Modine Manufacturing Co (MOD) 2006 Q3 法說會逐字稿

Good morning everyone and welcome to the Modine fiscal 2006 third-quarter earnings conference call. Today's conference is being recorded. For opening remarks and introductions, I will now turn the call over to the Director of Financial Operations, Mr. Mick Lucareli. Please go ahead, Sir.

Thank you operator and good morning and welcome to Modine's fiscal 2006 third quarter conference call. One note before we get started. Dave Rayburn, Modine's President and Chief Executive Officer, is traveling today and connected by phone from a separate location. Joining me here in Racine is Brad Richardson, Executive Vice President of finance and Chief Financial Officer.

Modine issued its third quarter results last night. We trust you've had a chance to review the press release and the financial tables, which are available on First Call as well as the Modine website at modine.com. Also, a reminder that today's call will be available as an audio replay through Modine's web site as well by telephone through January 31. You can call 719-457-0820 or 888-203-1112, and then the passcode you will need is 1412993.

Also before we get started, I would like to read Modine's Safe Harbor statement. This conference call may contain forward-looking statements that involve assumptions, risks and uncertainties and Modine's actual results, performance or achievements may differ materially from those expressed or implied in these statements. A detailed discussion of factors that could affect Modine's results are found on page 36 of the Company's fiscal 2005 annual report to shareholders and in recent public filings with the U.S. Securities and Exchange Commission. Modine does not assume any obligation to update any of these forward-looking statements.

Now for the agenda, we will follow the same process as we did last quarter. First, Dave will make some opening comments, followed by Brad Richardson who will give additional perspective and greater detail on the financial results, and then Dave will close the comments section with an outlook for 2006 and he will open up the lines for your questions. Dave?

Thanks, Mick, and good morning and welcome to our third quarter conference call. Our earnings release yesterday reported sales of $411 million, up 10%. This is the 14th consecutive quarter of year-over-year growth. Excluding the impact of our recent acquisitions though, our sales were essentially flat.

Positive volume drivers were the North American truck market, coupled with our recent acquisition from Transpro, their OE business; our European heavy-duty business, which includes truck and off-highway and the Airedale acquisition with primary operations in the UK and North America. Plus new business, specifically in the Engine Products Group supporting the new emission laws that are being implemented both here and in North America.

Sales volume offsets were reduced, North American build rates specifically on the platforms that Modine supplies, a weak electronics business and lower commercial vehicle sales in Korea. Despite this low volume, this volume increase, multiple issues impacted our earnings for the quarter. The business challenges I discussed in the last quarter conference call have continued, and in several cases, worsened. In the third quarter, material prices significantly impacted the quarter. Copper is at an all-time high and aluminum is at a 10-year high.

We do have base material pass-through agreements with our OE customers, but there is a lag effect on price recovery from 60 to up to 120 days, and even in some cases in Europe, a year. In addition to the rapidly increasing material cost increases that we're seeing, we are also in a highly competitive OE marketplace. Given that, pass-through can take an extended time to get final approval. Our diversified customer base does help this process in getting to final resolution. This lag impact will have a positive impact when material prices reverse.

Energy costs, especially natural gas as many of us have seen in our own home utility bills, has impacted the third quarter significantly and that will continue into the fourth quarter. Negative pricing is an absolute reality in most of our markets and some of our customers have become even more aggressive. Again, our diversification model helps in these situations as we apply our technology in differentiating ourselves in the marketplace.

Our Electronics Cooling business continues to be a challenge, and as I mentioned in the last quarter, we're in a detailed review with each of the business markets that we serve in this electronics segment. Segments such as computers, servers, telecom, power and government are all being reviewed, both from a market standpoint and a Modine standpoint. What are the current heat transfer requirements in these marketplaces and where will they go, and certainly what is our competitive position? And most importantly, how can we leverage Modine's core competencies in heat transfer?

In addition, we have made several management changes in the division, both in operations and general management, plus we've changed our corporate oversight. We were also active in multiple launches during the quarter in several of our regions. Many are in the Engine Products segment I mentioned before, such as the recently announced exhaust gas recirculation coolers for John Deere.

I am pleased with the continued growth of our operating cash flow and our improved return on average capital employed. And with that, Brad, would you provide some details to the quarter?

Yes, thank you very much, Dave, and good morning to everyone. I would like to remind everyone that we have made the determination to classify the aftermarket business as a discontinued operation. The focus of our disclosure and dialogue in this call will be on income from continuing operations, which again excludes the effect of the spinoff of the aftermarket business which occurred in July of last year.

