Modine Manufacturing Co (MOD) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good morning and welcome to the Modine first quarter fiscal year 2007 earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded. A replay will be made available via Web broadcast at www.Modine.com, or by calling 719-457-0820 or 888-203-1112. Use confirmation code 924-2179. The replay will be made available through February 1, 2007.

If you choose to ask a question today it will be included in any future use of this recording. Also note that any recording, transcript or other transmission of the text or audio is not permitted without the written consent of the Company. (OPERATOR INSTRUCTIONS).

At this time I will turn the conference over to Wendy Wilson, head of Investor Relations. Please go ahead, ma'am.

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

Before we begin, I would like to provide our 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 our 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-Q for this quarter, which should be filed around February 5.

Also, you may reference the Company's annual report on Form 10-K for the period ended March 2006. If you have not received today's release, it is available on our website. Now I would like to turn the call over to Dave.

Good morning. And thank you for joining us for our third quarter conference call. I assume you have had the opportunity to review the morning's press release. As we have said, this fiscal year is a year of transition. I'm pleased with our progress in repositioning our Company's cost base and accelerating our new product technology developments.

For the third quarter sales were at record level of $468 million, a 14% increase year-over-year. Earnings of $0.53 a share were up the prior year, which was impacted by improved operating performance, both within our manufacturing operations as well as our material sourcing. In addition, we saw a reduction on our SG&A cost as a result of actions we've taken year-to-date.

I also am pleased that we continue to have a very strong balance sheet to support our five point repositioning plan. After Brad reviews the specifics of our financials, I will be back to review some more of the specifics of our action plans to date.

I would like to thank everyone for joining our call this morning. And just for clarification, as you saw from our announcement today, earnings per fully diluted share from continuing operations came in at $0.51 per share versus $0.38 per share in the third quarter last year.

Net earnings from continuing operations were $16.3 million, improving from $13.1 million last year. There were several items that contributed to the year-over-year improvement in earnings, and what I would like to do is to walk you through the table that is included on the first page of our press release.

So first starting with the third quarter of fiscal 2006 earnings from continuing operations of $13.1 million, we have split this between operating items and non-operating items, as well as showing you some of the tax factors that affected the quarterly results.

Starting first with the operating items, we're very, very pleased with the impact of volume, which added $3.2 million on a pretax basis to the year-over-year comparison. And this was primarily a factor of the truck build rates in the third quarter. That is our third quarter here in the United States.

We're very, very pleased with the operating efficiencies that are coming through the business. And Dave will get into more of the details on this, but we certainly saw better utilization within our facilities. And we saw the impact of our cost reduction initiatives beginning to take hold, including reductions in scrap, energy cost, purchasing, and reduced overhead in the manufacturing facilities. This added $8.3 million to the year-over-year results, and had a positive impact on our conversion.

Offsetting these factors -- that is the volume and the operating efficiencies -- were two issues. One, the net impact of commodity prices, which has been a challenge for us throughout the last several quarters. We saw in the quarter copper up 68% and aluminum up 31% on a year-over-year basis. We also had the ongoing customer price decreases, which was in line with the amount that we recorded in the second quarter.

On a non-operating basis, we were very pleased with reaching settlement with WiniaMando, who was the company that we purchased our Korean business for, and that resulted in a $2.9 million gain recorded in the quarter. And we did have ongoing charges associated with our repositioning activities of $3.6 million. So net net on a pretax basis earnings down $3.9 million, after-tax $3 million.

We were pleased though in the quarter with the passage of the extension of the R&D tax credit that we were able to book -- R&D tax credit benefits of $2.7 million. And our effective tax rate was down in the quarter, primarily because of more of our profitability being generated outside of the United States where the tax rates are lower. Those are the key factors that contributed to the year-over-year improvement that we have seen in the income statement and in the results.

I would like to now kind of get into more details on the revenue and some of the cost issues that we have -- been discussed here on this table. Starting first with the consolidated results, as Dave mentioned, our revenue reached $468 million, which was a record, up 14% over the last year. It is important to note that excluding the impact of our Radiadores Visconde acquisition in Brazil and favorable foreign currency rate changes, underlying sales grew by $18 million, or 4.3%, with organic growth driven by strong demand for our North American truck and our global heavy-duty businesses.

