NACCO Industries Inc (NC) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2007 NACCO Industries Earnings Conference Call. My name is Dan and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's call, Ms. Christina Kmetko, Manager of Finance. Please proceed.

Thank you. Good morning, everybody, and thank you for joining us today. This morning, a press release was issued outlining NACCO's results for the fourth quarter and year ended December 31, 2007. If anyone has not received a copy of this earnings release or would like a copy of the 10-K, please call me at 440-449-9669 and I will be happy to send you this information. You may also obtain copies of these items on our Web site at www.nacco.com.

Our conference call today will be hosted by Al Rankin, Chairman, President and Chief Executive Officer of NACCO Industries. Also in attendance representing NACCO is Ken Schilling, Vice President and Controller. Al will provide an overview of the quarter and full year and then open up the call to your questions.

Before we begin, I would like to remind participants that this conference call may contain certain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. Additional information regarding these risks and uncertainties was set forth in our earnings release and in our 10-K.

In addition, certain amounts discussed during this call are considered non-GAAP numbers. The non-GAAP reconciliations of these amounts are included in our 2007 fourth quarter earnings release which is available on our Web site. I will now turn the call over to Al Rankin. Al?

Good morning. I will begin with an overview of the earnings release which was sent out this morning. And as you know that earnings release complements the 10-K which, as Christy indicated, was also released this morning.

As you have probably seen, NACCO's fourth quarter net income was $51.7 million or $6.24 per share, compared with $70 million or $8.48 per share for the fourth quarter of 2006. 2006 importantly did include in its fourth quarter an after-tax extraordinary gain of $12.8 million which did not recur in 2007. As a result, income before extraordinary gain, as I indicated, in 2007 was $51.7 million or $6.24 and that compared with comparable 2006 numbers before extraordinary gain of $57.2 million or $6.93 per share. The decrease in consolidated income before the extraordinary gain was primarily the result of the absence of a gain of $21.5 million or $13.1 million net of taxes of $8.4 million from the sale of draglines, which occurred in the fourth quarter 2006 operating results.

Other key highlights of NACCO's fourth quarter included net income at NACCO Materials Handling Group, which was $23.8 million compared to $22.4 million in the previous year. I should note that in August of 2007, NACCO Materials Handling Group announced a manufacturing restructuring program that added additional restructuring charges during the fourth quarter of $0.5 million pre-tax and additional costs in the fourth quarter of $1.7 million pre-tax. Included in the 2006 net income was a $7.9 million reduction in income tax expense related to the recognition of the tax benefit of previously reported capital losses.

The NACCO Materials Handling Group retail business had a net loss of $1.1 million in 2007 compared with a loss of $4.3 million in the previous year. Programs put in place in mid-2007 affected operations positively in the fourth quarter, resulting in significant progress towards achieving at least break-even results while building market position.

Hamilton Beach's net income was $12.6 million in 2007 compared with net income of $14.7 million in the previous year. Net income was negatively affected by increased interest expense in 2007, primarily due to increased borrowings related to a $110 million special dividend paid in May of 2007.

Kitchen Collection's net income of $5.9 million in 2007 decreased compared with net income of $6.3 million in 2006 as a result of store inventory fulfillment difficulties at Le Gourmet Chef's third-party warehouse operations.

North American Coal's net income decreased to $6.6 million from $20.2 million in 2006, primarily as a result of the absence of a gain on the sale of two electric draglines of $13.1 million after-tax, which was recognized in 2006.

There were some offsetting items at NACCO and other, the income before extraordinary gain increased to $4.2 million from a loss before extraordinary gain of $2.3 million in 2006. The income improved as a result of increased interest income, lower employee related expenses, lower income tax expense due to the absence of a 2006 charge for the reversal of a previously generated capital gain of benefits and the absence of costs of $2.3 million, $1.5 million after taxes recognized in the 2006 fourth quarter, which was associated with the terminated Applica transaction.

