Modine Manufacturing Co (MOD) 2006 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Modine fiscal year end 2006 earnings conference call. Today's conference is being recorded. For opening remarks and introductions I will now turn the call over to the Head of Investor Relations and Corporate Communications Ms. Wendy Wilson please go ahead.

Thank you Peter. Good morning, everyone and welcome to our call. Dave Rayburn, Modine's CEO and President is with us today to give us comments on the year and some of our current initiatives and he'll address any questions or concerns you might have. We're also joined by Brad Richardson, our Executive Vice President of Finance and Chief Financial Officer.

Before we begin I' like to provide your usual caution that this morning's call may contain forward-looking statements such as forecasts of business performance and Company results, and expectations about the Company's plans and future initiatives. Actual results may differ materially from those projected. For an in-depth discussion of risk factors that could cause actual results to differ from those mentioned on today's call please see today's press release and our form 10-K for our 2006-fiscal year which should be filed in June. Also, you may reference the Company's [annural] -- annual report on form 10-K for the period ended March 31, 2005. If you have not received today's release, it is available on our website, www.modine.com. Now I'd like to turn the call over to Dave.

Thanks, Wendy and good morning. And thank you for joining us for our fourth quarter conference call. I hope you have had an opportunity to review our release this morning. I want to make some comments about the year and then Brad will follow up on the review of our financials and make some comments in regards to the repos -- repositioning activities that we have initiated staying ahead of the curve. We have made notable progress in fiscal 2006, but with the second half it has been a challenge. But I am optimistic long term. Highlights were, record sales of 1.6 billion, net earnings from continuing operations of $1.78 per share, operating cash flow of 132 million, the sixth consecutive year over $100 million, the repurchase of 7% of our outstanding shares, improved return on capital employed to 9.6% and we continue to maintain a very strong balance sheet. We also are changing our business model. With the spinoff of the after market and the acquisition in new geographic regions and extension of product lines. And our technology focus is accelerating.

For our challenges, and there are several there is excessive capacity and aggressive competition in our several of our segments. Our customers are continuing demand price downs and with some that is increasing. At the same time we have experienced historically high commodity prices. Copper is a 10 year high -- or excuse me, copper is at an all time high and aluminum is at a 10 year high. Plus energy and healthcare costs continue to grow. In regards to material costs although lagged, we historically have recovered our costs via material pass through agreements with our OE customers. But in some situations those [cramped] contracts will being challenged. Fortunately our business model, diversification of market and customers, continues to help and support those negotiations. Bottom line, it is a very difficult market that we are in. Obviously I'm whining, but it is what it is. And we must deal with it.

So why am I optimistic? Three years ago we are in -- we increased our focus on improving our planning process. We have expanded our global footprint via acquisitions in the UK, Korea, China, Brazil. We exited the unprofitable markets with the after market spinoff, we expanded our presence in new product markets with our air -- Airedale acquisition and we continue to globalize your manufacturing processes, product designs and internal decision-making tools like our cost systems. And we have better aligned our compensation and our decision making with our shareholders via return on capital employed and the BBM process. And we continue to develop best in class technology for our markets, both for the short-term, such as ga -- exhaust gas recirculation coolers, and for the long term multiple designs for fuel cell applications. But to further to drive our top-line growth and more importantly the bottom line, we are now increasing our energy on improving our source costs specifically from low cost countries. Our resent reorganization and addition of skills in our purchasing organization will support that. Rationalizing and repositioning our manufacturing footprint will be key. Leaning out our business process, specifically our SG&A costs, as we have our plants will also be critical and continuing to different -- differentiate ourselves with our customers through new technology.

Some of our recent announcements support these priorities. The closure of the Bensalem, Pennsylvania plant and the relocation to production to do -- two existing Modine plants are part -- as part of our Airedale integration will yield $1.3 million annual savings. The consolidation of our North America R&D capacity will also save nearly $1 million. The recently announced creation of our HVAC product group for truck and off highway will bring better focus into this marketplace, similar to what we have had with our engineering group -- our engine group which has been very successful. The work force realignment with our early retirement package in Asan City, Korea will yield $2 million of annual savings. And the pending -- pending accusation of the remaining 50% of our Brazilian joint venture with annual sales of [$78] million -- $80 million will continue to expand our footprint. And more is to come in the future.

