Modine Manufacturing Co (MOD) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Modine Manufacturing Q4 earnings conference call. My name is Diedre, and I will be your Coordinator for today's call. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, the conference is being recorded for replay purposes.

I would now turn the presentation over to your host for today's call, Ms. Susan Fisher, Director of Investor Relations and Corporate Communications. Please proceed.

Thank you, Operator, and thank you to everyone for joining us today for Modine's fourth quarter fiscal 2010 earnings call. With me today are Modine's President and CEO Tom Burke, as well as Bob Kampstra, our Vice President Controller and Chief Accounting Officer.

We'll be using slides with today's presentation. Those slides are available through both the webcast link as well as a PDF file which is posted on the Investor Relations home page of our Company website, modine.com. Also should you need to exit the call prior to its conclusion, a replay will be available through our website beginning approximately two hours after the call concludes, or through replay dial-in information which is included in today's earnings release.

Before we begin I would remind you that this call may contain forward-looking statements as outlined in today's earnings release as well as in our Company's filings with the Securities and Exchange Commission.

With that, it is my pleasure to turn the call over to Tom Burke. Tom?

Thanks, Susan, and good morning everyone.

Let me start first with an overview of our full fiscal year results. Although fiscal 2010 challenged our Company, and many others, in a number of ways, we are proud of the measurable progress we made this past year. While there's still more to do, Modine has come a long way in the past twelve months. We addressed our debt covenant challenges and have a strong balance sheet while our financial results have improved substantially.

For the year, we saw 17% decrease in our sales. However, we recorded modest sequentially sales growth in each of the last three quarters. Year-over-year despite the lower sales, our gross margin improved by 130 basis points to 14.6%. At the same time through a concerted effort by our employees, our SG&A decreased by $42 million to $158 million in total, or 13.5% of sales versus 14.2% of sales a year earlier. Our pre-tax results improved by $92 million from a loss of $103 million in fiscal 2009 to a loss of $11 million in fiscal 2010. Our adjusted EBITDA totaled $86 million for the year which far exceeded our minimum adjusted EBITDA loan covenant. Free cash flow was a positive $23 million on our improved year-over-year results.

To sum it up, fiscal 2010 was a pivotal year for Modine. We entered the year with a two-fold mission. First, get the Company through the severe economic downturn, and second, emerge from it a leaner, stronger, more competitive Company. Through the commitment and hard work of our employees around the world, we have achieved both of these near-term objectives and enter the new fiscal year with confidence and a clear sense of momentum building within our business.

Turning to slide five. Let's now take a look at our results in the fourth quarter as we finished out the fiscal year. In view of the overall business climate and the headwinds we had anticipated as we moved into the fourth quarter, I am pleased with our overall results. Our sales increased 28% versus a year ago and were up 7% sequentially from the third quarter. As we had anticipated and mentioned in our last quarterly earnings call the gross margin came under pressure from increased commodity metal prices and the lagging nature of our materials pass-through agreements with our customers, as well as the wind down of the heating season within our commercial product segment and costs associated with our plant closure activities. These were the primary factors in our reported pre-tax loss of $4 million. While down as expected from a profit of $2 million in the third quarter of fiscal 2010, this compares quite favorably to the pre-tax loss of $37 million reported just one year ago. Adjusted EBITDA of $21 million, while down by $4 million from the third quarter reflected a $20 million improvement versus a year ago.

All in, as we continue to aggressively execute our Four-Point Plan, our business has continued to perform well under the challenging market conditions. During the quarter, we closed our Pemberville, Ohio manufacturing facility and we are on track to close our facilities in Logansport, Indiana and Harrodsburg Kentucky during the first quarter of fiscal 2011. This is all part of our commitment to continuously review our manufacturing footprint. This will ensure we remain well positioned to provide the highest quality thermal management solutions supported by an even more competitive cost base moving forward.

To provide context for just how far we have come this past fiscal year, please turn now to the charts on slide six. These three panels, which we have reviewed many times, show our measured progress. Through the combination of modest sales increases during the past three quarters, and disciplined execution of the Four-Point Plan, we have been able to significantly lower our cost base, increase gross margins, and significantly improve our adjusted EBITDA. These are solid results that we believe are good indicators as we enter fiscal 2011, a period when we expect market volumes to continue to recover.

I will now turn the call over to Bob Kampstra who will provide additional details on our recent results. I will then be back to review our sales outlook and our expectations as we move into fiscal 2011. Bob?

Thanks, Tom. Good morning, everyone. I'm going to spend a few minutes walking through our fourth quarter results as well as an update on our metals pricing and currency fluctuations.