Net income for the year 2007 was $89.3 million or $10.80 per share compared to $106 million or $12.89 for the year before and the net income excluded the extraordinary gain I discussed previously. If you exclude the extraordinary gain, 2007's $89.3 million of net income compared with $93.4 million for the previous year. Revenues were $3.6 billion compared to $3.3 billion for 2006. Consolidated cash flow before financing was again positive, but at a significantly lower level in 2007 at $21.7 million compared to $138 million the year before.

There were some one-time benefits associated with cash flow in the previous year and I will touch on the reasons for the cash flow level as we go through the individual subsidiary results.

The economic environment as we look out into 2008 appears very uncertain at this time for both the consumer markets in which Hamilton Beach and Kitchen Collection participate and the capital goods markets in the United States in which NACCO Materials Handling Group participates.

At NACCO Materials Handling Group, key improvement programs continue to be implemented. However, these programs will incur significant costs in 2008. North American Coal and Hamilton Beach are likely to have very difficult operating environments for reasons I will touch on, which in turn are likely to lead to significantly reduced results in those businesses compared with 2007.

Turning to the fourth quarter at NACCO Materials Handling Group Wholesale, net income was $23.8 million on $760 million of revenue compared to $22.4 million on revenues of $613 million in the previous year's fourth quarter.

2007 fourth quarter net income includes additional restructuring charges that I referred to in my earlier comments. Worldwide shipments increased to 25,946 units in the fourth quarter, up from 23,138 units in the previous year's fourth quarter.

The wholesale backlog on a worldwide basis was approximately 30,500 units at the end of 2007 compared with 27,200 units at the end of 2006, and about the same number, 30,500, at the end of September in '07. Net income for the fourth quarter increased $1.4 million between the fourth quarter of '07 and '06. However, the fourth quarter 2006 net income included a reduction in income tax expense of $7.9 million related to the recognition of a tax benefit for previously recorded tax losses.

Excluding the effect of the tax benefit, income increased significantly between years primarily as a result of an $8.4 million increase in operating profit. That came about as a result of improved unit margins and parts margins, and was partially offset by an increase in SG&A expenses and additional manufacturing restructuring that I referred to.

Units and parts margins largely increased due to increased volume and selling, general and administrative expenses increased primarily due to higher marketing program and employee related expenses and lower favorable adjustments to product liability reserves between the two years.

Turning to the outlook for NACCO Materials Handling Group Wholesale, we are expecting continued growth in lift truck markets in 2008 in Europe and Asia-Pacific and a year-over-year decrease in the Americas market. Overall, the Company expects modest increases in unit bookings and shipments levels for 2008 compared with 2007 as a result of these market prospects. I should note, however, that if U.S. economic conditions deteriorate more than expected, sales of units and higher margin parts could decline in 2008, which would adversely affect revenues and profit margins.

As I have commented before in these discussions, the weakening of the U.S. dollar has adversely affected NMHG's results because the Company manufactures certain lift trucks and sources certain components from countries with appreciated currencies and sells them in the U.S. market. Unfavorable foreign currency movements have effectively lowered current annualized pre-tax profitability, excluding the effects of hedges by approximately $72 million, more than if the currency rates in 2007 had been the same as 2002, when NACCO Materials Handling Group Wholesale established its operating profit margin target.

In addition, the Company is expecting a further unfavorable impact on 2008 results if year-end 2007 unfavorable currency exchange rates persist. In other words, the current exchange rates on a running rate basis are less -- are even more unfavorable than the rates that we had effectively over the course of 2007. That, of course, has led to a number of specific programs to offset the effects of currency, which I have commented on again in these discussions in the past.

During 2007, NMHG outsourced its welding and painting operations at its facility in the Netherlands and announced an additional restructuring program -- manufacturing restructuring program, which will phase out production of current products at its facility in Irvine, Scotland, change the product mix at its Craigavon, Northern Ireland, facility, and increase production at its Berea, Kentucky, and Sulligent, Alabama, plants in the United States, and its Ramos Arizpe facility in Mexico.

