Park Ohio Holdings Corp (PKOH) 2007 Q1 法說會逐字稿

Good morning, and welcome to the Park-Ohio first quarter 2007 results conference call. [OPERATOR INSTRUCTIONS.]

Before the conference call begins, please remember that the Company will be discussing some issues that are historical and some issues that are forward-looking. When the Company speaks about future results or events there are a variety of factors that may materially change the actual results from those projected. A list of relevant factors may be found in the earnings press release, as well as in the Company's 2006 10-K filed with the SEC on March 16th, 2007. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Additionally, the Company may discuss EBITDA. EBITDA is not a measure of performance under generally accepted accounting principles and is considered a non-GAAP financial measure as defined by the SEC. The Company may present EBITDA because Management believes that EBITDA could be useful to investors as an indication of their ability to incur and service debt, and because EBITDA is a measure used under their credit facility to determine whether they may incur additional debt under such facility.

For reconciliation from income before income taxes to EBITDA, please refer to the Company's current report on Form 8-K furnished to the SEC on May 8th, 2007.

Now, the meeting will be turned over to Mr. Edward S. Crawford, Chairman and Chief Executive Officer. Gentlemen, you may begin.

Good morning, ladies and gentlemen. Welcome to the first quarter 2007operating results of Park-Ohio. I'll turn the meeting over to Matthew Crawford, COO and President of the Company.

Thank you very much, and thank you for joining us on our first quarter call.

Sales were up 3% to $267.9 million, which was nearly level with our fourth quarter 2006 record performance. EBITDA, as expected, was down slightly by about 6% to $18.971 million. Earnings per share augmented by income from a sale of U.K. based property increased 9% to $5.2 million.

Our first quarter was highlighted by continued strength in many of our end markets. Ongoing success of our penetration into different global economies and the launch of significant new business in several of our locations. As we expected, these positives were partially offset by headwind in the truck and auto market.

We believe that the first quarter was an excellent example of how, how diverse our business has become and also how different growth characteristics at each of our platform businesses allow for a stable job even when faced with adversity in a single market or even in a couple markets.

Also worthy of note is the increase in SG&A of 17%. This was primarily due to the acquisition of NABS late last year, but also included additional increased expense in franchise tax and stock compensation expense.

Looking at the segments, ILS first, as expected ILS saw fall-off in revenue of 7.6%, due largely to the often discussed near-term pullback in the commercial truck industry. While disappointing, there were several bright spots during the quarter which included revenue growth at several service centers because of new business signed in 2006, which we anticipate will continue to be implemented through the rest of this year.

As we look forward to the rest of the year, as it relates to the commercial truck activity, we continue to expect a modest recovery in the second half led by truck builds in Mexico which were not affected by the EPA mandated engine change.

EBIT was down 36.8% to $6,584 million. The change in profitability was caused by two main factors. First, the aforementioned reduction in the, the truck volume. We've moved aggressively to reduce expenses in these areas, while ensuring our customers receive the same service to which they are accustomed. Second, we absorbed approximately $800,000 in expenses in lost profits resulting from the closure of a facility and its relocation. We expect that the continued near-term softness in commercial truck -- I'm sorry, in spite of that we will see improvement in our EBIT as costs, cost reductions and new business take hold.

Now, looking at the Aluminum Component segment. The segment's revenue was basically flat during the first quarter. More importantly, though, we have started to see the new business take hold, with sales growing 24.7% versus the fourth quarter of 2006.

Quoting activity has stayed strong, and we believe our strategy is beginning to take hold. EBIT was down year-over-year to $750,000, from approximately $2 million, but EBIT was up by more than a million versus the fourth quarter, and aluminum was profitable for the first time in three quarters. We expect operating margins will continue to expand strongly throughout the year, especially as the startup expenses get, get in the rearview mirror, and this segment will become an important contributor towards the end of '07 and into '08.

Manufactured Products' revenue increased 29.2% to $87 million on continued growth in our Capital Equipment and Forging businesses. The Capital Equipment Group has benefited from investment in new products, as well as expanding the end markets in which we serve. We expect that while the timing of large shipments may at times cause revenue to shift from quarter to quarter, our investment strategy will give us long-term business expansion.

The Forging Group has demonstrated growth, as well, and is beginning to reap the rewards of an investment strategy which for relatively small dollars added extra capacity to our [crop] Forge location in Chicago, Illinois.