Before I turn it over the Brad, I would like to comment on electronics business. As we have discussed in the past, we have been re evaluating our performance and strategy in this market. We have completed our initial study and are now in a next phase deep dive focusing on the high end segments of this market, telecom, military, power, servers. This segment is a good match with Modine's technology and has good growth potential and profitability. Brad?

Thank you, Dave. And I would like to thank everyone for joining our call this morning. As you saw from our announcement this morning earnings per share from continuing operations came in at $1.78 per share. In line with our most recent guidance. Consolidated results from continuing operations for the year included record revenues of 1.6 billion up 21% over last year. Excluding the benefits from acquisitions, revenues were up 6%, our solid growth was driven by exceptionally strong demand for our north American truck and global heavy duty and industrial businesses as well as the launch of new engine-related programs. Net earnings from continuing operations of 60.8 million declined slightly from $61.7 million last year. Primarily from a deterioration in our gross margin as a percent of sales and higher absolute SG&A expenses. The gross margins fell to 19% from 21% last year, reflecting the impact of higher costs of aluminum and copper, which represent 10 to 15% of our cost of goods sold, coupled with lower unit pricing on many of our products driven by the competitive marketplace.

Further, SG&A rose significantly this year, up 20.5%. This trend was driven by the acquisition of Airedale that add -- added SG&A cost, higher professional costs due to Sarbanes-Oxley, third party expense incurred on the evaluation of electronics cooling business, as Dave just discussed, and the cost of healthcare which rose sharply in the second half of the year. Clearly this SG&A trend is not acceptable and our goal, supported by specific action plans is to reverse this year's trend bringing SG&A down from the current 13.6% of sales to 12% over the next 36 months. Partially offsetting our cost in pricing pressure was an improvement in our effective tax rate from 37% to 33%. We recorded in the fourth quarter a tax benefit related to credits for R&D expenditures. On a go forward basis we would expect an effective tax rate in the 35% range. Operating cash flow remained very strong at 132 million and improvements in return on capital to 19.6% while it could have been better, continues to be a positive story, proving that we are doing the right things to manage the business for optimum returns. We remain challenged by our asset utilization, however, which I will discuss in more detail later.

Our conservatively managed balance sheet remains strong with a total debt to capital ratio of approximately 23.8% as of the year end. While this is up from previous years, this is the result of a conscious decision to modify our capital structure by taking on a marginal amount of debt thus lowering Modine's over all cost of capital. We utilized our strong cash flow plus moderately flexed the balance sheet to purchase 7% of our outstanding stock for $80 million, fund $80 million in capital expenditures for growth, invest approximately $40 million in the acquisition of Airedale, supporting our diversification goals, and paid an increased per share dividend to shareholders of about $24 million.

I want to return for a minute to the discussion of earnings and return on capital employed to provide the backdrop on what we plan to do to reposition the Company. From our strong financial posession --- position essentially staying ahead of the curve. As mentioned earlier, earnings came in at our revised target. However, the results can be characterized as a tale of two halves. First, first half was very strong and exceeded our expectations, with strong underlying growth from the strength of our markets and the launch of new business. In the second half we saw a deterioration in the overall performance based on slower growth as fewer programs were launched and as market growth slowed and declined in some cases such as the north American automotive business. Commodity pricing rose to record levels. Copper was up 46%, an average $2.10 in the second half, and aluminum was up 20%, averaging $1.02 in the second half of our fiscal year. Additionally, prices for natural gas, a key cost in our production process, remained high. And finally, we began to experience issues with customers who limited our ability to pass rising commodity costs on to them. Obviously we cannot control the price of commodities but there are things we can do to mitigate the effect of rising cost have on our results and to [proget] -- protect against swings prior to pass through of material cost under our agreements. To this end we have implemented an aluminum hedging strategy. We currently have hedged 15% of our annual requirements with future potential to hedge 60% of our total requirements. We have chosen aluminum because it is the commodity used the most in our products and it seems imprudent to launch a hedging program for copper given it is trading at an all time high.