These programs are expected to -- reduce purchases of high cost Euro and British Pound Sterling denominated materials and components; reduce freight costs; lessen NMHG's exposure to future currency exchange rate fluctuations; and reduce the manufacturing footprint of wholesale's European manufacturing locations; and provide additional opportunities to source components from lower cost countries; and reduce required working capital levels.

The Irvine, Scotland, and other related manufacturing programs are expected to generate savings beginning in 2008 and improve net results starting in 2009 and at maturity generate benefits, which are expected to exceed $20 million in annual cost savings. However, the Company anticipates future additional charges related to this manufacturing restructuring program of approximately $9.1 million in 2008 and $400,000 in 2009, and those charges are in addition to the $7.6 million which was incurred pre-tax in 2007.

In addition, NMHG has continued to invest in its long-term programs. Of particular importance is its new electric rider truck program, which will bring a full line of new products to market over the course of 2008 and 2009, and warehouse and big truck product development and manufacturing programs, which are expected to continue to improve results. The bottom line is that we continue to believe that the programs are in place and that others are in development, which will allow NMHG to achieve its 9% operating profit margin goal in the 2010 or 2011 timeframe. That's certainly what we are striving for.

At NMHG's retail business, the reported net loss for the fourth quarter was $1.1 million compared with the net loss of $4.3 million in the previous year. The reduction in the net loss was primarily as a result of improvements in Asia-Pacific retail operations. As you look into 2008, we think that those key improvement programs in retail, especially the ones that were implemented in Asia-Pacific in mid-2007 will have an increasingly favorable effect during 2008, in line with the Company's' strategic objective of achieving at least break-even results while building market position.

For the full year, NMHG had consolidated cash flow before financing of essentially break-even. In 2006, NMHG had a consolidated cash flow before financing activities of $54.2 million and the decrease was driven by higher accounts receivable from -- primarily from higher fourth quarter revenues in Europe and some increase in day sales outstanding due to the timing of payments. Higher investments in inventory were mostly offset by higher payables.

Turning to Hamilton Beach, the Company reported net income of $12.6 million in the fourth quarter on revenues of $200 million compared with net income of $14.7 million in 2006 on revenues which were essentially comparable. Hamilton Beach's decrease in net income was driven by an increase in interest expense of $2.2 million pre-tax as a result of an increase in borrowings that I mentioned earlier and also a decrease in operating profit.

Increased advertising and transportation expenses and unfavorable foreign currency exchange rate changes of $900,000 pre-tax were partially offset by a favorable product liability adjustment resulting from continued better than anticipated claims experience in the absence of a restructuring charge of $900,000 after-tax, which was recognized in 2006. The restructuring charge was associated with the program that had been implemented at Hamilton Beach's Saltillo, Mexico, facility in order to transfer all production from that facility to third-party manufactures.

Turning to Hamilton Beach's outlook -- 2008, we think, it is expected to be a difficult year. The economic factors that we all hear a great deal about affecting U.S. consumers such as high gasoline prices, depressed home sales levels, mortgage debt concerns appear to be among factors which are likely to create a challenging retail environment in 2008. Further, Hamilton Beach expects continued significant pricing pressure from its suppliers in 2008 due to increased commodity cost for resins, copper, steel and aluminum, and those are likely to affect short-term operating profits unfavorably.

While the Company is going to work to mitigate those cost increases through a variety of programs that have been initiated in prior years as well as through price increases as appropriate, the timing of margin recovery based on our -- the timing of our negotiations with our customers is likely to adversely affect results in 2008. And while economic factors are expected to continue to affect consumer spending patterns unfavorably over the near term, it's important to keep in mind that Hamilton Beach is focusing on continuing to strengthen its market position through product innovation, promotions and branding programs.

As a result, the Company had a strong assortment of new products in 2007 and further product introductions are in the pipeline for the next two years, all of which are expected to favorably affect revenues. However, because of uncertainty in U.S. consumer markets, volume prospects both on new products and existing products are very difficult to predict with regard to price point and margin mix.