This was offset by softer demand in our automotive business, reflecting extended shutdowns at Chrysler, and lower demand for heating products, driven by the warmer winter and higher energy cost.

We also benefited from numerous smaller product launches that have come on stream since last year.

The gross margin fell to 16.9% from 19.5% last year, reflecting the impact of higher commodity prices and customer pricing pressures that were previously mentioned. However, versus the second quarter of this year, sequentially the gross margin actually showed improvement from 15.7% to the 16.9% gross margin in the current quarter.

We can't control commodity prices, but there are things we're doing to mitigate the effect of rising cost, the effect that they have on our results, again, as showed by the operating efficiencies that we have quantified for you in the press release. In addition, Dave will go over our five point plan that, again, is designed to further improve these results, generate our growth, and achieve our return on capital goals.

In the third quarter of fiscal 2007 our selling, general and administrative expenses decreased $1.6 million from 2006, excluding the impact of Modine Brazil and repositioning cost. This is very encouraging progress we are experiencing, again, from our repositioning efforts and we project this trend to continue and actually accelerate into fiscal 2008.

As a percentage of sales, SG&A expenses actually decreased from 14% to 12.6%, again, excluding repositioning cost and the impact of Modine's acquisition in Brazil. Clearly based on these results we are seeing some traction in our cost reduction program. And our ultimate goal is to bring SG&A down $20 million, or about 10%, on an annualized basis.

The operating cash flow for the Corporation was not as strong as previous quarters, coming in at $33.7 million for the quarter and nearly $68 million on a year to date basis.

The moderation in cash generation reflects increased working capital, driven by the strong sales performance, and higher inventory levels, driven by increased inventory raw material cost.

Our days sales outstanding challenges that are largely behind us, which at one point this year were up to 56 days. Our DSO came down 2 days to 52 days this quarter. The increase earlier in the year was related to customer issues as we pushed through higher commodity pricing. We will continue to work on this DSO to insure that they are reasonable for a company such as far as.

Our conservatively managed balance sheet remains strong, with a total debt to capital ratio of 25.5%, up from 23.8% at the end of the fiscal 2006. Modine's slightly higher ratio is attributable to the Company's acquisition of the remaining 50% of Modine Brazil, and $12.1 million of share repurchases that have been made during the year.

I would note that we did not purchase shares this quarter as we're balancing using our cash to invest for growth, for example our new plans in India and in Hungary, versus returning cash to shareholders.

For the first nine months we funded $60.4 million in capital expenditures for growth in support of the exceptionally heavily launch schedule associated with the 2007 North American truck program. And we paid a per-share of dividend back to our shareholders in aggregate of about $17 million.

One further point related to our financial position. I very pleased with the recent success in our $75 million private placement of 11 to 12 year maturity notes. This offering was about 3.5 times oversubscribed. And the interest spread of 110 basis points over the ten-year treasury note gives strong indication that the fixed-income markets categorize Modine as a diversified industrial company. Further, given the extended maturities that we achieved, the markets clearly have confidence in the long-term success of the Company.

Regarding our outlook, as we mentioned in our press release this morning, we have made tremendous progress with our repositioning and have reported respectable third quarter results. Despite this, we're facing headwinds of lower volumes that will negatively affect the year-over-year comparable fourth quarter results.

The factors include on the volume side, particularly in our U.S. truck business, that will be down on both a year-over-year and on a sequential basis. While truck volumes are projected to be down in fiscal 2008, the Company has partially offset this decline by securing new business from Freightliner that has significantly increased Modine's share of the U.S. truck market. The benefit from this market share gain will not be realized until the first quarter of fiscal 2008, as the startup of the Freightliner business has been slow. They have, like certain other truck manufacturers, banked 2006 manufactured engines in anticipation of the January 1, 2007 emission law change. That has slowed their ramp up of the 2007 new model business to compensate.

The Company also anticipates further restructuring actions that will affect its fourth quarter results. These actions are part of Modine's plan, again, to increase margins, meet its growth, and achieve its return on capital employed goals.

I would like to now turn it back to Dave.

Last quarter we announced a new global organization structure for our vehicular and commercial products businesses. It focuses on five global product groups, a regional manufacturing structure and a coordinated global market and customer approach. I am pleased to date on the positive feedback we have received from our customers on the global product structure, and the improved speed in decision-making that we are already seeing internally.