I'm going to start on slide eight, which presents our fourth quarter fiscal 2010 results as compared to our fourth quarter of fiscal 2009 results. Start on the first line, Net Sales. If you look at our net sales from the fourth quarter of last year to this year, you see an improvement of $70 million. The box over on the upper right-hand side of the slide shows that sales increased by segment, and what you will note that sales improved dramatically across all the segments of the Company. Moving down to the gross profit line, what you will see is that our gross profit improved $20.7 million on a year-over-year basis. Really, the impact of the higher sales, as well as some fixed manufacturing cost reductions which the Company completed in the fourth quarter of last year and into the first quarter of fiscal 2010, contributed to that year-over-year increase in gross profit. Moving down to the Restructuring Charges and Impairments line, what you will note is that both of these -- both of these categories decreased approximately $6.3 million in total year-over-year. So as a result, earnings loss from operations improved $25.9 million on a year-over-year basis.

Moving down to the Other Expense line, what you will see is our other expense decreased. Less expense in the current year versus the prior year. Included in Other Expense is our results from our joint ventures as well as foreign currency transaction gains and losses. The primary result of the fluctuation was a permit reduction of a joint venture last year in the fourth quarter of fiscal 2009. That joint venture has now been sold during fiscal 2010, and there was no similar significant charge in the current year. So as a result what you show -- what we show is a pre-tax improvement of $33 million on a year-over-year basis. We still generated a slight pre-tax loss of $4.2 million in the fourth quarter of fiscal 2010 as we are approaching break-even levels at our current volumes. So as a result, we had adjusted EBITDA of $21 million in the fourth quarter of fiscal 2010 which improved approximately $19.7 million on a year-over-year basis. For free cash flow, our free cash flow improved $13.7 million. We had a slight cash out-flow in the fourth quarter, and I'll review our cash flow in a little more detail in a couple of slides.

Turning to slide nine, we show a sequential snapshot of our results over the last two fiscal years by quarter. Let's start with the Sales line. What you see when you look at the Sales is a significant drop in our sales as we move into the third quarter and fourth quarter of fiscal 2009. Really saw the bottom of the recession in the fourth quarter of fiscal 2009 and into the first quarter of fiscal 2010. Since that point we have shown three quarters of sequential improvement in our sales and from the third quarter to the fourth quarter of fiscal 2010, a $22.5 million improvement in our sales. We still have a long way to go to get back to pre-recessionary levels that we saw in the early part of fiscal 2009, but we are pleased with the slow but steady improvement that we are seeing in our sales line.

Looking at the gross margin, similarly you see the gross margin decline as we neared the bottom of the recession in Q4 of '09. At that point the Company took a number of steps to reduce its manufacturing costs and you can see the impact that that had on our gross profit improving in Q1 of '10, and improving through Q3 of fiscal 2010. In Q3 of fiscal 2010 to fourth quarter of fiscal 2010, we did show a decline in our gross profit of approximately 220 basis points. This was expected, as we highlighted last quarter, due to some higher metals costs as well as seasonality which we experienced in our CPG business.

Moving on to the SG&A line, what you can see is that SG&A was running at approximately $60 million a quarter beginning in fiscal 2009. Beginning in the third quarter, the Company took a number of actions to reduce its SG&A cost structure, including a 25% workforce reduction. Since that point, for approximately the last six quarters, the Company has been holding relatively flat at approximately $40 million a quarter.

Looking at the pre-tax line, you can see our pre-tax results decreasing relatively dramatically as we moved into the recession. And then starting in fiscal 2010 holding at approximately break-even, or slightly negative, at the current volumes that we are experiencing. Adjusted EBITDA also declined as we moved into the recession, and during fiscal 2010, we've been running at approximately $20 million to $25 million per quarter at the current volumes and that level is well above our current debt covenant requirements.

Finally, looking at cash flow, you can see cash flow as we moved into the bottom of the recession was an out-flow in Q4 of '09 and Q1 of '10. We have positive cash flows in the second and third quarters of 2010 and then a slight out-flow in the fourth quarter. That out-flow was largely due to the timing of some capital spending as well as the slight reduction in our results in our gross margin from Q3 to Q4 of fiscal 2010.

Moving on to slide 10. We have a little bit deeper dive into our segments sequential results for sales and adjusted operating income. Let's start with sales, which is on the top part of this slide. Generally what you can see across the majority of our segments was a similar trending where the results were dropping as we moved toward the bottom of the recession, and then several quarters of sequential sales improvement as we've moved across fiscal 2010. A couple of items I want to note in particular on this, starting with the Europe line, if you look at Europe's results from Q3 to Q4 of fiscal 2010, it does show a slight decline. That decline was driven entirely by reduction in the Euro related to the dollar that we experienced within the last quarter of the year. Without that, our sales in Europe would have been up $6.5 million. In addition, looking at the CPG line, you do see approximately $6 million reduction in CPG sales from Q3 to Q4. This was expected due to the seasonality in our CPG business as the heating season comes to an end.