Hamilton Beach has completed its transition out of manufacturing and moved production of all products to third party manufactures. This transition and other programs initiated by Hamilton Beach, as well as anticipated increases in sales resulting from an improved mix of sales of higher margin, higher priced products, are expected to have a favorable impact on operating results over time.

Turning now to Kitchen Collection, the Company reported net income of $5.9 million in the fourth quarter on revenues of $85 million, compared with net income of $6.3 million on revenues of $90 million for the fourth quarter of 2006. The revenue decreased primarily as a result of a decrease in comparable Kitchen Collection and Gourmet Chef's store sales compared with fourth quarter of 2006. And the main driver was store inventory fulfillment difficulties at Le Gourmet Chef's third party warehouse operations and fewer store transactions. Closures of unprofitable stores also contributed to the decrease in revenue. And at the end of 2007, the Company had 198 Kitchen Collection stores and 74 Gourmet Chef Stores compared with 203 and 77 in the end of the previous year.

Net income decreased moderately in the fourth quarter compared to the previous year, primarily due to the decrease in sales at the Gourmet Chef stores.

During the full year 2007, Kitchen Collection had a substantial negative cash flow before financing activities of just under $15 million. The change in cash flow compared to the previous years, when there was cash flow before financing of $1.1 million positive, was the result primarily of a decrease on the one hand in the net income but really primarily as a result of a decrease in accounts payable between the years, which was the result of the timing of payments in 2006 and was closely related to the whole acquisition process that occurred of the Gourmet Chef stores in 2006.

Turning to the outlook, many of the same factors that affect Hamilton Beach affect Kitchen Collection, and the uncertainty in the U.S. economy, gasoline prices are expected to continue to be high and to affect consumer traffic to outlet mall locations and influence retail spending patterns unfavorably. Nevertheless, the Company is hopeful there will be modest increases in revenues and improvements in operations in 2008, primarily in the second half of the year. That really ties in with the thought that, with the significant exception of the distribution function, the integration of the Gourmet Chef operations was completed in 2007.

And then to improve the distribution operations of the Gourmet Chef stores, Kitchen Collection has begun making arrangements to shift the warehousing operations from a third party warehouse service provider to an owned distribution operation near its current own distribution operations, which support the Kitchen Collection business. This transition is expected to be completed by mid 2008. And at the same time, the Gourmet Chef key merchandizing program should have, we hope, an increasingly positive effect overall, especially in the second half of 2008. And Le Gourmet Chef operations are expected to improve over the course of 2008 compared with 2007. Overall, continued profit improvement is then expected in 2009 and in succeeding years.

Turning to North American Coal, the Company's net income for the fourth quarter was $6.6 million compared with net income of $20.2 million. The $20.2 million, of course, included the $13.1 million after-tax that was related to the sale of the two electric draglines that I referred to earlier. Excluding the effect of the gain in 2006 from those dragline sales, net income for 2007 fourth quarter decreased only moderately compared to the 2006 fourth quarter. The decline is primarily the result of increased income tax expense, excluding the effect of the gain on the dragline sales, resulting from a shift in the mix of pre-tax income toward entities with higher income tax rates and due to reduced royalty income, which is partially offset by an increase in the earnings of the unconsolidated mining operations, due to contractual price changes.

Now turning to North American Coal's outlook, results in 2008, which we think will be well below 2007. Much of that decrease is expected to the result of a reduction in total lignite coal deliveries in 2008 compared with 2007, primarily due to increased customer planned outages in 2008. The Company also expects higher costs due to lower production levels at its Mississippi Lignite Mining Company as a result of expected continued lower delivery levels as well as higher repair and maintenance expenses at our Red River Mining Company operation.

In addition, lower royalty income, primarily as a result of the completion of certain -- mining of certain reserves in the second quarter and an increase in development expenses are expected in 2008 compared with 2007. Also contributing to the decrease between the years is the absence in 2008 of a $3.7 million pre-tax arbitration award, which was received in the previous year.

