Methode Electronics Inc (MEI) 2011 Q4 法說會逐字稿

Greetings and welcome to the Methode Electronics fiscal 2011 fourth-quarter and full-year earnings presentation. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

This conference call does contain certain forward-looking statements, which reflect Management's expectations regarding future events and operating performances and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor Protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statements that conform this statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission such as our annual and quarterly reports.

Such factors may include, without limitation, dependence on a small number of large customers, including 2 large automotive customers, dependence on the automotive, appliance, computer and communications industries. Further downturns in the automotive industry or the bankruptcy of certain automotive customers, ability to compete effectively, customary risks related to conducting global operations, dependence on the availability and price of raw materials, dependence on our supply-chain, ability to keep pace with the rapid, technological changes, ability to avoid design or manufacturing defects, ability to protect our intellectual property, ability to withstand price pressure, location of a significant amount of cash outside of the US, currency fluctuations, ability to successfully benefit from acquisitions and divestitures, ability to withstand business interruptions, unfavorable tax laws, ability to implement and profit from newly acquired technology and the future trading price of our stock.

It is now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer for Methode Electronics. Mr. Duda, you may begin.

Thank you, Diego and good morning everyone. Thank you for joining us today for our fiscal 2011, fourth-quarter and full-year financial results conference call. I am joined today by Doug Koman, Chief Financial Officer; and Ron Tsoumas, Controller. Both Doug and I have comments today and afterwards, we will be pleased to take your questions.

Our strong sales performance in the fourth quarter and fiscal year 2011 demonstrates the continuing success of our strategy to offer customers system solutions with brand differentiating technology. With over 23% sales growth for the quarter, we continue the momentum we established last year ending with over 13% sales growth for the year. Adjusting the fiscal 2011 results for the loss of sales of Delphi and planned lower sales of legacy automotive products, which together total $32.3 million in fiscal 2010, consolidated sales in fiscal 2011 increased 24%. A key point is, that in just one short year we have rebuilt Methode's revenue from a 7-year low of $378 million in fiscal 2010, despite the reduction of legacy automotive products and the loss of the Delphi business. An accomplishment all Methode employees should be very proud of.

As we reported in this mornings release, in March, we sold Methode 75% ownership in Optokon, a fiber optics interconnect company in the Czech Republic to the minority shareholder for $10 million resulting in a gain, net of taxes, of $0.6 million or $0.02 per share. Additionally, we had a number of expenses and benefits in the fourth quarter, and year, which Doug will expand upon in his discussion. For the fourth quarter, consolidated gross margins were 21.7%, compared to 23.3% a year ago, and for the year, consolidated gross margins were 20.8% compared to 21.2% in fiscal 2010. In both periods of 2011, vendor production and delivery issues, as well as higher designing, developing and engineering costs to support production -- or to support products expected to launch in fiscal 2013, negatively impacted results. Additionally, full year gross margins were negatively affected by the loss of the Delphi business, which was a higher margin business line for us.

We are taking steps to rectify our vendor production and delivery issues. Specifically, these issues relate to an intricate paint process for automotive center consoles. Although we put in place a number of fixes and process improvements at the suppliers, during the third and fourth quarters, as I said, these parts are particularly complex. As such, we are not going to receive consistent automotive quality from any supplier, at least not in high volumes. For that reason, we have decided to vertically integrate a portion of these processes.

That being said, this is vertical integration we had planned to make prior to launching the GM consoles, expected to launch in fiscal 2013, but have decided to implement sooner, based on the issues we are currently having. Which, we anticipate will have a $1.5 million to $2.5 million affect on Methode's fiscal 2012 income. It is our intent to have our in-house capabilities online, as we enter fiscal 2013. Capital cost to vertically into get the paint processes are likely to be $10 million to $15 million, depending on how much qualified used equipment is available. That estimate is still preliminary.

Moving now to segment results, in the fourth quarter, Automotive segment net sales increased over 38% due to higher sales in our transmission lead frame and steering angle sensor products as well as from the MyFord Touch center console program. Sales in Asia grew 44%. In North America, sales grew 160%, but bear in mind, that business was down to very little, due to the exit of legacy automotive products in North America and the loss of the Delphi business.

For the year, Automotive segment sales increased 11%, but were negatively impacted by the loss of sales to Delphi and the planned, lower sales of legacy automotive products. If we take out these 2 items, Automotive segment sales increased over 32% in fiscal 2011, compared to 2010. Automotive segment gross margins decreased in the fourth quarter, impacted by the vendor issues I discussed, and costs related to the launch of a large automated program. For the year, gross margins fell slightly impacted by the loss of the higher margin Delphi business and the aforementioned cost.