Looking now to the bottom half of this chart we show adjusted operating income. This is our operating income adding back restructuring, repositioning, and impairment charges. Generally, what you can see here is a decline across the segments as we move to the bottom of the recession and then sequential improvement since Q4 of '09 on a quarterly basis. Starting in Q3 and moving on into Q4 we did see the anticipated decline in our results with rising metals as well as the CPG seasonality in the majority of our segments. The one exception can be noted within Europe. Europe results from Q3 do Q4 improved by approximately $2.6 million. While Europe did see some rising metals, those were more than offset by the growing business volumes and the operating leverage that we are starting to see within our European business.

Move forward to slide 11 which is the sequential summary of our free cash flow over the last four quarters. It also shows our full year results for 2010 and our full year results for the prior year 2009. What you can see when you look at our -- the last four quarters, after two quarters of positive free cash flow in the second and third quarters, we did show a slight out-flow in the fourth quarter. Three factors really drove that out-flow which can be noted above. When you look at the net loss, net loss earnings line, you can see a reduction in our results primarily driven by the gross margin decline with metals and with the CPG seasonality. In addition, when you look at the capital spending line, you can see that capital spending increased in the fourth quarter in comparison to the third quarter. That was really due to the timing of when those capital expenditures took place. And then finally, the sale of discontinued operations in the third quarter of 2010, net $11 million related to the sale of our South Korean business. We didn't have a similar sale in the fourth quarter, so that results in our comparative quarters. So the slight out-flow really relates primarily to the timing of the capital spending that we see. If you look at the full year results, for 2010 we generated $23 million of positive cash flow in comparison with break-even in the prior year. That increase was primarily driven by the reduced capital spending. You can see our capital spending went from $103 million in 2009 down to $60 million in 2010. That was through our capital allocation discipline under our Four-Point Plan.

Turning to the net debt graph on the upper right-hand corner, shows our net debt. Our total debt less our cash on hand over the past two years. What you can see was through the first quarter of fiscal 2010, our net debt had grown up to a $229 million balance. With the stock offering in the second quarter, we saw a dramatic decline in our net debt, and then with the positive free cash flow in the third quarter, it continued to decline. So at the end of the year, our net debt is down $110 million from the end of 2009. As of March 31, 2010, we have $211 million of availability through our available borrowings plus our cash on hand, which we believe is more than sufficient to fund our future operating and capital needs.

Turning to slide 12, titled Impact of the Recent Euro Decline Versus the US Dollar. The functional currency of our European business is primarily the Euro, and so when we have the Euro moving versus the US dollar, that changes the amount of profits that are translated into US dollars for our European business. So when you look at last year, what you saw in calendar 2009 was a general rise of the Euro relative to the US dollar. That means that our European profits translated into more US dollars in the prior year. Since November, and really beginning of calendar 2010, there's been a dramatic decline in the Euro relative to the US dollar, approximately 14% decline since January 1, 2010. Current spot rates as of May 28, 2010 was $1.23 to every one Euro. What we have done in the bottom is we have shown a little bit of sensitivity analysis of a hypothetical 10% permanent decline in the Euro and what does that mean to the Company. What that would mean, if the Euro would decline 10% and hold at that level for an annual period, the Company's consolidated sales would be reduced by approximately $40 million on an annualized basis and our operating income would decline by approximately $2 million on an annualized basis. So the recent reduction that we have seen in the Euro does present modest headwind as we look forward into fiscal 2011.

Turning to slide 13, we show our commodity metals trends. Last quarter we spent some time on the earnings call talking about impact that metals prices was having on the Company. We thought we'd provide a brief update on this call. What we have shown is a fourteen-month history of the aluminum prices on the top and the copper prices on the bottom. What you can see is that aluminum over the past fourteen months, since the beginning of fiscal 2010, have increased 50% and copper prices an increased 75%. Now the last two months we have seen a slight decline in both aluminum and copper to a current spot rates for aluminum of $0.92 and copper of $3.14. The year-over-year increase in the metals prices does impact our earnings until the pass-through agreements with our customers catch up. As a reminder, we have pass-through agreements with our customers, and it can vary from quarterly to semi-annual or annual. So it takes sometime for those to catch up and therefore we do anticipate seeing a higher metals cost on a year-over-year basis.

Now turning the call back over to Tom who will talk about our outlook for fiscal 2011.

Thanks, Bob.