In regards to our repositioning actions, our five point plan that Brad mentioned, to meet our stated goal of 11 to 12% return on capital through the cycle, and an annual growth of 9 to 13%, it is making real progress. Over the last nine months on our first priority SG&A reduction, as Brad stated, 10% or $20 million, we have restructured our business units, as I have already discussed, taken a salaried manpower reduction in Korea. In North America we reduced staff in combination of an early retirement program and a reduction in force. And we have further actions planned in Europe, Brazil, and Korea.

Number two, repositioning our manufacturing footprint and improved asset utilization. We announced the sales expansion for three North American plants, as we're consolidating and rationalizing our manufacturing approach to reduce cost by improving manufacturing scale and complexity reduction.

We announced the closure of three North American plants. We have closed our Taiwan heat pipe plant. And we have announced four new greenfield sites funded, supported by booked business, one in Nuevo Laredo, Mexico. Our second is Chennai, India, our first entry into that country. Changzhou, China -- this will be our third facility in China. And Fuzesabony, Hungary -- kind of fun to say -- will be our second plant in Hungary.

Third, diversification of markets and customers. We did complete the acquisition of our previous joint venture in Brazil. We have announced new business with DENSO as a Tier 2. We are launching, as Brad mentioned, new powertrain cooling business with Freightliner. We have announced several new business wins in our businesses -- for our businesses in Asia. And we continue to pursue multiple new programs for the next round of engine changes in both North America and Europe for 2010 and beyond.

Four, increase low-cost sourcing. Our new global purchasing structure is getting a real traction under the leadership of Greg Kinder, our new Vice President of Global Purchasing. We're working very hard to build relationships and taking design costs out with our partners, our suppliers, versus just the leveraged play we see from several of our customers.

Five, finally, accelerating technology development. As part of our SG&A reduction, the net reduction, but within that we're actually increasing our resources in the technology groups. We have introduced in the market a demonstration concept vehicle for truck idle-loss systems for North America, for cooling and heating those units while they are not running. It utilizes a fuel cell and CO2 AC systems. Again, demonstrating our long-term perspective.

We continue to be very active with multiple fuel cell customers, including Bloom Energy. And I am very pleased with the development work we have done for multiple engine components in preparation for future emission laws. We are the technology leader in engine.

Relationships are key in our technology area. We're making a priority in our organization to work with our customers, various resource organizations, and our partners like Borg- Warner, to accelerate our developments.

So in summary, we're making real progress in repositioning Modine, but there's much yet to be done. I'm confident we have the right people, the right plan to meet our stated goals.

So Sara, with that I would like to take some questions.

(OPERATOR INSTRUCTIONS). Rob Damron, 21st Century.

A few questions. First, in the Asian OEM business, last quarter it certainly was impacted by the strike in that region. And then we saw a nice pick up in that business in this quarter. Was there some catch-up that we saw in terms of the revenue, and would that fall back to a more normalized level in the next couple of quarters?

I think on the revenue side you are exactly right. There clearly was catch-up as Hyundai boosted their production to make up for some of the strike activity. You may be aware that there is additional strike activity going on right now in the country, so stay tuned on how the revenue is going to perform here in the fourth quarter.

You did see, clearly, the underlying earnings performance come up clearly from the previous quarter for that segment. And that was primarily driven by the settlement that I mentioned in my remarks, the settlement that we reached with WiniaMando associated with some purchase price disputes.

That is helpful. I wanted -- it sounds like you are planning, or are you have already consolidated the HVAC business with the Electronics Cooling segment. It doesn't appear that you have done that on the financial statements yet. I also wanted to find out if there's any revenue in the other category from the Taiwan business.

You are exactly right. Externally we have not yet consolidated the segment presentation, so those two businesses still stand, the electronics being in the Other category.

Your question on the amount of revenue in the three months for the Taiwan business, the answer to that is no. That business was shut down in July, and so there would not be any revenue associated with that business in the third quarter.

Then let's see, you have announced a number of new contracts going forward. And I wanted to find out is the net new business backlog -- has that increased from the $300 million level as a result of some of these new contracts that we've seen over the last few months?

Certainly we are not, at this point, prepared to rerelease the net new business number. But I do think it is fair to say that we are encouraged by these new announcements and the impact that they're going to have on that net new business number.