Moving on to Interconnect. Sales decreased 2% in the fourth quarter, compared to last year, attributable mainly to lower appliance sales in North America which affected our TouchSensor business as well as the sale of Optokon. These lower sales were partially offset by increased sales of data and safety remote control products compared to the fourth quarter fiscal 2010. For the year, Interconnect sales improved nearly 12%, due to strong sales in North America and Europe; again from increased sales of data and safety remote control products. In Asia, Interconnect sales were down year-over-year due to the planned exit of legacy -- of the legacy business.

We anticipate reduced appliance sales will continue into fiscal 2012. Despite lower business, Interconnect's margins in the fourth quarter and full-year are at the high end of our target for this business segment due primarily to a favorable sales mix. Our Power Products segment also had strong sales up 35% in the fourth quarter, and 24% for the year, and certain awards we received in fiscal 2009 have moved through the design and testing pages and have commenced production. In the fourth quarter and full-year, higher Bus Bar, flexible cabling and heat sink products drove the improvement in sales.

Power Product gross margins decreased in the fourth quarter, and year, mainly due to a product development cost for the onboard integrated power unit award that we discussed last quarter. As a reminder, this power unit, for pure electric commercial truck being launched by domestic OEM, contains a 10 kilowatt charger and auxiliary 14 volt power supply and the associated vehicle interface controller and is based on Eetrex's power electronics technology. Excluding the product development costs, Power Product gross margins were almost 26% for the fourth quarter, and 25% for the year.

On to new business wins. In the fourth quarter, we were awarded 3, unique Bus Bar sub-assemblies to be used to interconnect lithium ion battery sales to form a battery module with a number of modules making up the battery pack. This application, developed by a major Japanese OEM, will be used on an electric vehicle to be sold in North America and Europe. The product will launch in fiscal 2013 with approximately $4 million of revenue and ramp to approximately $11 million per year in fiscal 2014, with an expected program life of 6 years. We may see greater fluctuations in the projected revenue than with the typical automotive program due to some expected volatility in electric vehicle demand. However, as this product will be utilized on a common battery pack, it is likely to be specified for other vehicle platforms by this OEM.

Ford Motor Company issued a press release at the beginning of June, which discussed the expansion of their fuel efficient power-trains. In its release, Ford refers to their new 8-speed automatic transmission, which will feature an input torque sensor that enables faster selection of the proper gear. This sensor is Methode's torque sensor, which we have discussed in previous calls. You may recall, this torque sensor utilizes a magnetoelastic technology, a patented sensing technology which allows a significant advancement in power-train controls, improving shift quality and reliability. Rugged and reliable, Methode's torque sensor is designed to operate in the harsh environment of the transmission. We are honored to have been included in the development of Ford's advanced technologies.

Also, a recent article in Popular Mechanics refers to the torque sensor as an impressive feature. Again, referring to Ford's new 8-speed automatic transmissions. The article calls the ability to measure true torque, the holy grail of transmission control. We will post a link to the Popular Mechanics article on our website. All in all, we had an impressive year of bookings in fiscal 2011, and I want to take this opportunity to thank the Methode team.

Our overall outlook is cautiously optimistic, although our European businesses may experience some softness, we expect our North American automotive production and Power Product sales to continue to improve in fiscal 2012 and '13 as programs are launched. Through activities initiated in prior years, we have been able to reduce our cost structure, which we again, expect to result in improved operating margins, as sales increase in the new business awards I have discussed on previous calls, launch in fiscal 2012, '13 and '14. As I mentioned, we do expect to carry higher designing, development, and engineering costs in fiscal 2012 to support products scheduled to launch. We anticipate these expenses to be in the range of $2.5 million to $2.8 million. As a Company, we are committed to developing new product solutions for our customers and in making strategic capital investments as we pursue our growth strategy.

In summary, in this uncertain economy Methode remains focused on the proven strategies that have enabled us to address this economic headwinds and grow the Company. Now, I will turn the call over to Doug who will provide further details regarding our financial results. Doug?

Thank you Don and good morning everyone. Before I cover some of the more significant expense and benefit items that effected cost of products sold and selling and administrative, in the quarter and in the full-year, let me walk you through the non-GAAP adjustments that we included in our earnings release. For the fourth quarter, we reported net income attributable to Methode of $10.1 million or $0.26 per share. This compares to a net income attributable to Methode of $16.1 million or $0.44 per share in last year's quarter.