Turning now to slide 15. Let's take a look at our sales outlook. You will note that we are looking at this from a calendar year perspective. I will first provide you with some of our end market assumptions within our established vehicular segments, then discuss the factors that support our outlook within Asia and of course our commercial products look. Starting in North America, where the medium duty commercial vehicle market remains relatively flat, we continue to see modest incremental recovery in the class A vehicular production. Our current expectation in the calendar basis is for an estimated 115,000 units within the medium duty market and 145,000 units within the class 8 market. The off highway market conditions within North America also continue to improve driven by a recovery in the agricultural and mining segments.

In Europe despite the overhang of an uncertain economy, commercial vehicle volumes appeared to have bottomed. In both the commercial vehicle and off highway markets within Europe, we see evidence of the early stages of recovery. While our expectation for light vehicle sales in Europe has improved from flat to slightly down, to now, flat to slightly up, this is based on our observation that the premium end market of the market, in item part of the market, which we participate, appears to be recovering faster than the lower end of the market where scrappage programs have begun to phase out.

In South America, where we serve the commercial vehicle off highway and bus markets, signs point to a strong recovery with momentum gaining in all markets.

In Asia, Modine continues to actively launch a large number of new programs in China. We are managing our way through a few customer driven program delays in India, but we remain highly confident with our teams and our order books building in the region.

Within commercial products we are focused on generating continued above market growth which is projected around 5% within an otherwise flat market as our commercial HVAC teams continue to leverage our hot new high-efficiency product offerings and gain share in new markets.

On a final note, as you may expect, particularly during a year of vehicular model changeovers and significant supplier volatility, we have received a number of very specific questions about individual customer and program awards. I can appreciate the nature of those questions, and as such, would like to respond with a bit of my philosophy and a perspective from our Company's viewpoint. Because of the world's continually increasing demands for high quality thermal management solutions, and the presence of multiple solutions to address those demands, there is a natural level of switching that occurs in a supply base from time to time. That is the nature of the industry. More often than not, confidentiality requirements prohibit us from discussing individual business wins or losses as they occur.

In addition, business wins or losses can come from various forms. For example, in some limited cases, a particular customer program may be dual sourced in which case we will win some, but not all, of the business. In other cases, we do not receive the original business award, but later are asked to step in as a full or partial replacement. And from time to time there may be some perspective business which we choose, for a variety of reasons, including our own profitability standard, not to participate. In this context, in order to best serve our customers and the balance of our overall business needs, we generally are not in a position to discuss, or disclose, individual program wins or losses. I appreciate that many of you on this call would very much like that information in realtime. Rest assured that we have made, and will continue to make, announcements regarding wins and losses when we are in a position, or required to do so.

With that said I will tell you that we are highly confident in our thermal management capabilities and current offerings as well as our research and product development activities regarding future technological needs. Our discipline in these areas is only increased during this time of economic volatility. We have very solid relationships with our existing customers, a number of which have been strengthened this past year to what would be considered as strategic partnerships, and we are cultivating relationships with new customers across the globe who appreciate our stability and technological capabilities. As we pursue our future growth objectives, we are very confident in our market position and long term order book. Our business wins are meeting our expectations. This is showing up in our improved results, a trend we expect to continue.

Turning to slide 16, I would like to provide some perspective on our business expectations as we head into fiscal 2011. As we indicated earlier, sales have trended positively in each of the last three quarters. Based on our assumptions for modest overall growth in our key served markets, we are expecting an approximate 8% to 12% sales growth in the coming year. Like all global manufacturing companies, however, we continue to face a number of headwinds and obstacles. Our current expectation is that the benefit we expect to obtain from much our increased sales would be largely offset by a number of factors. These include higher metals of material cost and the lagging nature of our material pass through agreements with our customers. The weakening of the Euro versus US dollars and the associated pressure from foreign currency translation. And finally, higher SG&A cost.

Here I want to be clear. We continue to closely monitor and control our SG&A expenses. In fiscal 2011, a significant portion of the projected $10 million to $15 million increase in our SG&A relates to an unavoidable rise in pension expense. This is due to a decline in the pension discount rate which results in higher pension costs. The balance of the SG&A increase consists of added engineering development costs due to the many new program business awards we've received and the conscious decision on our part to increase our spending in the areas of greatest long term opportunity. This includes additional resources to support our market penetration goals for the commercial market vehicle market in Europe, support for sales for the strong growth in Asia which we are projected to grow rapidly, and the incremental investment in our commercial products business to support the continued growth through our expanded range of new high efficiency product offerings. We continue to manage our business using the Four-Point Plan framework while selectively investing to support our three year to five year business plans and ultimately, our objective to return Modine to an 11% to 12% return on capital employed.