Now that we are in the early part of '07, can you give us any more color on the magnitude of the expected decline in the North American heavy-duty truck market?

I finally get a question I can answer. I thought you were just going to dominate Brad. He is kind of dropping off. Our number for the calendar year is still 220. There's an interesting situation going on during first quarter. Some of the OEs do have banked engines. Some actually don't. Some of that is just the relationships they have with the various suppliers.

The first quarter is going to be much stronger than I think many people originally focused because -- or forecasted -- because of those banked engines. And we do hear that the second and third quarter are going to be pretty miserable, and then some rebound in the fourth quarter. But we're still sticking with 220 as the number for the year.

That's helpful. Then just a last question, Brad, on the tax rate, what kind of expected tax rate should we see going into fiscal '08?

I knew you were going to ask that. Because clearly, as you know, in the past I have been sticking with the 35% rate, and clearly this year you had seen it down significantly. And we're very pleased with the overall performance in the tax delivery. My thinking as we go into fiscal '08, again given where the profits are going to be generated, is that we're going to be in the low 30s.

(OPERATOR INSTRUCTIONS). David Leiker, Robert W. Baird.

A couple of things to go through. As you -- when we talked three months ago -- you continue to have a fairly cautious view as we look forward. And obviously here in this quarter you had a very good quarter. I want to know in some sort of context of how this compared to what you expected it to be at the start of the quarter, and what were the key variances in that?

I appreciate your comments on the quarter, because we also are very pleased with the performance. The impact of the raw materials continue to be a drag on the Company, albeit we did see some improvement -- that is relative improvement -- as we are starting to get some traction on the pass-through. And we're setting to obviously see it, in particular copper, some actual decline in the copper prices.

I would say specifically to your question, one of the things that we did not fully appreciate coming into the quarter was the impact of the operating efficiencies. And clearly there are a number of actions being taken, as Dave clearly articulated. And again I think the impact of those coming through provided some upside versus our internal expectations.

I would just expand on that. Especially in Europe, they have done a very good job in their operating. They actually have a very unique program of going for some quick hits that -- on top of their original budget.

What I am pleased with thus far, and it is early in some of these lunches, that our launch costs have been lower then we had anticipated, which I am pleased with the quality of our program management. Certainly there's a lot of activity going on in our fourth quarter, and it is all matter of what you do tomorrow, not what you did yesterday. And so we've got some further challenges in the fourth quarter, but the folks did a real good job on managing manufacturing cost.

I think the other thing is that I'm starting to see some of the benefits of Kinder's organization in purchasing. And it is starting to see traction. And being able to completely forecast that accurately is a little difficult.

As we look at the operating efficiencies, and clearly your comments as you look forward are not carrying over the optimism that we saw here in the third quarter, is your thoughts -- it looks like first quarter truck volume, calendar quarter truck volumes, are going to be better what people thought. Why wouldn't you see some of these things that are driving you here in the December quarter continue to carry through into March quarter? And I have something that is similar to that.

The truck volumes, you are right, is first quarter (indiscernible) is going to be stronger than we thought because of the carryover. But that is actually impacting us negatively at Freightliner because that actually continues them with the current supplier until they flip to the new engines. So that is part of that volume impact.

I know we had talked about what we felt the Class 8 change and the medium truck change was going to be on a year-over-year basis, and we still hold to that number, but the first quarter is softer because of that Freightliner startup.

Okay. Then trying to get my arms around -- if we just take the Americas' number, your revenues year-over-year are up $35 million, yet your profit is down $4 million.

Yes.

In earlier comments, and I am just wondering if there's a simple way to walk us through that?

I honestly believe, again, the statement that we -- or table that we have on the front page is a consolidated worldwide table. But I think the same factors apply. What we have seen is the -- although we've had the higher revenues, we have had the net impact of materials and pricing. And quite frankly, as Dave said, the operating efficiencies were skewed toward our European business. So again, you've got the strong revenue, but it is being offset by the underlying commodity and pricing issues.

Because of mix of business, the copper utilization that we mention in the past -- where it is actually going to be going down this next year -- is that we have mix change. But North America is actually hit harder in the truck business with copper than the rest of our business. And the other piece is on that repositioning number, $1.5 million of that was in that segment.

More of those same comments then as it relates to Europe where your volumes are up $14 million but your profits there are down $2 million?