In the fourth quarter of fiscal 2011, we recorded a gain on the sale of discontinued operations of $600,000 or $0.02 per share. That was the sale of our 75% interest in Optokon that Don just talked about a little while ago. Because of the GAAP intra-period tax allocation rules, continuing operations benefited by the taxes allocated to the Optokon sell. Therefore, if the Optokon sell is excluded from the quarterly results, the $3.5 million tax benefit to continuing operations must also be excluded. This results in $6 million or $0.16 per share of net income to the quarter, when the Optokon sale is excluded.

In last year's fourth quarter results, if we exclude the $300,000 of restructuring charges, the net income attributable to Methode would have been $16.4 million or $0.45 per share. Therefore, net income from continuing operations was $6 million this quarter, compared to $16.4 million in last year's quarter, or $0.16 earnings per share this quarter versus $0.45 per share last year. You should note that in both this and last year's fourth quarters, we recorded income tax benefits, excluding the sale of Optokon, the benefit in the fourth quarter of fiscal 2010 was $8 million or $0.22 per share, greater than the current quarter.

For the fiscal year, we reported net income attributable to Methode of $19.5 million or $0.52 per share. This compares to a net income attributable to Methode of $13.7 million or $0.37 per share, last fiscal year. Excluding the $2.1 million expense for the Blue Angel settlement, the negotiated program termination charge of $1.3 million recorded in the second quarter, the $600,000 net gain and the $3.5 million intra-period allocation benefit from the sale of Optokon, the current fiscal year net income attributable to Methode would be $18.7 million or $0.49 per share. If last year's results excluded the negative effect of $7.8 million of restructuring charges and the favorable effect of reversing a $1.7 million one-time pricing accrual, last fiscal year's net income would have been $17.8 million or $0.48 per share. Therefore, on a non-GAAP aces, net income attributable to Methode was $18.7 million in the current fiscal year, compared to $17.8 million last year or $0.49 per share this year, versus $0.48 per share last year.

Moving to cost of products sold, in the current quarter, cost of products sold as a percent of sales was 78.3%, compared to 76.7% last year. The comparison would have been better, except for a few unusual items. In the current quarter, we had vendor supply issues in the new product launch of $300,000, we also had $700,000 of incremental higher cost related to design and development costs for the GM Center Stack Program. For the fiscal year, cost of products sold as a percentage of sales was 79.2% compared to 78.8% last year. As with the fourth quarter, the comparisons would have been better except for the vendor supply issues and the new product launch of $2.3 million. Negotiated program cancellation charge of $1.3 million; that occurred in the second quarter. The $1.2 million incrementally higher cost related to the General Motors Center Stack Program and also a customer cancellation charge of $400,000 in the Power Products segment that occurred early in the year.

Moving to selling and administrative. In the current quarter, selling and administrative as a percentage of sales was 16.8%, compared to 15.9% last year. This quarter's selling and administrative expense included about $1 million higher stock award amortization, partially offset by lower Delphi legal expense of about $300,000. In the fiscal year, selling and administrative as a percent of sales was 16.5%, both this year and last year. If the Blue Angel settlement of $2.1 million was excluded, selling and administrative as a percent of sales would have been 16% this year, which is below last year's 16.5%.

This fiscal year, selling and administrative expense also included $2.1 million higher stock award amortization, partially offset by lower Delphi legal expense of about $1.1 million. Again, as I mentioned last quarter on the stock award amortization, that we expect the charge to be in the range of $800,000 to $900,000 per quarter. The reason for that is the prior year's expense had very little stock award amortization because of the cancellation of several of the agreements, due to the impact of the prior restructuring and impairment charges taken in prior years.

Just finally on operating cash, during the fiscal year we generated $17 million of cash from operating activities. This was about $10.3 million less than last year and it included a $13.1 million federal tax refund for net operating loss carry-back that was received in the third quarter. This refund offset any increase in working capital that primarily resulted from the increased sales activities and additionally, in order to protect the supply chain, we are also carrying higher inventory for certain components that have been in short supply. Don, that concludes my remarks.

Thank you very much, Doug. Diego, we are ready to take questions.

Thank you. Ladies and gentlemen, at this time will be conducting a question and answer session. (Operator Instructions). David Leiker, Robert W Baird.