In conclusion and moving to slide 17, Modine made considerable progress in fiscal 2010, yet there's more to do. As I mentioned, we will continue to use our Four-Point Plan framework to manage our near-term challenges. Through product rationalization we will maintain our portfolio of advantage products and engage in highly targeted research. By focusing on truly advantaged products, we are able to set new priorities for where we invest our time and resources, both human and financial, to optimize our future growth.

In terms of manufacturing realignment we will continuously review our global footprint to ensure Modine is positioned to provide the highest quality thermal solutions supported by the most competitive global manufacturing cost base. At the same time, our commitment to SG&A cost containment and capital allocation discipline will ensure effective deployment to managing growth as we maintain a sufficiently lean asset base. As we do so, the culture of continuous improvement we are building through the Modine operating system is helping us achieve continuous and sustainable step by step improvement as we bring real value to our customers and shareholders.

The past 12 months -- actually, indeed 24 months at Modine have not been easy. Through a lot of hard work and discipline, however, we have emerged a stronger Company, well position to achieve our future growth objectives. We have a strong balance sheet and ample liquidity to support our business. We are well positioned to benefit from the significant operating leverage as our end markets recover, and the regulatory and technological growth drivers that drive our business remain intact. We recently bolstered our governance structure in anticipation of future Director retirements. We added three highly experienced Directors to the Modine Board, and have engaged a well respected heat transfer expert to serve in an advise capacity to our Board's technology committee. These exceptional individuals will no doubt serve our shareholders well for many years to come.

Finally, and most importantly, we have in place a strong and capable leadership team and a highly committed work force prepared to drive our Company forward.

With that we'd be happy to take your questions. Thank you.

(Operator Instructions) Your first question comes from the line of Ann Duignan. Please proceed.

This is Greg Williams at JPMorgan sitting in for Ann Duignan.

Hi Greg.

You provided some nice color in the North America truck builds. Can you talk about the content per truck going forward? Talk about the pricing environment especially given the 2010 engine emission standards?

It's clearly I guess, the fundamentals. We clearly have a large position in commercial truck. We have large content with their modules and systems and components that we do supply. | We don't quantify that on a per unit basis. Clearly we see that trend continuing as a needs for solutions to help customers -- near-term on emissions, longer-term and mid-term on fuel efficiency drive for further opportunities that they require adding content. In general we see the opportunity for gaining on a per unit basis growing in the right direction.

Okay. Thanks. And moving to foreign currency, you mentioned the weakening Euro. What do you guys have baked into your EBITDA guidance today? A weakening Euro from this point?

You know, when we look out and forecast, we recognize that there's a lot of volatility. But we have no idea where the Euro is headed. And so what we have done here is we've been conservative and we've basically kept the spot where it's at this point. And as we look forward in our guidance.

Okay. And your tax rate has been a little bit volatile. Can you talk about the tax rate in the fourth quarter and what we can expect going forward?

The tax rate is for the fourth quarter was 184% and for the full year it was 94% effective tax rates. Really our tax rate is driven by a mix of where our earnings are being generated. So we have some foreign countries where we generate profits and therefore pay tax on those profits. And we have a number of jurisdictions, like the United States and Germany in particular, where we have been generating tax loss and we have full valuation allowance in those jurisdictions. So we don't get any tax benefit in those jurisdictions. So when we pay tax, you show that tax showing up on our tax line, and what you've seen is our results -- our pre-tax results are approaching break-even which gives you these high effective tax rates. So really when you -- from a projection standpoint, you really want to look at that income tax expense that we are paying. You see it was $9 million for the total fiscal year. That really represents the expense that we are paying in those foreign countries right now.

Okay. So going forward, do you see the US and Germany still being in a tax loss position?

You know, it really gets to our three year to five year horizon and outlook and certainly our goal of returning the Company to an 11% to 12% return on capital employed, contemplates the Company moving toward profits in all of our jurisdictions at some point in that, that mid-term planning horizon, at which point then you will see our tax rates kind of move back to a more normal tax rate type situations.

Okay. Thanks guys.

Thank you.

Thanks, Greg.

(Operator Instructions) Our next question comes from the line of Walt Liptak. Please proceed.

Hi. Thanks. Good morning, everyone.

Good morning, Walt.

I wanted to ask about the pension expense. And I may have missed it, but have you quantified how much pension expense is going to be going up in millions of dollars?

We used the word significant. So if you kind of just frame that around the fact that we said $10 million to $15 million in SG&A and take a significant portion is all we can guide with right now. But clearly with the discount rates going down, there is a direct impact that we are managing carefully.

Okay. And I guess embedded in the guidance, given the headwind of the raw material cost, what sort of a gross margin are you embedding in the guidance?