Despite our previous guidance, the third quarter turned out to be more challenging than we had expected. Earnings from continuing operations of 13.1 million, or $0.38 per share, were down 39% from last year's $0.52 per share. Although the two most recent acquisitions we have made contributed over 1.4 million in the quarter, exceeding our expectations, this contribution was more than offset by a number of factors, including as Dave mentioned, a significant slowing in our organic revenue growth, driven primarily by lower North American automotive build rates; specifically, the Dodge Ram and Dodge Durango platforms.

Further, we experienced like others in the industrial sector a rapidly accelerating increase in commodity prices, including a quarter-over-quarter 39% increase for copper, a 10% for aluminum and a near doubling in the cost of natural gas, which is a key cost incurred in the brazing of our products. We estimate the impact of rising commodity costs at $4.2 million in the quarter. As we have communicated in the past, there is a lag impact on the pass-through of certain of these costs under contractual arrangements that we have with our original equipment manufacturer customers.

Also in the quarter, we incurred operational issues associated with the startup of our global off-highway aluminum product line at our Camdenton, Missouri manufacturing plant adversely affecting the quarter by nearly $1 million.

Our overall costs were also impacted by an increase in health-care-related cost of over $1 million, plus $2 million in incremental expenses associated with the strategy work -- associated with the electronics business, plus Sarbanes-Oxley-related expenditures. And further related to the quarter, we incurred incremental taxes of nearly $2 million, or $0.06 per share, resulting from the repatriation of nearly $85 million from Europe at a very favorable tax rate as provided for under the U.S. Jobs Creation Act.

Magnifying the decline in earnings is the fact that last year's quarter had a number of favorable factors, including a $1.2 million warranty adjustment and $3.7 million in translation gains primarily on our intercompany loan with Korea which has now been hedged. Excluding the impact of currency, warranty adjustments and higher taxes associated with the Europe cash repatriation, underlying results were down about 20%, again reflecting the North American automotive build rates, product launch issues and the inflationary commodity prices that we discussed.

With regard to the nine-month performance, after a very strong start in the first quarter, we saw earnings begin to moderate in the second quarter and actually decline in the third quarter reflecting the factors cited above. Earnings for the first nine months from continuing operations rose modestly to 48.1 million from 47.8 million, or up 1%, reaching $1.39 per share. For the four quarters ending December 26, 2005, the return on average capital employed increased to 9.8% from 9.2% reported in fiscal 2005 as the improvement in our asset turnover, driven by the spinoff of the aftermarket assets, was partially offset by a decline in our margins. This return on capital employed is below the low end of our target range of 11 to 12% through the cycle and we remain focused on driving further improvements in this all-important metric.

Cash flow for the first nine months remains strong at 97.5 million, up 10% from the prior-year period. We have redeployed cash flow to fund our capital investments in support of future growth that Dave discussed. We acquired Airedale International Air Conditioning in the UK and we aggressively purchased shares in accordance with our authorized share repurchase program. As of January 13, we have purchased $59 million, or slightly over 2 million shares. Given our 5% authorization equates to 1.7 million shares, you can see that we have completed that program and now are focused on acquiring shares to offset dilution from our incentive share plans.

The balance sheet remains one of our key strengths and remains one of our four corporate priorities with the debt-to-capital ratio at 22%. Excess cash was drawn down sharply in the quarter and was used to fund the share repurchase program, resulting in a quarter end cash balance of $33 million compared with $66 million at the end of the second quarter. Given the current economic environment, we would expect that cash and debt balances to remain fairly constant during the balance of the year. With that, let me turn it over to Dave.

Thanks, Brad. As we stated in our release, we remain optimistic on the Company's long-term value. We continue to diversify our markets, our customers and expand our global footprint. We are very focused on technology, both from the short-term and the long-term perspective and have a great global reputation.

With the recent run-up in energy costs, which we believe will continue in the long-term, we are very encouraged with our long-term opportunities both with fuel cells and our recent acquisition with Airedale. We are winning new business, as we announced in our November release, of $300 million worth of net new business that will mature in the future. We're benefiting from the recent acquisitions, plus our move into Asia is a key step in our globalization strategy. And finally, our balance sheet remains strong and provides us the flexibility and resources to continue to grow our business further.

In regards to the quarter or the balance of the year, the challenges I discussed earlier will continue in regards to materials, cost increase, market volumes and North America automotive, electronics and Korea, plus the utility challenge that we will experience in the balance of the winter. Plus, the customer expectations won't relax.