As you know our return on capital employed goal is 11 to 12% through a cycle. We were at the top of our cycle in the second half of the year with a truck industry pre buy in anticipation of increased U.S. immissions standards. While our return on capital results increased to 9.6% from 9% last year, we should have done better. With better asset utilization and improved -- and improved cost position, we still believe that our targets on return on capital employed are achievable. With margin pressures and the return on capital expansion opportunity, it has become increasingly clear that we must take action today. From a position of strength to improve our returns and margins for the betterment of our shareholders. These efforts, moving to lower cost, higher growth geographic areas, accelerating and development of new technologies, and lowering overhead costs will enable revenue growth.

Over the next 36 months, we will consolidate and close plants throughout our system and expand our manufacturing footprint in lower-cost areas essentially shifting production to these lower-cost areas, increasing utilization and efficiency, and positioning the Company as a lower-cost competitor and incre -- which should increase our win rate on new programs. We have always had a small plant philosophy and that has served us well. However, over the past several years some of our plants have actually become too small. So again, we will consolidate capacity into fewer plants. We are also looking about ways to reduce corporate overhead costs. We are investigating a variety of programs that should enable us to reduce these costs in our staff areas globally. To this end, in March, we announced the reduction of about 15% of our salaried work force in South Korea, and we are evaluating an early retirement program for our North American operations. We are also looking closely at our divisional-based operating structure, looking to seem line and bring a stronger focus on our product lines. You will have seen the recent announcement on the formation of our North America HVAC group focused on the product on the truck and off highway markets. With the recent hiring of Greg Kinder as the Global Purchasing Vice President we will be more strategic in the way we source materials and components further lowering our cost. I would note that Greg was previously with Johnson controls based in Shanghai. We are also stepping up our efforts in continuous improvements at the corporate level. Our operating people have always been good at this and these tools are now being applied to improve our internal processes ultimately reducing our cost.

And finally in pursue of diversification we will continue to allocate operating cash flow to make accusations expanding both geographically by product line and into new markets. The announcement on the acquisition of the remaining 50% of Radiadores Visconde is an example. It provides access to low-cost country and allows for geographic expansion. We continue to evaluate opportunities in the HVAC&R segment. While we can't give you detail around these plans today, you will see over the coming months, announcements which solidify our repositioning plans.

Before I close I would like to make a couple of comments about the fourth quarter. On a segment basis, sales from our original equipment segment, America's segment, increased 14.8%, with relatively flat operating income. Improvements in operating income in our truck and heavy duty businesses was offset by double digit decline in our North American automotive business. The original equipment Europe segment sales increased 5.3% with operating income down from 13.8 million to 12.8 million. Despite strong volumes from the launch of new programs, we experienced mix and pricing -- mix issues and pricing pressures in the European automotive business. Sales for the original equipment Asia segment increased 3.3%, while we recorded a $3.6 million operating loss for the quarter. As mentioned earlier, we have taken action there to reduce our cost base by offering an early retirement package to 36 employees in the South Korea business. The charge for this program in the quarter was 2.5 million or about 1.8 million after tax.

Sales at the commercial HVAC&R business -- or for the commercial HVAC&R business increased 61% due to the impact of the Airedale acquisition and strong North American coil and condenser sales. Unfortunately operating income was down to two million from 3.5 million in 2005, since we had a relatively warm winter in the U.S., which weakened sales of heating products. These heating products have relatively high margins. Sales in the other segment were relatively flat at $10.5 million, with an operating loss of $5.5 million. This loss is attributable to the $3.6 million fixed asset impairment charge we took in the quarter for the Taiwan por -- Taiwan portion of our electronics cooling business. This charge was taken as the result of the pending evaluation on strategic alternatives for the Taiwan business.