We are not guiding right now. I'll let Bob go into details of how we are managing that from a framework standpoint.

We didn't guide on the gross margin specifically. We guided down on the adjusted EBITDA level only at this point. We certainly guided higher SG&A $10 million to $15 million, and 8% to 12% growth in our sales. So I think that the gross profits can be kind of imputed based off of that, and therefore the gross margin.

Okay. Yes, understood. Back in. Okay. And then, I understand about the new program wins that you don't want to discuss specific programs, but I wonder if you can give us some detail about within what sectors you are seeing program wins and/or loss and maybe geographic regions as well?

Yes. Clearly, on the vehicular side, we are very much targeted on the commercial vehicle and off highway global customers, regional customers. And in all cases I can tell you I'm very optimistic with the strategy we have taken on with the Four-Point Plan to hone our products down, focused on that, and we are seeing, as I projected, as I mentioned, we are satisfied on expectation with our win rates going forward. So you can just kind of summarize in that, that we feel very confident with the combination of portfolio, our focus on those market segments and a global look, we feel very, very confident with where we are going forward.

On the commercial products group, the non-vehicular side, we are very high on expectation with the new product offerings. We've launched recently a dozen or so new products over the last eighteen months and have in our portfolio new products coming out. We feel very positive about that, above market sales growth rate in the markets we serve and new markets that we are developing because of those products.

Okay. I guess on a net basis over the next twelve months, I understand that you've been rationalizing some of the programs too that are not as profitable. But I wonder, on a net basis this year, if you've got more new programs that are rolling on, than coming off?

Yes, we haven't been public in that information, Walt. So obviously there is a switching as my comment mentioned and going on, but I would just say we are confident on our growth strategies and plans and targets that we are on track to hit the win rates and the order books are building in a fashion that satisfy our needs for our growth rate projections. And I think you can sense with where we are focused on coming through the crisis that we have, our second objective is making sure we are focused on that future growth and that three year to five year outlook. Again, we feel positive about that.

Okay. The new program wins, are those going to impact more, I mean, is this something we should think more for next year, twelve months out from now?

Clearly there's always a delay in our business on the OE sector from award to launch, so, but there is a balanced amount as you look forward of things we have been working on. So you can expect a trajectory of wins that roll with time.

Okay. And have you said what the -- how you expect depreciation and amortization to be in 2011?

We have not said that, but when you look at our capital spending and what it has done you can get a sense for our depreciation.

Okay. Okay. Thanks, guys.

Thanks, Walt.

And your next question comes from the line of Adam Brooks from Sidoti & Company. Please proceed.

Good afternoon at this point. Looking at Asia can you maybe talk about how the ramp-ups have gone? I know you have a lot of new platform ramp-ups over there. And maybe talk about what level of revenue we need to see for EBIT to be break-even?

Well I can tell that you the growth rates that is we are seeing in Asia, both that we are launching now and the order book that's building, we are very, very positive on them. The Asia region post divestiture in Korea has obviously become smaller, but it's a growing piece that you will see significant presence in the next couple of years in our three year to five year plans. So, we are more than exceeding our expectation with, again, focused on the off highway and commercial truck business in those regions. And, quite frankly, looking at opportunities in the commercial products group as well.

So this is a very exciting region for us. One that I am very excited about personally along with many other segments of our business, but we have the right team in place, building confidence, and the order book is building well.

To your second question on what level of EBIT, what level of volumes we need to see EBIT to break-even, if you turn back to slide 8, which showed our fourth quarter fiscal 2010 results, EBIT, or Earnings Before Interest and Tax, largely corresponds to our operating income. And you can see that in the fourth quarter we generated positive income of $1.3 million on our current volume levels. So as we talked, we are kind of at, we are right around that break-even level at our current volumes.

Let me clarify that. I actually meant within Asia.

Oh, I'm sorry. I thought you meant the total Company.

Sorry. Yes, I guess within Asia, I guess around what revenue you need to bring in.

We are clearly in the building mode, okay, with the investments we put down. So we expect, and have forecast, and high confidence that we will see the return on performance bottom line in Asia occurring in time. But we are projecting and to satisfy those investments with a positive return. Right now we have not projected it specifically by the Asia region, but we are confident we are on path to realize the benefit of those launches and growing top line opportunities.

All right, thank you very much.

Thanks.

And your next question comes from the line of David Leiker. Please proceed.

Good morning.

Good morning, David.

Hi David.

So I can firm, you know, follow up on a couple of items here first. So your guidance assumption of 8% to 12% revenue growth, you are using a EUR1.22 in there?

We are using basically close to the current spot rate, yes.