With that, we now expect earnings-per-share from continued operations will be flat to slightly down compared to fiscal 2005 of $1.79. So with that, operator, would you open it up for questions?

(Operator Instructions). Rob Damron, Midwest Investment.

Good morning. I wanted to start out with just a question about the North American truck market. That was one of the positives for the quarter. But, I believe that is being partially driven by the 2007 truck emission regulations that will be going under change here into 2007. So I'm just trying to figure out -- could you quantify for us in any way how much incremental business you're getting from this new regulation? And then maybe in other words, how much business may -- how much will business drop into 2007 after this regulation goes into effect?

I'll take a shot at that. Certainly, the North America run-up in the last two years has been great. Certainly in that environment though, there continues to be the challenges of price pressures and cost pressures, et cetera, but we have enjoyed this run-up. There is a pre-buy that's taking place. There's lots of opinions out there, Rob, in regards to how significant the pre-buy is. It is being constrained somewhat with the supply of some components; not radiators, but some components. Certainly, we would expect next year's volumes to be very similar, at least for our first three quarters that we have seen this year.

I have heard all kinds of speculation on what the potential drop-off is after the new emission laws change. I think a lot of that will depend on the economy. And a number of the new engines are now in beta testing right now and this is much earlier than we had in the '02 business change. And so the confidence in the marketplace will certainly I think impact how much pre-buy as the reputation on performance, miles per gallon and potentially durability information on how strong that pre-buy will be, and what the potential fall-off will be in the following year.

The good news for us is, we have content change taking place with the incremental heat transfer parts that are part of the engine modules (indiscernible) exhaust recirculation coolers, things called pre-coolers, et cetera. Our content per vehicle is increasing, and that is encouraging. And coupled with the '07 emissions change, we will be launching the new Freightliner business that we announced earlier.

Okay. Right, and with that, you did mention the $300 million dollars of incremental business through 2010. Could you give us some idea how we should expect that? Is that equally weighted by year? Is it back-end weighted, front-end loaded? Maybe just some color around that?

I will take a shot at that, and then Brad if you would embellish. But when we announced last year, we said that that number from last year was heavily loaded in the front end. And as a result of that, we have launched quite a bit of new business this last year and currently. Then we will go into some flattening and then a larger share of that 300 million will be in the latter half of the five-year plan.

I think that's a good summary in terms of the 300 million as you mentioned. Last year, it was more front-end weighted, and this year as we looked at the profile of the 300 million, it's more back-end loaded because of the engine changes that will come again in the 2010 timeframe that we're already working on.

One other issue, Rob. We also have emissions law changes taking place in the (indiscernible) in the ag markets which have a little different calendarization of their launches.

The last question is the OE price-down pressures that you mentioned. Do they seem worse in the latest quarter than they have been over the last year or two, or is this just an ongoing pressure that you constantly feel?

Anytime you secure a new piece of business, there is productivity or annual price-downs that are negotiated as part of those model launches. But in particular, we have some customers, and I would speculate that maybe because of their own situation, are more aggressive, and we have had some that are more aggressive recently than we have seen in the past. We deal with those situations as responsible as we can. Certainly, we want to make sure that they are as competitive as they can, but we have a responsibility to our shareholders.

We try to work very focused on design cost reduction. Our plant cost reductions -- lean manufacturing and Six Sigma -- we hope to use that to help offset economics and the real opportunity to work with our customers on price-downs is design cost. Some work with us very well, and that means they have to give us -- make available resources to work on those design cost, some tend to want to be a bully. The good news from -- if there is good news in this environment, is our diversification. Our largest customer is only 10%, which is important, but not as leveraged as some others have. And given that profile, I think we can be as responsible as we can be with the -- for the shareholders.

Okay, that's helpful. Thank you.

David Leiker.

A handful of number-related questions. Can you quantify the revenue impact of Airedale and TPO so we can pull those out of the individual segments?

Yes. I think what we said is that the overall revenue growth, David, in the quarter was about 10%, right? You can see that (MULTIPLE SPEAKERS) in the math. And absent Transpro and Airedale, the revenue was flat. So I think you can do the math there.

I wanted the specific ones for the two so I can pull them out of the segments, though.

Okay. We may have to get back with you on the split there.

The report notes that commercial HVAC&R is up I believe 6.7 million, and there's two elements of that; certainly, the Airedale business, which is the larger piece of that. We've also enjoyed some incremental volume with our coil business out of Mexico in support of the refrigeration market due to the hurricanes.