Again, you do have the commodity issues. You do have stronger performance coming through, there's also is what I call an adverse mix, meaning one of our programs is the Volkswagen EGR programs that we have, which has contributed nicely to the overall performance, is down.

Okay. When you look at raw material costs of copper saying it is coming down and things like that, how long does that take for that to start to flow through?

There is about a two to three-month lag. Meaning from the time that we -- we are right now consuming copper and aluminum that was purchased two to three months ago.

Did you go and hedge -- I think you hedged your metal cost, didn't you?

We did. Not the copper, but the aluminum. And the hedge effect in the quarter was actually about neutral. We do right now -- again, on the aluminum do expect some potential benefit from that hedge program in the fourth quarter.

As we look at Q4, what type of repositioning cost should we be looking for to flow through the P&L?

Well, that is a good question. This quarter, again, we had about $3.6 million and potentially the repositioning cost could be double that amount. It depends upon exactly what actions and decisions that we reach in the quarter, but that is a working level number at this point.

When we developed our repositioning plan last May, I reviewed it with the Board, we had a long series of actions that would be -- that we would be reviewing, not just the expansions but some closures, etc. And as we finish each of those analyses that we bring forward to the Board for approval -- and we have a number of things that are still inactive that -- in the evaluation stage -- that probably will hit the fourth quarter.

Do you run something like the Toledo plant -- is that running through these repositioning costs?

It is, but that is fairly modest.

In '07 what kind of number, or calendar '07, your fiscal '08, what type of repositioning cost do you think we will see?

We don't have any projections at this point. There will be clearly be some, but not at this point. What we're trying to do is some of the larger actions, if you will, will be actioned on or decisions made in this year.

Then lastly a couple of -- well, first, are there any other unusual items that we should expect to come through in Q4 or '08?

No, I think you have covered them.

Where do you think -- have you given a capital spending number for full year '07 into '08?

No, we haven't. We have -- at least for fiscal '08, the capital expenditures for fiscal '07 we have been indicated are going to be slightly above our depreciation rate, so in kind of the $90 million range. We would expect for fiscal '08 to see some increase, again above depreciation rates. And this is a function, again, of the change in the manufacturing footprint that is underway, specifically associated with the funding of the new plants in China, India, Mexico and Hungary.

So like a $90 million number again?

No, again, I would expect it would probably be up from that, again above -- because of the bubble here, if you will, that we face associated with the funding of these new facilities.

Your depreciation this year though is going to be around $70 million or so, isn't it? You are at $59 million for nine months and it was $17 million in the quarter so --?

Yes, I mean that seems a little low. Yes, that is a little on the low side. But again I -- that is why I said the 90 is about above kind of the depreciation roughly in kind of the $80 million range.

You're going to hit $80 million here in '07? That is a fourth quarter number of almost $30 million.

Maybe you can direct me to where you're gathering your --?

Nine-month depreciation, $52 million. Or do I have a bad number in front of me?

Okay. Your number is probably -- yes, there's nothing unusual going on in depreciation, so your number of $70 million is probably better than the $80 million that I quoted.

All right. That is all I need. Thank you.

David Fondrie, Heartland Funds.

Congratulations on a nice quarter. I guess I wanted to follow up a little bit on David's thought process. David likes to look back a full year. But just looking back, can you give us any -- at the last quarter, Q2, can you give us some sense of where commodity prices were versus Q2?

And whether or not as you enter into Q4, with some of the -- I guess the rollover in copper and aluminum -- copper, not aluminum -- whether you think they will be sequentially flat or maybe even get some of the benefit that you were alluding to?

Certainly as we were sitting in the second quarter we were looking at a quarter-over-quarter increase of nearly 100%. Meaning $3.50 versus kind of $1.75 type for copper. And again that came down to the variance that we saw this year was about -- this quarter, excuse me, is 68%. We're looking at aluminum up about 32% in the second quarter, and that is comparable to what we have seen kind of in this quarter.

I honestly think the -- what we're going to see as we move into the fourth quarter is aluminum fairly comparable with where it was in the fourth quarter of '06, and that the copper, again I'm not sure -- it is certainly below $3. It may be up slightly. So your point is right in that there is clearly a convergence coming on in terms of the quarter-over-quarter pressure that we have seen. It is certainly narrowing.