Let me close by saying, unlike others, we have the financial strength and flexibility to remain committed to our strategy. We hear loud and clear from our customers that we have products, we have leading technology, but our cost structure is out of alignment. We are taking steps to reposition the cost base with the primary benefit of increasing our win rate and therefore, overall revenue growth for the Company driving our return in -- on capital employed up. Let me now turn it back to Dave for some concluding comments.

Thanks, Brad. From an '07 outlook, certainly, fiscal '07 is going to be a very challenging year. The OE pricing pressure will continue. Raw materials, energy, healthcare cost issues probably will not let up. Our fourth quarter truck volumes will be impacted with the launch of new vehicles driven by emissions specification changes. But we are encouraged with new business launch, accretive acquisitions like Airedale and Radiadores Visconde, the absence of the after market and our global sourcing initiatives. The fundamentals of Modine are very strong. We have a great balance sheet and provides great flexibility. We have a diversified market and customer base, which is expanding. We have significant new booked business. New technologies in the pipeline, and the markets that need heat transfer innovation are being driven by emission laws, [CER] ratings, performance and energy costs, and we have the products to respond to that. We have a very highly motivated work force. And with the initiatives to reposition the Company's manufacturing and overhead cost base, I'm optimistic. So with that we'll open it up to some questions.

[OPERATOR INSTRUCTIONS] Rob Damron Midwest Invest

Good morning, Rob.

Good morning. I wanted to just talk more specifically about the South Korean market and what are the most significant issues that you are seeing with regard to that market, and what are the opportunities that you exploring to improvement sales and profitability in that business?

Well certainly the volume in that marketplace has been down from prior to which we made the acquisition. Some of which we expected and some of which we did not. Our specific -- and specifically our customer, major customer, [Hyundai], is in the little tough situation, given some of the political issues that are taking place with their senior management, and that makes it difficult anytime when you are dealing with them as a supplier. We are very encouraged with the success we're having in South Korea in regards to expanding our capabilities into that region specifically engine components, such as oil coolers and exhaust gas recirculation coolers. We have some people on-site here in Racine right now from Korea developing those skills so we can do that engineering locally. And we're winning orders. And we're also have been very aggressive and successful in the power train cooling area, the traditional radiation charger coolers. And we are having more success than we expected. But the HVAC business has been softer than -- than it was when we made the acquisition and certainly it's a very competitive market place. And certainly the exchange rate has a -- has had a big impact on that. Brad, do you have any extra points?

No. I mean I would just emphasize the last point you made. I mean, when we made this acquisition it was on a backdrop of a commercial vehicle and large mini van and bus market of about 496,000 units a year. And because of -- you know, really what has happened with the currency, which has appreciated significantly vis-a-vis the U.S. dollar, the build rate last year was down to 342,000 units. So we have seen clearly a big decline in the overall build rates for the total commercial vehicle market. Again it's a function, clearly of the issues that Dave focused on, but also clearly a function of the currency, which is-- is-- is beginning to really impact Korea's ability to export.

One other comment, certainly labor is a challenge in that region, specifically in South Korea. And it is a priority with us to break some of the traditional labor relation environment that you would find in most of that co -- country. As you know, this Korean acquisition is our hub for our Asian business. And we are utilizing that tech center to qualify products and demonstrate a regional pleasant -- presence into China, which we are starting to see some success as a result of that.

Okay. That's helpful, and then just another question with regard to the electronics business. It does sound like you are going to move forward with that business and focusing more on higher margin segments of that business. But maybe if you could just expand on those comments a bit and kind of the outlook for that business going forward.

Yes, the -- certainly we talked about it in the past that we have had some execution problems that we can't blame on the market at all, and we dealt with that recently with some organizational changes we feel. But we also had to make sure that we understood where that market is versus where it was when we bought. And we have gotten some outside help. It has been very success. We learned a lot that -- that we didn't know and reinforced what we did know. There really is two segments to this business, there is the high end business that we are doing the deep -- deep dive on. And that is encouraging what we found, but you don't know what you don't know. So we're going to continue to make sure that we understand the technology requirements in the business models and the footprint that's required for those high-end products. The other side of that business is the Taiwan business that we have, that we did take the asset impairment hit on. And certainly that is a very competitive business and candid -- candidly a very different business than the high-end business. And so we need to make decisions on what are our alternative choices to deal with that.