If you look at, David, at the 31.9 million for Commercial HVAC&R versus 52.8 million, that's about a $21 million increase, and almost all of that is Airedale-related.

(indiscernible) come back into the Transpro.

[And you] back into Transpro.

Right. And then I didn't see a currency number in here.

The currency number was a negative in the quarter again on the revenue side of about $4 million.

Okay.

Negative impact, meaning the dollar had strengthened, vis-a-vis the won and vis-a-vis the euro.

Okay. And in Asia, what exactly is your mix of business there by end market that that ends up being so weak for you?

In Asia, specifically Korea, we are very strong in the commercial market versus the automotive side. And the automotive is what the export and commercial is primarily domestic used. So -- Brad, I don't have that number in front of me, but I would speculate about 75% of that business is commercial?

I think 75 to 80% is a good number as linked to the commercial vehicle market, which is, again, as we've said in the past, David, is really for domestic consumption. There is a very little export business by high-end IKEA, which is the largest commercial vehicle customer of ours.

And when you say commercial, is that trucks, or is that construction, off-highway?

That's trucks, as well as high-volume minivans.

Utility like vehicles. What is interesting, Dave, is what we brought to the table with our -- for example, our Volvo construction business, which is a global platform. We're now being able to grow in that region in our construction market by utilizing our global reputation, which was not a skill set that business had before the acquisition.

Okay, one more question and I will come back. I just want to clarify this. Your guidance is at that you expect flat to slightly down from last year's 179. What is the year-to-date number that you're using that would be a comparable to that 179? Is it the 139 number?

139.

Okay, great. I will come back with other question. Thanks.

Simeon Wallace, Gabelli & Co.

Good morning, guys. I just had some quick questions for you. The first has to do on the SGA line. It grew in excess of revenues and I was just wondering if you can kind of give a little bit of color to what the excess was there.

Yes, I will cover that, Dave (sic). The SGA, as you can see from the -- I've been looking at the nine month or looking at the quarter -- is up in the quarter about $7.5 million. Of that, certainly there is SG&A that was incorporated as a result of the acquisition of Transpro, as well as the Airedale. So you have to split out and look at kind of what's going on on an organic basis. On an organic basis, the SG&A is up about $3 million. So the balance, again, is associated with the acquisitions, and I'm talking in the quarter. Of that 3 million, clearly, what was in that, and I mentioned in my comments, was the third-party monies that we're spending on the strategy work for our electronic cooling, as well as some other strategy work around the automotive side of the business, plus the Sarbanes-Oxley-related cost. Also included in that is the impact of health-care-related costs. Some of that's split up in the manufacturing line, but there's also a health care component. So those are really the drivers of the organic growth at this point.

And how much are you hit by Sarbanes-Oxley?

I'm not going to split out the Sarbanes versus the other third-party costs, but I think it's fair to say we -- it's not an insignificant number.

Okay. On the balance sheet in terms of inventory, you guys have done a great job reducing inventories there. I see from last year, it's been down and you got 150 million to 90 million. Can you talk about how much of that difference is seasonal versus how much you think is kind of more permanent in terms of you taking out of the structure of the business?

Certainly, we're very pleased that in the inventory turns, which have nearly doubled since the prior year. The reality is that most of that drop that you see is a result of the spin-off of the aftermarket, which had roughly about $50 million worth of inventory.

The only seasonal business that we now have is our HVAC&R business where a portion of that business is served by warehousing so you can have quick delivery during the winter months. But in the total scheme of the total inventory value, it's not that material.

Okay. And my last question has to do with I guess your analysis of the electronics business. Can you talk a little bit about -- is the focus on turnaround, or are you evaluating whether strategically to keep that business as part of Modine?

Certainly that business has changed since our acquisition due to the telecom drop, and we did take a strong focus during that period on the computer side and expanded our facilities in Taiwan. I would split it into two pieces. We had some operational issues, specifically in Taiwan, that we have made some resource changes and a much better focus on the short-term to get that business from an operating standpoint back on its feet. From the business analysis, I think it's very appropriate given what has taken place in the various segments that this electronics business serves, is that we're doing a deep dive in each one of those in looking at where is the technology and where is the technology going to go. If we can't differentiate technically in this marketplace and it's a pure commodity, then that is not where we typically play; i.e., why we got out of the aftermarket.