Both Capital Equipment and the Forge business continue to have excellent backlogs.

EBIT increased 68% to $9.5 million, while much of the increase was due to strength in our high margin Capital Equipment Group, there was also a notable improvement in our rubber business which has begun to show meaningful month-to-month improvement, which we expect to continue throughout '07.

Looking at the balance sheet, total debt increased $17.3 million during the quarter, almost exclusively due to increases in working capital.

Most of you who have followed the Company are accustomed to seeing the first quarter as having negative cash flow, due to the increased revenue activity in March versus the end of the year, and the accounts they are associated with it, in what has been a rapidly growing business. While this was true again this year, cash was also impacted negatively by several million dollars spent to get the acquired NABS business vendors to, to within typical commercial terms.

Interest expense was $8 million, down slightly from the fourth quarter. Capital expenditure was $5.44 for the quarter and the availability on our line of credit at the end of the quarter stood at $31 million.

As reported out at the yearend call, we expected a somewhat soft first quarter, despite the fact that most of our businesses continue to perform well and in the case of aluminum and rubber are improving quickly. Based on these facts, we're reaffirming our guidance of $2.10 to $2.35.

Thank you.

Thanks, Matt. Just a quick thought on the first quarter, I think more than ever the first quarter results I think indicate that your Company's efforts to move away from an auto truck component supplier to a diversified supply chain management company is on schedule.

To reach the goals that we have outlying for the Company for 2007 would have been impossible three to five years ago, in light of the fact of the major downturn underway in auto and heavy truck. So our ability to have a plan puts out a type of guidance that we feel we can accomplish, as Matt has indicated, in light of the rather dramatic shortfalls in those particular sectors which were anticipated.

On the other side, truck and auto will return, and we really expect that to be an important part of our planning for 2008, but our goal this year has been and was starting to be developed in the middle of last year, to get through '07 with the anticipated turndown in trucking and anticipated turndown in the first half of the year in auto. Though we're pleased that the Company, the new Company, what we've started to build here as far as balance and diversification away from those two segments clearly are paying dividends, it is always expensive and it takes time to redirect a Company like Park-Ohio away from the basic core roots, but I think we've accomplished that goal and I think the numbers reflect it.

So, with that in mind, we'd like to turn the meeting over to questions.

[OPERATOR INSTRUCTIONS.]

Our first question comes from Richard Paget from Morgan Joseph. Sir, please go ahead.

God morning, guys.

Richard, how are you today?

Doing well. Wanted to kind of dig a bit more into the ILS margins. Even if I back out that $800,000 due to the closures, I mean I'm still getting around a 5-3 margin. And if I look back, you know, even into a year ago, you're doing about the same revenue run rate, you know, a little below 140, but you still had margins in the 6 to 7 range. What's, what's going on there, and do you guys think you can get them back-up to north of 6 in the near term?

I'll take care of it. Richard, it's Matt. Well, a couple of things come to mind very quickly. One is, is recognize that there was a relatively significant amount of uncertainty around these truck builds as we entered into the new year, so rightsizing expenses as we, as that business rapidly declined, you know, has a little bit of lag time. I won't say a lot, we're obviously very good at rightsizing the business, and we're very good on the cost side, as you know. But I won't say it's instantaneous. We did go through a period of significant growth, and we're in the process of obviously rightsizing that quickly.

I would also point out implementation of new business is not cheap. You don't make money in the month that you, that you actually implement that business, so to the extent, as you know, where we've signed $80 million worth of new business and we're implementing it as we speak, you know, it is, it's an expensive process. It will pay dividends for years to come, but at the particular moment we're getting in the crossfire, if you will, from a margin standpoint of kind of a declining hot market, while at the same time paying the expenses associated with ramping up new business.

Okay. So would you characterize this as a first quarter phenomenon, a first half phenomena, a 2007 phenomena?

I think that, I think that both of those, both of those are going to continue to be true at least for the first half. I think that having said that, obviously, as we implement new business and it's in place for a couple of months, those become profitable. So, you know, I think that obviously from the commercial truck market there will continue to be some pressure on the revenue side during the first half and I expect that we'll continue, we'll begin to benefit from that new sales but it will be, it will be incremental, it's not going to come flooding through in any given month.

Okay, but I mean in terms of your comments on we've right sized the business, that's mostly been done on what your expectations on volumes are?