Just one last question, Brad, the other income line was up this quarter. Could you just describe what is in that line and why it jumps around from quarter to quarter?

Yes, I mean it does jump around and you know clearly the largest element of that line is the income from our joint venture. I would note that, for example, the Radiadores Visconde has been down in that line, but will move up and be fully consolidated because we'll now own 100%. The variance that you saw in the other income line in the fourth quarter, we -- was about 3.5 million versus 1.7 million in the previous years so we're up about 1.8 million. I don't want to get into all of the details, but there was, for example, an insurance settlement that we had based upon a fire that we had in our tech center here in Racine, so that -- that gain was recorded. There also some -- some foreign currency effect that also hit that account.

Okay. That's helpful. Thank you very much.

Sure, Bob.

David Leiker, Robert W. Baird.

Hi, David.

Good morning.

Morning, David.

Making sure you could hear me. I want to run through some -- some number-related items. Where did the -- unusual items obviously the taxes are on the tax line, where did the impairment charge fall on the P&L?

The impair charge, you know, is coming through the gross profit and it's -- it's in the segment.

And early retirement is also in cost of goods sold.

That's correct.

The currency number, it looks like it's $26 million or so. Is that right?

What is your source on that?

I thought you said revenues were up 6% without currency, I'm just assuming that's a [trend].

Oh, no the 6% was -- that's just basically excluding the impact of acquisitions. So revenue is up 21, if you back out the impact of Airedale, the impact of the Jackson acquisition, plus the impact of the Korea acquisition, you get an underlying increase of 6%.

So the 26 million would be acquisitions. What about currency?

The currency effect on the business -- so you are wanting basically the 21%, how much is organic, which we told you and how much is currency related? It-- it's not-- actually you know what we have seen, David, it's not a -- it's -- I would say-- I -- I'm not going to break it out here. It's not a significant factor this -- this year like it has been in previous years when we have seen the euro vis-a-vis the dollar exchange rate strengthen.

They're saying companies or revenues are negatively impacted in Europe by like 8%.

No, the Europe currency effect is not -- not all that significant.

How would it be so much different than everyone else? The Euro is down about 8% or 9% year-over-year in the quarter?

You're talking just a quarter?

Yes.

I thought you were talking for the year.

With that acquisition number you were talking about, was that the year or was that the quarter?

That's the year.

Oh, no, fourth quarter. If we could get both of those for the quarter that would be great.

Oh I see, we're obviously talking different --

I apologize for that.

It's early. The -- I think that's one we're probably going to have to follow up with you on. I don't have that -- I don't have that handy.

Are you talking here about a number of new program launches. Can you highlight any of the key ones that you have, that you started up here in the quarter? Are they positively impacted in the quarter?

Well, certainly, positively impacting the quarter, we had some -- engine-related program with International. We had the Series 1, which again is -- has been launched, but that impacts the year-over-year variance.

The Volvo construction business also continues to ramp-up globally.

And my guess is you're talking for the full year, not for the quarter?

Right.

Anything in particular for the quarter that's worth mentioning?

No. Nothing that we have been public on and it's-- candidly it's a lot of smaller programs. You know and that's why we basically in terms of the second half of the year, as I mentioned the revenue had -- had slowed. And part of it is because that we had fewer launches.

You mentioned several times in here talking about competitive pricing pressures. I mean, what -- what end markets are you seeing that in?

Well, you know we have seen it for a number of years, very strong in the automotive, and Dave, that's where I would say it -- it's continuing. We see it also in -- in truck and Ag. and construction, but the product life cycles are longer so it's more at the time of when the decisions made on-- on platform sourcing, but we're seeing it with anything with wheels.

You seem -- you seem to separate out, though, the impact of price downs versus other pricing issues.