So EUR1.22? Or EUR1.25? Or -- I mean, the Euro is moving all other the place, so when you did your spot rate it could have been EUR1.30. I don't know.

We put the $1.23 in here with the May 28, 2010 as a demonstration point.

Okay.

This is relatively consistent with what we are doing from a forecasting perspective.

Great. Thanks. Given that you got a large amount of revenue gain from Brazil, what are you throwing in there? What do you have assumed in there, because you have a pretty significant revenue gain there in the quarter from Brazil as well?

Are you saying from a currency perspective?

Yes, South America. I think, if I did my math right it's about $8 million that you got out of South America from currency.

What periods are you comparing to?

Q4. It's off of your slide 8 -- no, sorry, slide --

On slide 10, we show that South America was up $2.5 million and currency was actually down $1.2 million.

No, I'm looking on the slide 8 where you show South America up 61% but up 25X currency. So $8 million of that $13 million is currency?

I see what you are saying. Yes, for fourth quarter of fiscal 2010 versus the fourth quarter of the prior year, we have seen the, the impact. It's been very volatile over the past several years, but as of late we haven't seen that sort of volatility, and we really are using the forward curves that are out there right now for ROI in our planning assumption.

Okay. And is the current -- the profit impact of the currency going through South America any different than the example you gave for Europe?

Different from the standpoint that South America is a lot smaller of a segment than Europe is.

$40 million in revenue is $2 million in profit. Is that rough relationship consistent with South America as well?

Roughly. Right now our European gross profits are a little bit lower than our Brazilian gross profit.

Okay. And then another item, what was your actual pension expense for 2010? Assuming we have a base to work off of here.

Approximately $2 million.

Okay. And then where do you anticipate that going as it relates to your discount rate, your 7.73 a year ago, I think?

Yes, we are seeing the discount rate environment dropping to just south of 6%.

Okay. And then any change in our return on asset assumptions? (Inaudible) a year ago?

No. No change in our return on asset assumptions.

Okay. And then, sorry to go through this detailed numbers. But, and if -- you are giving your guidance on EBITDA that adjusted EBITDA would be consistent year-over-year? And your adjusted EBITDA for 2010 was $86.2 million.

Yes.

That included $10.5 million of adjustments. How would that $10.5 million number compare to what you're giving -- to your qualitative comment as it relates to 2011? I'm trying to work into an EBIT -- into a GAAP EBITDA number, because -- .

That information is really not public information right now. So we need to be careful with that.

I understand. But you've got a $10.5 million adjustment to GAAP EBITDA which is over 10% of your adjusted EBITDA number. I'm just trying to get a handle on what you think those restructuring costs and non-cash charges might be in 2011? I mean, it's a pretty big number.

It's something that we are not capable or prepared to be able to share with you at this point.

Let me ask the question a different way. If you gave your guidance on GAAP EBITDA, would your qualitative comment be comparable? Consistent GAAP EBITDA?

It's really the same question. Basically -- it's just not something that we have the details that we are willing to share at this time. We are not projecting out for the call what our restructuring costs are going to be as we look at fiscal 2011.

Okay. The $4.7 million non-cash charge in Q4, can you explain that please?

Yes. So during the fourth quarter we had impairment charges of $1.4 million that we are adding back.

Right.

We had some exchange losses. Foreign currency exchange losses, that is some inter-Company loans. So we've got some inter-Company loans between our business segments, and there was approximately $1.9 million of losses that we add back, that we are allowed to add back for our bank covenant purposes. And then from a restructuring repositioning charges. Charges related to the closures of our plants. So we completed the closure of our Pemberville facility during the fourth quarter, and we have the upcoming closure of Logansport and Harrodsburg that we are working on here being completed in the first quarter. That was another $1 million. So that basically comprises those pieces.

Okay, and then one last item here on the working capital. It seems like you have a pretty significant jump in receivables. You're up 37% from last year on a 28% sales increase, and sequentially the receivable number is actually up higher than the revenue increase?

Yes. When we looked at our increase in receivables consistent with our -- we view that relatively consistent with our sales increase. We actually look at our days sales outstanding, and our days sales outstanding have actually decreased to just slightly on a year-over-year basis.

Okay, great. Thank you.

Thank you, Dave.

David, before you leave, just sitting here about your question on the restructuring charges this year for this year, and qualitatively I guess is we can say that we are probably looking at equal level of restructuring charges going forward.

The restructuring and non-cash? That total combined number of $10.5 million?

Yes.

I'm trying to get to that number that reconciles.

I understand. I know where you're trying to go. And I guess you kind of had a good question, but roughly I would say that's on track. That's something that you can take forward.

Okay, thank you.