Yes, I think that we've moved aggressively, there's no question. I think the issue is, Richard, is at some point, you know, when you have what I'll call more or less cliff events, which rarely happen, frankly, you know, 40% type drops in build in any business, there's a lot that you can do but to some extent we still are the principal source, exclusive source under long-term arrangements with a lot of very important customers.

So I think we have to be, there is a lot of cost cutting opportunity but I think we have to be disciplined to make sure that we recognize these as multiyear, and in some cases multi tens of years, contracts are a long-term deal and which the expectations are that we're not going to drop these people off of the curve just because they have a bad revenue quarter. So I think there is some, there've -- we've reacted, there is some opportunity, but I don't want to lead you to believe that that won't create some, some margin pressure.

Okay. So ex the truck issue, I mean revenues were definitely growing in the other parts of the business then?

Yes, I mean absolutely. We've, you know, as we always do with the breadth of the diversification of customers we have, some are up and some are down. But particularly with this new business that's coming aboard, you know, we are seeing incremental revenue opportunity.

Richard, this is [Eddie.] Let me point out a different view. When you have customers, let's say in the trucking business, and they're going toward, down in a compression after running four or five years in very strong numbers, and you have four plants or four warehouses supplying them, now they are down, but we can't dismantle all those warehouses and shut them down or close them down, because we anticipate being back in business with these folks again at past levels sometime in '08 or before.

So they'll always be, as Matt pointed out, when you're adding $80 million of new business, the startup costs, the lag time behind it. But on the other side, you can't just model your ability to service customers at historical levels, and if it's down 40% when it starts to kick back up you can't put Humpty Dumpty back together again. So there is going to be a natural compression in a certain amount of margins as you hold that capability in hand, so when it does return it augments, and it's put on top of the new business.

Right.

You know, so it's great but fundamentally if you're running at 6.5 and you have to hold people, warehouses, leases, but particularly people and talented people, you can't just release them because we don't have the truck business and it's slowed down in that one warehouse.

So it is something that's part of running the business from the operations viewpoint, and we will not dismantle something short term, realizing that we have to come right back and build it again. So it's just not efficient, so you're going to have that anytime you have a fall-off, like Matthew said, of 40%.

Okay. And then in the aluminum business, turning a little bit better than I thought, especially on the margin side, I mean what's your kind of target margins as we go throughout the year, now that you kind of have a better idea of how these contracts are flowing through?

Well, the -- we, we talked about the investment in [general] aluminum now, you know, starting in '05, '06, '07. We indicated that our plan was in midyear of '07 the Company would start to hopefully return to historical margins. At one time this Company was an 8%, 10% margin Company when it was doing $90 million.

The only thing that's happened is the plan basically is totally on, the businesses there. It's just a little bit less than we anticipated because of the slower start in the first and second quarters. But we have stated and we have made a considerable investment that in a very, very tough business that this is an '07, last half of the year '07, and '08, '09, '10 event. So we have the business, it's just that they're just not using as much.

So we will hope to see a continuing increase in the profitability of [general] aluminum over the next two or three years, hopefully. That's the plan. But it's pretty much online and, as you can see, if you'd of thought about this yesterday or two days ago, when you think of the auto, you would participate in [general] aluminum, they really have gotten knocked off the track, but it's improving every single day.

Okay.

It's a great part of the story for the future.

And then the assets of the U.K. based property, what specifically was that?

Richard, that was property that was acquired through a business acquisition, jeez, seven or eight years ago. We've, we closed that facility five or six years ago and, frankly, have been analyzing different ways to get out of it for the last couple of years. So we're -- we finally had the opportunity to exit at what we thought was a fair -- was fair value, and we also concluded that we had no interest in actually conducting any, any further work there.

Okay. So then guidance that you maintained includes that asset sale then?

Yes.

Correct.

Okay. I'll get, I'll get back in queue.

thank you. Our next question comes from John Baum of Park-Ohio Holdings. Please go ahead.

Hi, guys. Great quarter.

Congratulations, John.

Well, thank you. Let's see, quick -- some tidbits here. Any idea, will, will you guys get any cash recovery when Delta comes out of bankruptcy? Are they talking about any dividends there to the unsecured shareholder, to the unsecured creditors?

We should get a little bit of cash flow in from that, but it's modest because we didn't have that much receivables, that wasn't covered in the first place.

Right, very good. And my same question, again, on cash taxes versus the crude taxes this year, what you'll be looking at for cash tax pay rate versus the accrued tax pay -- crude tax rate?