So as we look at each one of those, we may make different decisions. But think we have to wait for the analysis to follow through. I would speculate that any time you're in a deep dive on these kinds of things, one question leads to another question. We will make a thorough responsible decision. I still am personally encouraged by what I read in regards to the technology needs in this industry and what Modine's bag of technical tricks bring to that table. We have to make sure that we have a commercial model that makes sense as well.

Do you have any sort of time line or expectation on how long analysis should take?

I think the operational issues that I mentioned certainly during the fourth quarter will -- certainly, I expect some turnaround there. In regards to the market analysis, I think we will have better clarity over the next two quarters.

Thanks a lot.

Maybe into the third.

Thanks a lot, guys.

(Operator Instructions) David Leiker, Robert W. Baird.

Dave, I'm glad you ignored my comment on the Airedale business, because I was reading the wrong fax and Brad bailed me out. So thanks, Brad.

A comment and a follow-up here first on the electronics business. Let's assume for a moment that you end up selling it. What's the book value that you have that on your books for today?

I would speculate that I'm not even going to get into trying to say what-ifs. We bought this business for strategic reasons and I think it makes a lot of sense at this point from what I know that it's a good strategic buy. So, Dave, I'd rather not go down that path of what-if.

Okay. Shifting to Europe -- we're at that stage now where the 3 Series and 1 Series should probably be fully ramped up. I'm a little surprised at the performance of that business, given where BMW would be on those vehicles. What's going on over there?

From what was called the PL2 platform, which is the Series 1 and the Series 3 together, what we had on our business plan for the two in combination is about on plan for the full-year in our forecast. In regards to the 1 Series though, its volumes have been considerably higher than what we had had in the plan, while the Series 3 is a little lower, although the overall volume of that market is -- that business is higher than the 1 Series. So in balance, it's about where we expected.

The competitive issues in Europe are very real, and some of the cost issues that we talked about in regards to material are also very real. So we also are going through some mix issues in that business as well. Brad, you may want to embellish?

I think you just hit on the point that I was going to make, David, and I think it's fair to say that the profitability, if you will, of the new BMW business versus the old BMW business is lower, and that is contributing to kind of this mix issue that Dave was really alluding to.

So weren't you a year ago running to start-up costs where that was a negative for the numbers, and that should flip around right now?

I would say that the start-up costs for the new Series 3 were minimal.

I kind of remember that the comment, though, that the profitability of that wasn't coming through a year ago. Here again, the revenue growth, but not the earnings growth because of launch issues.

Yes, and we're getting it again. We're getting the revenue growth at this juncture, but given the overall margins, plus again the aluminum prices which have affected this business, the margins are actually lower.

And Dave, at least my memory might be a little different what we talked before in regards to BMW, that the old Series 3 volumes fell off more dramatically than what we expected. And we were in launch for the new 1 Series and 3 Series and the combination of the volume change of the old being down and the new just ramping up was the consequence of the earnings prior.

So the profit contribution of the 1 and the 3 is less than what the old one was?

Yes, and we knew that when we took the business.

Okay. How many shares did you repurchase in the third quarter?

We repurchased about 1 million, about 1.2 -- hold on just a minute. About 1.2 million shares.

In the third quarter?

Yes.

How about a numbers-related questions here. Interest expense during the quarter sequentially, what's behind that?

The decline?

I actually show that it went up above a couple of hundred thousand dollars.

I'm sorry, because I'm looking at the -- I thought you were -- okay, never mind. The interest expense in the quarter is up -- are you talking sequentially, or are you talking about versus the prior year?

Sequentially.

Sequentially, it's up. Quite frankly, and our debt balance is up slightly, but it's really a factor of the rates and certainly the rates on our revolver are variable-rates and so we did see certainly the rise in the interest rates in the quarter, vis-a-vis the second quarter.

Any other income numbers down meaningfully?

Down pretty meaningfully versus the previous year's quarter, and that's really quite frankly the absence of the gain on the intercompany loan that we had in Korea, which again, we took steps to hedge that loan. So last year, we had nearly about $3.7 million in gains and this year, clearly there are no gains because that loan is hedged.

Alright. Where -- so -- okay -- one last item here. You've got one quarter left to go here in your March '06 fiscal year. As you look out another year and you have a lot of different swing factors there, what needs to happen for you to be able to have a positive earnings comp in '07 versus '06?

Certainly, we have to come to grips with some of the operational issues I mentioned in Taiwan, which I think we have the right people on the bus on that one. We had some issues in Korea in regards to leveraging our global sourcing office in Shanghai, which we initiated about two years ago, and we have a lot of activity there. Really, I think the sourcing opportunity is a global. We are finishing up a global search for a new VP of Purchasing for help to reinforcing that, so that sourcing initiative is very important. And we have a couple of new pieces of business that are launching in the year, and I don't want any case studies for poor launches.