Hi, good morning it's Joe Vruwink on the line for David. Question on engineering as we go forward. If I look at just SG&A, the past few quarters, and I strip out what the Delphi legal fees were, it looks like expenses have been between call it 15.5% to 16% of revenue, I'm just wondering, going forward, is this a good base that is sustainable, given the engineers that you've brought on? Or, should we expect higher levels going forward?

First of all, the engineering expense that Don was talking about, Joe, are going to be in cost of products sold. So, the additional expense in selling and administrative is primarily coming from the increased stock amortization.

Okay, and there is no product launch costs that are going to hit SG&A?

No, there shouldn't be. It should all be up in cost of goods sold.

Okay. Great. And then, as we look at the pace of that ramp, have you brought on basically the human assets that you need where going forward we shouldn't expect that much deviation from what we are seeing now? Or, what are the magnitude of costs we should expect in upcoming quarters during this fiscal year?

We probably have seen the bulk of that. I wouldn't rule out that we wouldn't add a few more heads as the launch progresses. Particularly as we get closer to launch. But, I think the estimate we gave, we gave a range for the year of $2.5 million to $2.8 million, I believe.

Okay, great. That's helpful. If I switch over to piece of new business you announced this quarter with the lithium-ion battery, it seems like an exciting product category that we haven't really heard you guys talk about that much in the past. It seems like this technology is also transferable to other battery applications. Are you in discussions with other OEMs about doing a similar product, where you are able to leverage the R&D investments you've made to win this award on potential, future awards?

Yes. We've been talking to a number of them. This is the first I think major award we've gotten. We've gotten a few prototypes that we've done. What's driving that is -- Methode's in somewhat of unique position in that we've been in Power Products for quite some time. And, we are a seasoned Automotive supplier. So, as the Auto makers and tier ones look for qualified suppliers, we're a qualified supplier in both instances and that gives us a little bit of a leg up in pursuing that business. So, we are starting to see, as these vehicles come online, we are starting to see that market heat up.

And, this is exclusively developed, I should say, internally developed IP or is this anything that may have come from Eetrex.

Well, in the award we just announced, that is homegrown Methode technology. And, it's like a typical Automotive program where the actual design is done between Methode and the customer. The charger is Eetrex, but this particular award is Methode technology.

Great. And then, just one final question. There's been a little bit of negative publicity in regards to the MyFord Touch product itself and the basic interface I guess. Has there been any changes on Ford's part of maybe wishing to alter some of the aspects of the console system itself? And, how is what GM is designing changed by some of these early kind of press reviews and consumer reviews of the product?

Okay. On the Ford product, no, we've not been asked to make any changes to the products. From our standpoint, the product is still selling above our expectations and I can't speak for Ford, but I think they've been happy with the sales as well. The article now is several months old. And then, the GM launch, there is very little touch sales on that so I can't go into too much detail because GM hasn't announced platforms and so on. But, there's very little touch on the GM program right now. I suppose that could change.

And the criticism seems to be more focused to the software, the Sync, not to our touch.

Yes, Doug that's a good point. We provide the center console, not the interface. Or the software, rather.

Great, that's all I had. Thanks, guys.

Jeremy Hellman, Divine Capital Markets.

I just wanted to take the last question and kind of, as a kind of a framing base, if I think at a really high level, is there a way to kind of quantify the amount of product that you could supply to an all-electric vehicle versus an internal combustion engine vehicle versus a hybrid and or something that is using stop-start? Or maybe if you can't quantify it, can you rank those from1 to 4 which ones would offer the most penetration potential if you want to call it that for Methode products?

Okay. Pure electric is going to have the highest content, if you really talk dollar content, because an onboard charger is several thousand dollars. In low volume, it's $15,000 to $20,000. So that would probably be ranked number 1. You could also put our Bus Bar technology I just talked about on a battery pack, Eetrex is developing battery management systems so there is some more technology there.

We certainly could do the -- and we do have a product coming out on the charging station so that would be my highest -- the hybrid, you might get into the Bus Bars, again. Probably, there may be a battery disconnect or something that Eetrex would do. And you're talking about, I'm assuming a question is talking about not of switches and so you're talking about Power components, is that correct Jeremy?

Well, I'm really talking full boat -- everything you could potentially sell. Whether or not you are in there selling something or not, but the quote-unquote addressable market per vehicle.