Deliveries from limerock dragline mining operations are also expected to decrease in 2008. Limerock customer projections for 2008 deliveries continue to reflect the continued decline in the Florida housing and construction markets. And you will remember that all of those dragline mining operations are in the Florida market. In addition, compliance with a district court order -- court ruling in July of 2007 and the timing of receiving new permit application approvals indicate further reduction in customer deliveries are likely for a period of time over -- in the course of 2008. Those are the highlights of NACCO's overall fourth quarter results and the general outlook for 2008. I think now, then, we will turn to the -- any questions you may have.

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Your first question comes from the line of Amy Bloom from Stanfield. Please proceed.

Yes, you talked about your guidance for Hamilton Beach was significantly reduced results for 2008. Could you give us maybe a little bit more clarity on that. You are talking about the top or the bottom line? And maybe give us a range of maybe mid-single digits, high single digits just wanted to get a little bit more clarification on the guidance? Thank you.

Well, as you know, we don't provide earnings guidance and have not for many years, as a general matter. This is a particularly difficult year in which to have a sense of how economic conditions will affect our various businesses. At Hamilton Beach, as you know, as like many other stores that -- many other companies that are selling into the retail -- consumer retail environment, December sales were weak. We did have comparable sales in 2007 in the fourth quarter to the previous year. And I think we certainly don't see, at this time, any upturn in the consumer demand environment. So we would work hard to try to maintain the placements that we have and hope for good sell-through and to gain some additional new placements.

The bigger impact, really, in terms of the difficulty of the environment is more at the operating profit level and, of course, we have the full year of the interest expense associated with the $110 million dividend. So I think you can expect that there are factors that are going to affect operating profit. I mentioned particularly the cost pressures that are coming through in the business.

And I think we are in the same position that essentially all companies are that have established supply sources in China. That is a tremendous cost reduction opportunity over a good many years, but now it is -- the supply business is very competitive in China and the global upturn, particularly in China and India, has put tremendous pressure on price increases of commodities. And it is very difficult to come up with the cost reduction programs to offset those. So I think there is an element of change here and moving into a more inflation driven environment in terms of the cost profile in businesses such as Hamilton Beach's than has been the case in previous years.

The supplier's margins simply don't permit the absorption of those increased costs and obviously we work very closely to try to pass on appropriate cost increases to our customers. But as I intimated in my comments, the customer cycle for negotiation is, to some degree, different from the cycle of negotiation with our suppliers. And the cost increases that we are receiving from our suppliers, based on accelerating commodity cost increases, has been increasing above our anticipation of just six months ago.

So there is likely to be a lag time that affects 2008 when some of those factors are coming through. It's also fair to say that we had some placements in 2007 with margins that were attractive. We hope for those kinds of opportunities in 2008, but it is very difficult to count on them. And at this point, we think that, given the cost pressures and the weak consumer market, that products with higher margins may have a tougher time selling through than perhaps was the case in 2007 and 2006. As far as specifics are concerned, I wouldn't go any farther than to give you the general perspective that I just outlined.

That's helpful, thank you. Do you have a number of how many new products were introduced in 2007 and maybe with -- on the docket for '08, is that higher or lower than 2007?

I don't have those numbers at hand. I think we will probably talk about those in our annual report, to some degree. And certainly, the innovation commitment of the business continues to be very high. And we have a high proportion of our products that are renewed every year and I see no change in that. And we don't have a substantial trade-off as some businesses might, in terms of capital and expense associated with tooling for new products, because those expenses more often than not are borne by our suppliers and then by us over time in the cost of the products. So we don't have a trade-off that either permits or provides a profit improvement that comes from changing the pace at which those activities are going on.

Okay. And I noticed in the 10-K that your CapEx guidance is higher for 2008 for tooling and you had just mentioned that. Is that for new products or that's for existing products, and is that already committed on spending that capital?

You are talking about for the total company or for Hamilton Beach?

No, actually. It was for Hamilton Beach. Yes.