I think, David, I would also add one other factor to that list, and I would say the stabilization of the commodity prices as you can see in this quarter were simply not able to recover in a timely manner from our customers to our contracts the rapid escalation that we have seen in aluminum and copper. And so that environment has to stabilize in order for us to be able to have meaningful earnings growth.

And I think that would also help stabilize some of their relationships. Contractually, we have what we have and we are going to follow through on those contracts. But, given the magnitude of these pass-throughs, it can strain relationships, and I would like to see some calming down of that. And certainly the commodity prices would help immensely so we can work on the real issues, and that's design cost.

And then just a follow up on that. You kind of laid out -- I like the way you laid out kind of the issues that you're facing. What would be the incrementally positive items in '07 versus '06 that we could look at?

You want them in order?

Sure.

(indiscernible). We are starting to increase our momentum, Dave, in global sourcing. We've actually had a pretty decent year with a number of activities in our European Group. And I would think that the sourcing opportunity next year is probably the greatest priority. My emotional priority is certainly the electronics business. Brad, you have a different order?

No, I think the electronics business addressing that, you can see by looking at the other segments and the profitability or lack thereof with the nine months to date loss of 9.7 million; that is primarily electronics. And therefore, that has the largest impact on the ability to generate year-over-year earnings growth.

To the extent that you're successful in an action plan to turn that around, what's a realistic time table for that to become a positive contributor? Is that a couple of year project, or is that something you'd set shorter term?

We've taken a long-term focus in a number of our initiatives, i.e. the Fuel Cell Group, which I'm very proud of. I think our goal for next year, and we will see as our budgets unfold, but if we are successful getting that business to a breakeven next year, I think that would allow us then to have the strategic focus versus some of the tactical focus that sometimes you get caught up in.

Okay, thank you.

(Operator Instructions). Dennis Scannell, Rutabaga Capital.

Just a couple of quick follow-ups on David's questions. For fiscal '07, your March '07 fiscal year, how much net new business would you be expecting, just for the fiscal year?

We have not been public on that number, and I don't have it in front of me at all.

But, in terms of, when Brad had said of that 300 you have upfront ramp and then kind of a plateau and then a back ramp, are we in still ramp I guess in fiscal '07, or is that kind of -- are we at more of a plateau?

I think we're flattening. There's some examples. There are some launches, but there's some things that are offsetting that. So I think the first half, we will see some volume and the second half will be the flattening out.

Okay, that's helpful. And then within North American OE, what is generally speaking the percentage that is truck and off-highway versus auto?

Brad, my silence is your answer.

(technical difficulty) look at that 500 million-ish (technical difficulty) nine-month number (technical difficulty) look at the nine months (technical difficulty) nine months to date. The Truck Division was, call it [350] of the 500, so it's about half of it.

Okay.

And then the automotive is, call it 120-ish, and [HP&I] (technical difficulty) 130-ish.

Great, that's helpful. So -- and Brad, I guess and Dave, as you look at calendar year '07, with the fall-off expected on the heavy-duty side, even with increased contents on the new style business, new style engines, that's going to be down pretty hard. Aren't we talking about kind of 30 to 40% declines in builds?

In our next, in the new fiscal year, the first three quarters are in the pre-builds, and the (MULTIPLE SPEAKERS) quarter is in the new year. As I have heard speculation where the fall-off could be as high as 40%, I have heard others that have been much lower. My personal expectation is that the combination of some constraint due to components, which is going to limit somewhat the build to current rates, certainly the economy will have a big impact. But I think these engines are going to perform probably better than some would speculate, but there is an investment cost difference. I think the announcement is about $7000 to $10,000 a vehicle more expensive. So I'm going to wait. We have not settled our plan volumes for next year completely and I'm going to continue to watch David's report and others to see where this is going to go.

Fair enough. That's great, thanks a lot.

(Operator Instructions). If there are no further questions, I will now turn the conference back over to Mr. Lucareli to conclude.

I'll take it Mick, and I just would thank everybody for their participation. It was certainly a challenging quarter and in some respects, frustrating, but it is what it is. And I'm really pleased with the team we have and the focus we have and the mix we have and we're going to finish this year as strong as we can. So I look forward to speaking with all of you at the end of the year. So thank you.

This does conclude today's conference. Thank you for your participation and you may now disconnect.