Oh boy. (laughter)

What I'm trying to get to is obviously we are in early stages of the EV evolution, but if we look out 5, 10 years and EV adoption rates do progress nicely and EVs become a significant component of the vehicle fleet, at the end of the day does that -- what I'm thinking, and it sounds like you're confirming this is that your either dollar sales per vehicle should certainly have an upward bias.

Oh, yes. I would agree with that. But, even on a conventional vehicle, we've got our center console products, we've got our torque sensor products, steering angle sensor, lead frames that are in the transmission, so that content will also go up.

Right, okay. And, when you think about the design cycle for Autos and considering that this is a multi-year process, when you look at potential business that you might be pursuing for the '14, '15, '16 type years, are you seeing any kind of gravitation to a heavier EV component or proportion?

No, I don't think -- it's going to be a small percentage, even as you get into '15, '16, '17. As we said before, we're done booking for '14, we are booking for '15 and beyond now. And, I don't know what the estimates or the market estimates are for EVs but they are still a small portion as we get into the latter years here.

Okay, with stop-start, that seems to be more the immediate sweet spot because it doesn't really have a big impact at all on the actual consumer behavior so to speak; it's under the hood and out of sight. With stop-start, how much of an opportunity is that for you guys? Or even if you have vehicles where you have kind of a dual battery system?

Again, just in the Power components, but at this point, we don't have anything booked in start-stop.

Okay. I'll go for something a little more germane now, back to the non-GAAP reconciliation, Doug, I just want to run through that again. I want to make sure I have my notes correct. From your headline number of $0.26, to adjust down to the $0.16, non-GAAP number -- I'm missing something, is that a negative $0.02 from either the sale of Optokon and then the negative $0.16 to the tax effect? So that would get me down $0.26 minus $0.02 minus $0.16 would get me down to $0.08. What am I missing there?

There is $0.11, because what you've got is the tax credit of $3.5 million that is in the continuing operations. That large income tax credit that is there.

Right.

Then, that is offset by the gain.

Okay. I'll work through the numbers. If it doesn't clear up I'll follow up with you off-line.

Okay. That should work out.

Okay. I think that's all for me. Thanks, guys.

(Operator Instructions). Greg Macosko, Lord Abbett.

Could we go through, just a little bit on the gross margins to understand the adjustment relative to the growth in the Auto and the Power area? Auto was up 38%, year over year, and you mentioned the vendor supply issue of $2.3 million; that was for the entire year? Or, is there an adjustment there just for the quarter?

No. There was -- the $2.3 million was for the full-year and then the $300,000 in the quarter. And, going forward, we are saying that could have a $1.5 million to $2.5 million affect full-year fiscal '12.

And, is that relative to the GM launch? Well, that's relative to the GM launch because you want to get yourself internally only, supplying the product internally I assume, right?

That is -- the current issue is with the MyFord Touch panels that we are providing. At the time that we booked that Ford business, in late '08 and Automotive was in free-fall so we didn't vertically integrate, at the time, when we were pursuing the GM business before we even booked it, we knew that we would probably vertically integrate that. There's pretty good savings in doing it. But we are doing now is really accelerating that because of the supply issues.

I see.

But it's a 9 to 12 month process. So that's why we are saying we will enter fiscal '13 with that integrated.

Okay. And, what other adjustments are there? There was a new -- there was some new launch cost; you said higher manufacturing costs and I assume those are ongoing? Or are they -- is the launch making kind of a ramp up of the launch, kind of raising the cost that as you get more comfortable with the volumes on the launch -- the margins should be better?

I think, what we said, was higher designing, development and engineering costs. I don't think we said manufacturing.

Okay.

No -- the only manufacturing issues we've been discussing is vendor supply. That's causing us some issues.

Okay. And -- but those new developments, new product development that's really in SG&A line? Isn't it?

We showed -- we're showing those in cost of goods sold. That's -- those are we are developing a product that is booked. So, those costs to get that business launch are in cost of goods sold. And, Greg, that's -- again, looking at the full-year, those costs are about $1.2 million for the year.

All right. Well you see what I'm asking, just trying to understand -- with such a strong revenue on the top-line and yes, adjusting for the vendor supply issue and the product development cost, are we looking at something around 16%? Does that make sense on an ongoing basis? Or, do you expect that gross margin to improve in the Auto area?

Hold on a second. Doug's looking at that, the other point we made is that, full-year gross margins were negatively affected by the loss of the Delphi business.

Yes, but in the quarter, last year, because did you have Delphi business last year in the fourth quarter?

I don't believe so, no, we did not.