The numbers are pretty low levels in Hamilton Beach in total and there may be some modest increase in those in terms of -- but it's really a very small number maybe $1 million or $1.5 million.

Yes, I think in terms of the -- you are talking about the schedule we have on page 61, where we are going from $3.9 million to $5.4 million that in part is tooling as well as some other activities at Ham Beach. And again, there are some new tooling for new products that we have in our budget and that's what we are forecasting. But again --

We will see how the numbers come in. I mean, it is often the case that the intentions early in the year are not fully carried out during the course of the year, but that's the number we have at the moment.

Great, thanks. I will let someone else get on. Thank you.

Great. Thank you

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

Hi, guys, good quarter. I guess my question is in regards to operating margins in NMHG. I have 3.8% for this quarter, which third quarter of '07 was a record low of 1.3%. I was just wondering if you wanted to talk about basically the snap back in operating margins?

Well, we had enhanced volume. It's -- we had good results in Europe, and of course, that's very helpful to us. That's the flip side of the problems we have in the U.S., where we're sourcing the products from Europe. There are so many factors that had come in to bear on the operating margins that they can swing in the short-term substantially.

To me, the more important issues are the following -- number one, that we have the whole set of restructuring activities that I described in some detail coming to pass that will reduce our Euro content, reduce our manufacturing footprint and therefore our fixed cost content, which happens to be a Pound based currency and a number of things that are really quite favorable from that point of view. In addition, we have continued efforts in procurement to find lower cost sources in -- mainly in low cost countries. And we have, importantly, a new electric truck line coming out that will begin to affect results over the course of 2008 and in 2009.

And it's important to understand, I think, with regard to those new electric trucks that we expect them not only to have significantly enhanced performance in capability levels in comparison to the existing products, but also give us a broader product line in -- especially in the European market and to have significantly lower costs than we currently have today. We also have cost reduction efforts underway in our big truck facilities in Nijmegen in the Netherlands. And I would say that, beyond the programs that have already been strictly identified in the narrow sense that those have, that we have value improvement programs that have very specific targets and very specific content that are being implemented that affect our various product lines.

So all of those things start to begin to come together in 2008, but we have additional costs associated with them substantially in 2008. And one of the -- I think perhaps a good way to think about 2008 is a transition year toward 2009 and 2010, when a number of these programs that affect the cost side of our equation continue to mature. In addition, on the pricing side, we are not just looking at trying to recover any material cost increases and labor cost increases that we absorb, but also to strategically position our products so that we capture the full value in terms of the customer value that we are delivering. So I am more inclined to look out at 2009 and -- forward and focus on the programs that are coming in detail in the fourth quarter.

Having said all that, certainly the fourth quarter was encouraging in terms of the improvement that it reflected. And it is important to put that in the context of the operating and profit improvement too, not just between the third and fourth quarter, but between the fourth quarter of the previous years -- of the previous year. Now the percentages can get [recorded] and affected dramatically by the currency moves that affect both value of revenues, costs, margins from our European operations and move them in one direction and the equation in the U.S. moves in another direction. So the net out of all that in the short-term is complicated.

Great. And I guess my follow-up question would be regarding the coal division. Do you see any plant shutdowns in 2008?

Do we see any -- what did you say?

Plant shutdowns.

You mean power plant shutdowns?

Yes.

Well we see a number of scheduled outages in that business. And we see more scheduled outages than have been typical in the past and that's part of a cycle, major maintenance causes greater downtime. In addition, there have been operating issues at some of the power plants or even the gas plant in North Dakota that have affected the coal that they need for their operations. And those are sort of unplanned outages, if you will, and those have been up already this year.

In addition, in one of our operations, Mississippi Lignite Mining, last year the outages, including the unplanned outages, were significantly greater than the forecast on which the mining production took place. The result was that, as we built -- mined at the level that the customer had indicated was appropriate, we actually ended up building inventory over the course of the year. And this year, we need to reflect in the operating schedule for that mine where there are very heavy fixed costs that are absorbed by additional volume, or, of course, create additional expense with less volume.

