on those actions?

Well the expense took primarily in the fourth quarter. It essentially it revolved around repositioning some of our EMS focus whereby we move some of our capability to Mexico and Thailand.

Okay, that's it for me guys. Thank you very much.

(Operator Instructions) It appears there are no further questions.

I would like to remind our listeners that a replay of this conference call will be available from 1:30 p.m. Eastern Standard time today through 11:59 p.m. on Thursday, February 3rd, 2011. The telephone number for the replay is 800-475-6701 or 320-365-3844 if calling from outside the US. The access code is 187911. Thank you for joining us today. That concludes our call.