The other commodity that has entered into the mix though is nickel. And that is having an impact on our stainless steel. And that has run up in the October/November timeframe so that is starting to hit our actuals, and certainly that will be part of our pass-through process.

I think nickel hit new highs today.

Yes, as we move stronger into these engine products, stainless steel is a big input into that. We will deal with that in the pass-through process.

Then I guess sequentially if I look Q3 over Q2, operating profit in North America was down, but also sales were down, so clearly you're making some -- I guess there were some progress there. Although you -- you did say that there was $3.5 million in the repositioning charges in North America operating profit?

There's about a total of $3.6 million , of which about $1.8 million was in our SG&A and the balance was primarily in the North American segment.

That would explain a lot of that. Great. You had a great performance out of Europe. Congratulations. Thanks.

(OPERATOR INSTRUCTIONS). Dennis Scannel, Rutabaga Capital.

Just a quick question to follow up on the repositioning cost. $3.6 million in total, $1.5 million in North America, and then the rest is in kind of in corporate and other? Is that the way to think of that?

Yes. There is about $1.8 million in your corporate SG&A, and then a few scattered around, but you have got the math.

In your table looking at the bridge between last year's earnings and this year's earnings for the quarter, the net impact of higher commodity prices, is that net of pass-throughs or do you recognize pass-throughs in the pricing equation?

A very, very good question. That is the net impact of higher commodities, so that basically has the pass-through pricing netted against it.

Okay, so that is what we're absorbing, not of whatever you are capturing from the customers?

That is correct.

We work very hard at separating what I would call performance pricing and commodity pricing, so we don't have to do this trading in allowing the negotiations to be mixed.

Absolutely. If we do see copper continue to go down and maybe aluminum flatten, would we -- what that figure ever go positive? I mean because I know with some of your contracts there are lives in terms of passing some of that stuff.

I have been around long enough, I remember when we had good news on materials because the lag effect, you do get -- we eat it on the way up because of the lag, and we get to keep it on the way down in regards to other periods.

It is interesting now that copper is down on an absolute basis in market. It has motivated the customers to challenge those agreements in regards to wanting immediate relief versus recognizing there is a lag effect. We have to hold the ground on those negotiations, and our diversification allows that. But, yes, we should see some good news if it ever goes down. It should be symmetrical. And clearly you talk about copper, the aluminum price, as you know, is still fairly strong at this point.

Although interestingly, if you think about it, maybe this is too simplistic, but if your newer products on the truck side are using less copper and that production really starts after your fiscal fourth quarter, and copper continues to drop, we may not get that kind of benefit, if we do get easing on copper prices?

Clearly because we have lower copper usage as we go forward, that would be the correct way to look at it.

Fair enough. And then, Brad, you did say that is -- I should be closer to what is going on in Korea -- but you did say there were some other kind of strike issues throughout the country. Does this effect [Kinday] or is this some suppliers? Or, again for those of us that aren't as close to the political situation there, can you give a little bit more color there and (multiple speakers)?

There is certainly -- Korea has had a contentious environment that is kind of the nature of their ongoing labor relations. Contracts there are on an annual basis, and there are actually three tiers in the negotiations, country, province and local. It also almost seems like you're in a constant process of negotiations.

From a political, general standpoint I do think there has been a recognition that there has to be peace found because Korea is losing jobs to China and other places. I know the government has taken somewhat of a more -- or a less labor position, and as a result some of the strikes are actually protesting some of the pending government changes in some of the laws.

We also are seeing Hyundai taking a little more aggressive position with them as well, which is -- can and is affecting some of their build rates. Labor peace is very, very important for Korea long term. And having labor peace with our own union there is very important. And we are working very hard, and we have a reputation everywhere we work in the world of being a fair employer, and we've got to work on that local reputation.

As there were no further questions I will now --.

Sara, thank you. I appreciate everybody being on the call today. Certainly when you finish a quarter it allows you time to reflect, and we feel good about a number of things that are happening. But we've got to look forward and we've got lots to do. And like I said earlier, we've got the right folks on the business. And I'm very, very pleased with the plan. The plan will continue to evolve just as the marketplace is. I look forward to talking to you next quarter. Thank you.

Thank you.

Once again, that does conclude today's conference. Thank you for your participation. And have a nice day.