We have got to bring our production levels down in line with what we think the power plant is actually going to operate at. And our hope is that the power plant increasingly over the next couple of years will begin to operate more efficiently and have a much higher up-time than it currently has. But it's, to a large degree, a factor that is outside of our control and we want to try to do everything we can to help our customer with the maintenance issues that they face in their operation and try to get the higher up-time.

But in the mean time, it's just we have to re-adjust and so we expect in that operation that there will be somewhat lower shipments of coal and that the ongoing production level will be significantly below, so that we don't actually increase inventories this year and actually reduce them to some degree as we look into 2008.

Great, thank you very much.

Yes.

(OPERATOR INSTRUCTIONS)

Your next question comes from the line of Frank Magdlen from The Robins Group. Please proceed.

Good morning, Al.

Good morning.

Could you talk a little bit about your market share, where you think you are in, say, North America and how different is the European and Asian market compared to North America?

Well our market share has been pretty constant in the Americas over the course of the last few years. We hope with our new product lineup that we will be able to enhance our share position in coming years, and we certainly have programs that we hope will have those outcomes. North America is, by a significant margin, the highest share area for us. After that, we have lower shares in the European theater and those have actually improved a little bit over the last year or so in many countries.

Then we have our position in the Asia-Pacific area. We have some real strength in Australia and New Zealand, but our position in the Asian countries as opposed to the Pacific countries is not as strong as we would like it to be. We have been increasing in Japan on a steady but slow basis from a lower level than many of our other competitors.

But the biggest issue in Asia is that we have a small share in China. We have a manufacturing plant in China and we are working diligently to expand our distribution operations and have a product that is appropriate for that market. But it has been exploding at an extraordinary rate and to some degree that same trend exists in Eastern Europe. And although our share is higher there than it is in China, these very rapid growth markets are not markets where we have as established a distribution position.

So that's a challenge and an opportunity for us as we look forward and we are very much focused on that. But the fact is that, as the market expands in areas of the world where we have lower share, our total of global share position does decrease unless we are able to establish a distribution that is more comparable to what we have in the more developed parts of the world.

All right, are there any component shortages in the lift truck market at this time?

No, I think my recollection is that there were some issues a year ago, but we haven't seen fundamental component shortages in recent times. We have our continuous efforts to try to ensure that the quality of our components is what we expect and what are our suppliers want to deliver to us and that's not always the case.

And I think we can do a better job of making sure that the right components at the right quality get to the plants at the right moment, and we are working very hard on that. We put in place a new supply chain management organization, which is more centralized than we have had in the past. It gives us greater focus and visibility on a global basis with our suppliers and we have supported that new organization with the new supply chain management IT system, which we think is going to give us increasing benefits in that area over the next couple of years.

So -- and that's a very important factor in driving the enhanced productivity and efficiency that we expect from our fork lift truck plants around the world. We have simplified the designs considerably over the last few years with our new products, made them more manufactureable. But at the end of the day, an efficient plant really requires that the components all be there absolutely on time. And so, that's a major focus of effort for us.

All right, and just one last question. Is there any guidance on the tax rate for '08?

Again, we really don't give guidance on the tax rates or on individual components of our earnings, no.

All right, thank you.

Yes.

At this time, there are no further questions in the queue. I would now like to turn the call back over to Christina Kmetko for closing remarks.

Al, do you have anything?

I have nothing further to add and obviously much of what we look forward to in '08 is going to be highly dependant on the state of the economies and especially in the U.S. And I think, at this point, it is more difficult to predict what economic conditions are going to be in both consumer and capital goods markets than it has been for a very long period of time. Christy, that's -- those are my comments.

Okay, thank you for joining us today. We appreciate your interest and if you do have any additional questions, please call me at 440-449-9669. Thank you.

Ladies and gentlemen the replay of today's conference will be available at 1.00 p.m., Eastern Time.

(OPERATOR INSTRUCTIONS)

This concludes the presentation for today. You may now disconnect. Have a great day.