I anticipate as previously said, this is Rich Elliott, I anticipate that we're going to get through the entire or the bulk of the year without Federal cash taxes other than a minimal amount of [AMP] taxes. But we may get, middle that a little bit at the end. The -- therefore, I anticipate that the cash taxes are going to run comparably to prior years, which has been in the vicinity of 11 to 13%.

And what's your accrual rate? I thought 30% or thereabouts for the first quarter on the accrue rate, is that going to be what we're going to see going forward here in terms of the, for GAAP?

No, the GAAP provision for the year, the underlying rate is running around 36%. It reflected 30% in the first quarter because of the reversal of an accrual on Japanese taxes, that really didn't make sense anymore.

Okay. Let's see, accounts payable were down $20 million roughly, was that just taking advantage of terms then, or?

Well, it was two, two primary things. One is, as Matt mentioned in his, in his introduction, when we purchased NABS, they had stretched their payables pretty far, and so we knew that we had a little bit of investment to get them back to, to reasonable terms. That consumed a few million dollars. And then the rest of it was a combination of terms, mix, and simply the fact that we've been cutting down on purchases of inventory. As you saw, inventories were down net, but in particular with truck and some other areas where we knew that we could cut -- as we saw the decline in volumes we were able to begin to cut purchases, and we're seeing, we're seeing the payables affect of that at March 31.

Okay. Full year CapEx guidance for '07?

15, 16.

Okay. I noticed -- I didn't have a chance to ask this last time, but third quarter full year guidance for CapEx is somewhere around 17, it came in maybe 20, 21 for the full year. There was a, a bump in the fourth quarter. Did you move something forward from first quarter '07 to '06 or were there some sort of netting out of some asset sales, what did I miss there?

It was the netting out of, of the -- we, we sold the Detroit buildings with a sale and leaseback, that's reflected in the yearend cash flow statement, and some of the CapEx that was incurred, roughly $5 million of it that was occurred, it was incurred in 2006 and was in the $20 million number, was, in fact, recaptured as a part of that $8 million sale. So when you factor out both the, the proceeds of the sale and the CapEx that went into achieving those proceeds, the net was in the $16 million, the $15, $16 millionish level.

Fair enough. Is the full year depreciation and amortization, can I guess $21 million?

$21 million is probably a little high, about $20.

Okay. And let's see, also, other liabilities, long term up $4.3 million, has that got something to do with the, with pension or the healthcare accruals?

There's, there's some Federal tax liabilities that are shown on the books as a result of the provision, but again those are noncash. [Hope to have] pretty much --well, actually there is, the other liabilities did go up as a result of the implementation of FAS 158, both assets and liabilities went up about $8 million, but that was at yearend.

Okay. And thanks, and I guess, finally, I guess direct this to Eddie. What are we looking at in terms there with the China and India layout in terms of, you know, looking at the future here and what type of CapEx is necessary to exploit those markets? Could you comment a little bit on that, please?

Well, India and Romania, and Hungary, they're all ILS supply chain management efforts, and so the CapEx there is, will not have any impact materially long term. It's not our goal to have hard assets offshore. We try to avoid that. I mean we do have our [inaudible], you know, mall, small operation in China, but I'm very leery and will continue to be leery about putting hard assets, which means equipment and what I call CapEx kind of things in foreign sites. So I think it's a lot safer to expand the Company, particularly in the working capital area. So India or any of those countries will be an ILS, at this point, an ILS effort, you know, which will basically be receivables inventory, rented building, rented [racks] and [Oscar].

And what, what are we looking at terms of [inaudible] with ILS, as far as the, what the Chinese auto industry there, you guys still working that market?

Yes, we, as you know, things move very slowly in China, and that's good. And, quite frankly, you know, we are taking, you know, I personally am looking and revisiting our strategy in Mexico. It just seems to me, and I've been there recently a couple of times, that there is -- the supply chain or the time it's taking to get goods from China, and I'm talking goods used in the industrial world, and assembly factories, has gotten longer and longer. If you go to Ft. Lauderdale or the West Coast, you have ships out in the high seas there just parked out there for sometimes as much as a month.

So the supply chain has gotten a lot longer from Asia than it ever has, and it's been trapping a lot more working capital. I could cite two very well managed companies that were in Mexico ten years ago, dismantle those operations and move to China, that are on their way back. They can still make parts, components in Mexico and get them into the American, North American plants in 48 hours. That's not the case, and there's horror stories about things taking, you know, not, you know, 45 days, four months. And all the companies that went to Asia are now getting deeper and deeper and deeper embedded in working capital, which is a shock to them.