What is happening in the price down area, there's the thing called play to -- pay to play, and we see that in the automotive segment where with some customers, customers that I think have had to be more aggressive, there's an expectation, there's a cash payment with the reward of -- of new business. We have seen some of that. Candidly we have walked away from some of that and we are participating in some of that, but that's new for us, and it's quite a struggle. In the case of -- of materials, we have seen in several cases where we've traditionally had these agreements. We have had some customers come back because of the -- of the size of the impact, of the materials impact that we're talking about, to push back on those agreements. And we certainly have to sit down and talk about the contractual requirements. But we also have to talk about the rational and the ethics of some of those decisions, and in some cases it's negotiations. The diversification model we have, I think, allows us to look a few of them in the eye a little stronger than maybe some of the other folks throughout that are more independent on single customers but that's frustrating for me, candidly, but it is what it is.

The Brazil joint venture buyout. Whats -- how are you accounting for that right now as -- as equity?

That's correct. It's an equity joint venture.

And so that will show up here in the current quarter consolidated with minority interest?

That's correct.

Okay.

In the current -- in the current quarter it's down in the other income line as an equity joint venture.

Right. What portion of that equity income is -- is that joint venture as we go and model it, so I can work through that?

You -- you're talking-- you want me to break out the 3.5 million?

Yes, well, on the full year, is half of that equity income from the joint venture? That -- from a modeling perspective ?

You know the -- about -- the -- for the fiscal year that -- that joint venture -- our 50% share was a little over $2 million of -- of profit.

Of-- I got some other ones, but I'm come back into the queue thanks.

Thanks, David.

[OPERATOR INSTRUCTIONS] David Leiker, Robert W. Baird.

Great. I'm back. [Concerning] your share repurchase, how many shares did you end up buying in the fourth quarter and what was the full-year number?

Yes. Okay. In the full year number as we put into it in our press release, was 2.4 million for the full year, $2,440,000 if you want to be exact, and we -- we bought back in the fourth quarter about 370,000 shares.

The -- from a -- from an acquisition perspective do we have any more revenue contribution coming as we look in '07 or are we pretty much anniversaried everything, haven't we?

Yes. I mean clearly -- I mean you are hitting on the one earlier which you'll have the revenue contribution from Radiadores Visconde.

And then where do you think you are in your integration plan for Airedale? If you have got to do it on a scale of you know, one to 10.

On the physical integration, I would say we are where we intended to be. On the sourcing integration, because we bring scale and internal capabilities, I would say we probably be six to seven. In regards to cross selling, which is a great opportunity, bringing the Airedale product through the north American channels, that's gone very well, and I would say a seven or eight. Taking the Modine product through their channels in Europe I would probably say a four or five. That's been a little slower because that means educating people and training them, et cetera.

Okay. Great.

We found a very, very strong organization in the sales -- in the sales base in Airedale both here and the UK. I would say the last area that -- that we have some work to do is in Leeds, in regards to how do we leverage our corporate footprint in regards to back office and support costs that they continue to have that we may be able to leverage with others facilities in the UK, or from either Racine or [Bowlondin]. So that's something we just started to look at.

Okay. As we look at your new business numbers that you talked about last fall, is there anything that would indicate that that number is trending higher or lower than what you would have expected it to be?

I think the number is -- is still a good number. There's always a little mix that takes place in there. We are seeing some wins in the engine component area that -- I -- I would -- my gut would say is upside to that. Very pleased especially in Asia and in North America in the automotive sector that -- that we're having. Certainly we think with this repositioning activity, David, in regards to dealing with our -- our cost base, we really feel that we can be more aggressive in -- in getting more wins because we'll have the confidence we'll have the returns [verjust] -- versus just margin erosion.

Last item here. When you look at your share -- share repurchase program, and obviously returned a lot of cash to shareholders through that program last year. What's -- what's your -- what's your view on aggressiveness of that or target that repurchase?