Right, that's what I'm trying to get at. This is kind of the current comparison between the 2. You said Delphi. Ex-Delphi for the whole year, I guess you were up 32%. So you've had good, solid growth of non-Delphi business and are we kind of -- is this kind of the Auto run-rate now? Or what are we looking at?

That's -- I think from looking at my numbers, right, we are about $15.5 million for the fourth quarter this year.

Right.

And, I think we've said that we expect our gross margins in Automotive to improve. We know, as we watch some of these programs we'll get some very positive effects from that.

And, does that imply, at continued strong sales growth?

Right.

Okay.

Right, and those are programs that really don't kick off until the latter part of '12 and '13.

And at '13, yes.

Okay.

But I think we have -- we don't have those in front of us but I think we've put out our ranges for Automotive gross margins.

What is that again? Remind me please.

I don't want to misquote, so I want to make sure we have the -- number here. We are looking at it. And, if we don't have it here, we will get back to you on that. But we have put that out.

My recollection was for Auto I think we said high teens, low 20%s for Automotive.

Okay. Very good.

We'll take the risk of misquoting.

All right. And then the same on the Power. Power is up 35%. You're just getting those new orders into production. That's up 35%, there was what about 200 basis points from that onboard, integrated power unit in the electric truck being launched or whatever? But, the gross margin comparison was quite a bit down. Is that a gross margin we should be looking at, at these sales levels at present?

The Power gross margin was down because of the Eetrex.

Was that -- in other words it was it was 22% versus 33%; was a pretty big drop and yet sales were up 35% so I just want to understand --.

Yes, we've got $600,000, $700,000 in launch costs for the charger units.

Right.

That should be a, to some degree a one-time event. I shouldn't say -- or make

Right.

And will continue into our fiscal '12 here, but once the product is developed, it's developed and that won't be reoccurring.

Okay, but --

So, what we've got is the cost to develop the launch the product and no sales right now. So, as the product sells, the margins will certainly improve and our development costs will wind down.

Okay. So, -- and if we look at the same basis on Power, what was your range of gross margin expectation on Power?

Let me get that to you, because we just don't have that investor presentation here.

All right. Basically, I'm just looking at the change over that and the $600,000 to $700,000 doesn't account for that 11% differential, right? It is more than that, I would -- that's bigger than the $600,000 to $700,000 doesn't account for the 1,100 basis points, right?

Okay, we just brought up the what we call our fiscal 2014 target.

Yes.

For Power, the gross margins are in the high 20%s. Auto, we are seeing low to mid 20%s.

Okay.

Before you ask about Interconnect, low to mid 30%s.

Okay, well we're right there. We're pretty good. As you said.

But that's our fiscal 2014 target.

So, we're going -- those gross margins are going to stay where they are basically? You are all ready they are -- you're at 34%; you're pretty close to where --

Yes, and you have to -- the fact that quite a bit by mix. It's --

Okay. So the mix was favorable right now?

The mix on Interconnect was very favorable for us. So, that got to the high end of our range.

Okay. All right. Very good. I just want to keep up on kind of where we're headed and what our expectations are, particularly on the gross margin side and that gives me some explanation.

Okay.

And the new winds do sound good. Thank you very much.

David Leiker, Robert W Baird.

A quick follow-up for me. If I look at what you've done the past 4 quarters now, and I put in a normalized tax rate, you're pretty much ranging between $0.10 to $0.15 a share per quarter. Given that the stock seems pretty much stuck in a call it $0.10 to $0.14 range, I'm wondering what gets us above this call it $0.15 a share, going forward, or is that a level that you would expect to be maintained during this upcoming fiscal quarter? Given that the significant new business doesn't launch until fiscal 2013 and you're going to have some costs it sounds like, in fiscal 2012 associated with that business?

Joe, sounds like you're trying to get us to give you guidance. I don't know that we want to comment.

I wouldn't think of doing that.

(laughter) I think we laid out in our release and prepared comments, we have some cost that we are incurring to launch these new programs. And, you know the Automotive cycle so we are really saying that these programs start to launch end of '12 and '13 and then from that you probably can model where we are headed. I think to go any further I am getting into the guidance there and I like to stay away from that.

Okay. Thanks, guys.

Ladies and gentlemen there are no further questions at this time; I will turn the conference back over to Mr. Duda to conclude. Thank you.

Diego, thank you very much and we thank everyone for listening today and wish them a very safe and pleasant holiday. Good day.

Thank you. This concludes today's conference, you may disconnect your lines at this time. Thank you all for your participation.