Your next question comes from the line of Brian Sponheimer. Please proceed.

Hi, good morning.

Good morning, Brian.

Or, good afternoon.

How are you doing, Brian?

Very good. I wanted to discuss North America on slide 10. I think is a good job laying out your adjusted profit as sales has increased. And as profit has gone from $6 million in the second quarter to basically break-even in the fourth quarter despite sales increasing, is that all commodity there? Or is there anything from an operational standpoint that's getting in the way of getting to positive contribution margin in the North American market?

Brian, that largely is the commodity related impact. We start seeing in the third quarter, and then as we anticipated, additional impact in the fourth quarter. And that's basically what that is.

Okay. As we are looking at your operating segments and your geographic exposure, how should we think about that relative to commodity exposures? Is there more aluminum in the automotive markets relative to copper?

Yes. Our spend on aluminum on a global annual basis is about six times to eight times the spend on copper. So we are quite a bit more impacted by movement in aluminum prices versus copper prices.

All right. And then I suppose that that leads into the next question which goes back to working capital. Expecting a pretty significant ramp in North American trucking with Asia continuing to grow and Europe bottoming out. How should we think about the requirements for working capital and free cash flow as we are going through your 2011 fiscal year?

We anticipate the working capital demand from -- as we build up those volumes at 8% to 12%, we are going to require the buildup of working capital inventory, but, so I think it's all factored into the plans. We feel very appropriate that we are managing that appropriately.

Okay. And I suppose the last question on the commercial products group. Given the sequential decline in the fourth quarter attributed mostly to seasonality, have you seen that seasonality reverse itself during the first, I suppose, the first two months of the 2011 fiscal year where you are looking at gains for really 2Q and 3Q here?

Brian, it's right on track where we expect it, the anticipated -- we have the up and down seasonal effects. But we see no reason to think that that's going to be any different for market. That's why we made the comment that we think its relatively flat market, that we're still going to have the upside in sales. So that is anticipating that typical forecast uptick that we see every year at the current economic level.

Okay. Finally one more if I may just from a strategic standpoint. You are clearly trying to decrease your capacity in certain areas. Are you seeing any opportunities to grow from an inquisitive standpoint, certainly given your liquidity now and where might we think about areas where you could pick up technology and perhaps provide scale?

I think first of, just to clarify one thing, we are not giving up basic manufacturing capacity, we're building scale. So we are keeping the same capacity, just less overhead from standpoint of fewer plants. It would be larger on a scale basis. So I want to make sure that that is understood. That we are not giving up the capacity. We are utilizing that capacity to a more efficient level.

As far as the second part of your question was what now? Oh, the acquisition side.

Correct.

Right now, we have reenacted our business development opportunities and we are looking both through organic and inorganic opportunities. That's something that we are going to continue to do as we look for opportunities coming forward in the future with our opportunity now to be more aggressive potentially in that area.

Okay. Thank you.

Thank you, Brian.

Your next question is a follow-up from the line of David Leiker from Robert W. Baird. Please proceed.

Just one additional item here. I think it was a year ago, maybe it was nine months ago, I'm not sure exactly, but you made a comment -- I think it was right after first quarter earnings -- $250 million in revenue, was your guidance as we hold that and we'd have a $100 million in incremental revenue from new business. Did -- How much of that $100 million did you actually end up realizing do you think here in 2010?

That is a good question and I'm not prepared to answer it. But, I can tell you, qualitatively that all of our pursuits were right on track with our growth rate. There's been no indication of why we have not achieved that $100 million that we defined earlier. I can tell you from our win rate, our order book is building.

Okay, and then --

I don't have that quantified, David, to that data point you are talking about in time, but we are talking about the growth opportunity. But yes, we are on track with the growth opportunity objectives, clearly.

So, the things you expected to start up have started up? They're on track with what you have expected?

I mentioned that there have been some customer delays, namely in Asia, specifically in India, with a couple of the program launches there. They have not been on our part, they have been customers actually delaying some of the programs with the emission changes and things over there. But other than that, we are right on track where we thought we'd be.

Would I be successful if I ask you to give us the number for 2011?

No, you won't.

Do you think it's bigger or smaller than that?

Let me put it this way. My confidence is growing on our future opportunities. Okay? As we've come through this thing and positioned ourselves, the level of confidence that we see in the marketplace from our customers, the opportunities we are being engaged in to grow those relationships, thus the order books. I can definitely quantify this. Okay? My confidence where it was last time we talk about this versus now is 100% higher. Okay? So our opportunity is moving forward.

Great. Thank you.

And we have no further questions in queue. And I would like to turn the call back over for closing remarks.

Thanks everyone for joining us for our call. We look forward to apprising you of our progress.

Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.