Well, as you know, David, after the release of our third quarter earnings, we came out shortly thereafter with a -- a new share repurchase program, which gave us the authorization to repurchase up to 10% of the outstanding shares. Which, again, we moved on that repurchase program in the -- in the quarter. I should correct that the new repurchase program was 370,000 shares. That was the number I -- I provided you earlier, plus we were concluded the old program in the fourth quarter, which was 220. So the total repurchases were about 590,000 in the fourth quarter. As we sit here today, clearly we have the authorization and we will balance that -- or we will look at our share repurchases we continue to repurchase. But we will look at those, like we always have, with the priority use of our cash for obviously reinvestment back in the business in support of growth and acquisitions. So those are the primary components, but as you know, and again, our Board, with this latest authorization, we stand prepared to -- to return significant monies to the shareholders. We have a great balance sheet that's still under levered at this point and that allows us to, again, continue to repurchase as well as pursue the acquisitions and reinvestment in the core business.

We will also, though, again, as we look out over the next 36 months, you heard our comments earlier, there is some restructuring that's going to be done in the business that will require some funds. And also, there will be some new low cost country manufacturing facilities that are going to require capital. So I would see -- we have been very aggressive and I'm not going to give a projection here, but I will see that we will be slowing this down in order to support the repositioning efforts of the business as we go forward.

And certainly, how we perform in -- in the -- in the first half, in the first quarter will impact that as well in regards to what happens in the material side? This material situation, Dave, is -- has been significant as you know.

What was -- what was the dollar amount purchased in the first quarter -- the cash flow numbered netted against an option exercise, what portion of it was -- was repurchased?

One second here. We actually have calculators out.

About 18 million.

18 million? And you are saying you bought back 590,000 shares in the quarter?

Correct.

Great. And then the last item here talked about -- I want to talk about '07. I mean from the way that it's worded, it seems to me that earnings are down in '07 versus '06. So I just want to try and -- is it -- is the potential there for earnings to be down more than 10% in the year versus last year?

Well there's a lot of moving parts, and certainly, we know this is a st -- strategic challenges that we have in front of us, but Dave, I'm -- I would rather not speculate at this point on -- on exactly where that is going. I think we need more data points.

Okay. As you look at the year and the quarters, any particular quarter look more difficult than another one?

Well the fourth quarter, as I mentioned, is going to be a challenge because of the truck business, but -- and I saw your release this morning on class eight beams filling up on this -- this calendar year. But there's lots of speculation of what may or may not happen in the -- would be our fourth quarter or the first quarter of the calendar, because of engine builds. There may be a lot of -- as the order boards fill up and the slots fill up an engine capacity may exceed that that could have been impact on the fourth quarter for us as some of those current designs continue. Do you have any comment on that? On what you think is going to happen in the fourth quarter or the first quarter of calendar?

The merged quarter? My guess is markets are markets and they are going to build as many of the old engines as they can and put them in trucks in the first quarter.

But with the constraint on this calendar year with all of the slots filling up, depending on the economy, some of the natural pre buy just won't be able to happen and I think some of that will be pushed into the first quarter what I'd speculate.

I agree, I don't think -- I think it's a June and September quarter that are going to be the worst.

Yes. That would be my gut as well. And I think that will also depend on the individual truck -- or the engine manufacturers who has that incremental ability to bank. But I look forward for further comments in our report on that.

Thanks for the the advertising.

You're doing a job.

Hey, David, in response to your question on the fourth quarter, specifically the impact of acquisitions, which would be around the Airedale acquisition, clearly we had in this quarter that we didn't have in the previous year's quarter, as well as the Jackson acquisition, the transfer acquisition, combined acquisitions added about $30 million to the revenue base. And the foreign currency, this is a rough estimate, but in the Europe segment had an adverse effect of in the $5 to $10 million range.

What about Korea?

And Korea is probably positive couple million dollars.

Okay. Great. Thank you very much.

Thanks, David.

[OPERATOR INSTRUCTIONS]

So with that I think we'll conclude the conference call. Certainly, our organization is very focused in continuing to bring shareholder value. I think the layout that you will be seeing rolled out over the next several months in regards to repositioning -- and if you notice, we don't use the word restructuring. I think the key is repositioning this Company, because we are not just working on cost base, but we are going to use that to grow the Company and again, increase our penetration in our global footprint. So we're playing a little defense, but we also want to play a lot of offense. So with that we look forward to chatting with you at the end of our first quarter. Thank you.

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