So it's, you know, we, we think there's a lot of opportunity in North America. We will go internationally in a big way with ILS because it's a model, but we've got to be very careful about embedding hard money in, in countries. It's one thing to sell products from [Ajax Manuthermic,] if it's a customer and you start shipping things to Kakistan, it's a great market, but we just don't want any of our -- we don't want any of our manufacturing companies particularly there. The service is great, parts are great, but it's, it's, this is a long trip, and you get overly excited about any of these foreign operations, let's be there an ILS, let's be there to sell them products, but as far as getting really deeply embedded with manufacturing of any type there, it's, I'm reluctant to do that.

Excellent. Thank you.

Thank you. Our next question comes from Phillip Volpicelli of Goldman Sachs. Please go ahead.

Thank you very much. Just with regards to the SG&A, should we expect it to be as a percent of sales around the same level as it was in the first quarter at 9.5%? Or is that going to come down? I'm just wondering with your comments about ILS and not wanting to be down or reduce the size of that with regard to the truck builds, so should we expect to be a little bit higher as we go through the course of the year?

Yes. This is Rich Elliott. We should expect it to drop a bit, but I wouldn't expect to see a huge drop.

Okay. So we'll be above last year in terms of the SG&A?

Yes.

And on the stock compensation, can you just break that part of it out for the first quarter?

Yes it's about $70,000 from the stock compensation expenses as a result of the new FAS, and about $415,000 related to amortization of restricted stock.

And then I guess Ed or Matt, can you guys talk about your other end markets other than truck and auto, just what's going on in energy, what's going on in rail, and those parts of your business, and [snow dragon,] maybe you could touch on those?

Sure. We'd love to. In fact, I was just thinking about how much time we've spent talking about two markets that really don't matter to us that much anymore, so, sorry about that. No, energy is, continues to be the cornerstone of the success of the Capital Equipment Group. As I've mentioned in past calls, the backlogs are strong. Some of the most important equipment we're now out to 13 or 14 months, and what it takes us to make it, and we're still getting orders.

So this is not only, you know, an important business for us but, more importantly, it's an important business for our customers. So we are very excited, not only with the fact that we're seeing the need for our type of capital equipment, parts and service, you know, rebounding in the U.S., continuing to be strong and growing in China but continuing to be equally strong and faster growing in places like India and Russia or the former Russian State. So South America, as well.

And the steel market, as well, continue out of the Capital Equipment Group to be very strong. Investments in steel related infrastructure, you know, whether that be starting with the mills expansion or building our mill expansion, and following through to forging [capping] applications, are booming worldwide. We touch all of that, you know, any type of heating and melting, preheat applications or hardening, or [induction] hardening for auto build, are the kinds of things globally that is a sweet spot for us. So that is what's driving the, that Capital Equipment Group, and we don't see it slowing anytime soon, especially with the length of backlogs we have.

On the Forging Group, that is principally driven by aerospace and rail, and those continue to be strong, as well. Backlogs are up. We see no sign in particularly EMD slowing on their locomotive builds. Demand is high. You know, we're also seeing a commercial aerospace pick-up significantly. Military has been strong, it continues to be strong, but commercial has been the real surprise lately. Excuse me, it's not a surprise, we expected it, but it's nice to see it come.

So, you know, that's really what, you know, when you see this particular quarter, when you talk about how the business has changed, I think your question and those comments characterized really how much it's changed.

Right. And when you look at the margins in the manufacturing, you seem to be 10.9%, that's at the high end of where you've been historically. Is there any expectation to push that higher, or do we, have we kind of maxed out where we can be there?

Well, you know, I think that, as I mentioned in my comments, timing is always interesting; right?

Yes.

You know, you get a big, a big job, or a good margined job that ships, could impact the revenue and earnings margin for that particular quarter. No, I think that our opportunity to increase margins in that business, and why they've been increasing and why they can increase more, is our commitment to developing spare parts and service globally.

Plant some flags, albeit a dead point, not necessarily a lot of hard fixed assets, but planting flags in different parts of the world, and in many cases the service and sell spare parts to our own embedded equipment, that we never did in the past. So expanding there is not only a revenue opportunity but a high margin opportunity.

And, as I also mentioned, the development of new products. I think it's been a couple of quarters since I've talked about using induction processes to begin to, on applications that are non-metal, are nonconductive properties, so whether that be related to solar, solar panels or emissions, and for Volkswagen, you know, that is at its core and R&D shop. So our strategy in that business is around those two issues, and both of those have increased margins, increased revenue, and we expect it will continue to, to give us that kind of advantage.

Great. And just on the working capital cycle, with kind of the second half of the year expected to be a little bit stronger in automotive and your aluminum business, are we going to see the similar trend as we've seen historically where you use cash in the first, basically the first quarter for the most, and then you start generating in the third and the fourth, is that trend going to continue?

Yes, this is Rich Elliott. Historically, we've been cash generators in the, in the fourth quarter, and I would anticipate that that would continue to be true. I would expect to begin generating cash later in the year. Growth, obviously, will consume some working capital but the general trend of consumption early in the year and generation later in the year I expect will, will be at the same general trend.

Great. Okay. Thanks, guys.

And I also want to point out, and perhaps we should have commented, we, we specifically did not change our cash forecast for this year. I mean because we, although, although frankly the cash needs were a little bit higher than we expected, it wasn't out of line with what we've grown to expect in our business.

Right. Okay. So in terms of what's drawn on the revolver, what you've got on the cash on the balance sheet, is that what you're referring to, Matt?

Correct.

Okay. Great. Thanks, guys. Good luck.

Thank you.

Thank you. Our next question comes from Richard Paget of Morgan Joseph. Please go ahead.

Hey, just a couple quick follow-ups. Wanted to, I guess, get you guys' take on how the NABS acquisition has been going thus far, how the integration is, how cross selling has been, and what you guys expect going forward for it?

Well, I'll start, Richard. It's Matt. It is on plan. Nothing that we had hoped for has not occurred, the management team is solid, is intact. We've had very little turnover, and I think that, you know, the leadership that we had hoped and expected to get, particularly in the foreign markets, China, Eastern Europe, specifically, we have received. We've gotten a lot of positive feedback.

Clearly, in the first quarter, as indicated on the last call, one of the reasons we didn't perform as well in the first quarter at ILS is it's a slightly softer quarter for NABS. So being a retail, IT type hardware guy, is not a good place to be in the first quarter after Christmas. So they're down a little bit, but I think that, I think they're earnings so far and revenue forecast internally has been hit, and we couldn't be more pleased.

In terms -- and if you could just remind us what that seasonality in terms of like the magnitude would be?

Yes, we -- I mean we haven't owned it for a full year, so I, I hesitate to bring too much more specificity to that, other than the fact that we knew when we bought it that we were going to see incrementally weaker revenue in the first quarter versus the fourth, and it happened.

Let me -- when we look at a transaction of any acquisition, there are a number of things that are, that we look at after the transaction and we grade those. And some of the more important one, what happened, do you still, have you maintained, do you have the type of relationship with the key personnel that were there when you came? We have scored 100% there. We've retained all the major players. Secondly, you know, what happens to your customers? Are the customers and the relationships what you anticipated or have they watered down and so forth? We did very, very well there.

And, more important, we have future prospects, after you make the acquisition, do you keep the key personnel and the customers? The question, what are the prospects, and the prospects, the concept of selling labels to our customers, and that's [inaudible]. So [inaudible] from my viewpoint is, you know, just about as advertised, and probably better, so we're very pleased with the personnel, the customers, and future prospects. It is and now we can grade it a wonderful transaction for the Company.

Okay. And then one kind of housekeeping question. The tax rate was a little bit lower than I guess I think 37% was what I've been using. Is 37 kind of still good for the balance of the year, or should we expect kind of lower at this point?

36% is the underlying rate. The Japanese tax accrual reversal took it down to 30 in the first quarter, but 36% is a good provision rate. Again, not a tax, a cash tax rate.

Right.

Because we're sheltered, but as far as a provision rate, 36% is a better one to use than 37 this year.

Okay. Thanks. That's it for me.

Thank you.

There appear to be no questions at this time. I would like to turn the floor back to Mr. Crawford for any closing comments.

Well, again, we appreciate the continued support from all the stakeholders of the Company. We think we have the Company positioned well for meeting our goals, and the opportunities for the future of the Company have never seemed brighter. And, again, thank you very much for joining us this morning.

Thank you.

Thank you. This concludes today Park-Ohio Holdings conference call. You may now disconnect.