Park Ohio Holdings Corp (PKOH) 2008 Q3 法說會逐字稿

Good morning, and welcome to the third quarter 2008 results conference call. (OPERATOR INSTRUCTIONS.) Today's conference is also being recorded. If you have any objections, you may disconnect at this time.

Before the conference call begins, please remember 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 their actual results from those projected. A list of relevant factors may be found in the earnings release, as well as the Company's 2007 10-K filed with the SEC on March 17th, 2008. 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 general accounted 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 the credit facility to determine whether it may incur additional debt under such facility. For a reconciliation from income before income taxes to EBITDA please refer to the Company's current report Form 8-K furnished to the SEC on November 3rd, 2008.

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

Good morning, ladies and gentlemen. Welcome to the third quarter 2008 conference call. Thanks for joining us. I'd like to begin with a report from Matt Crawford, President and COO of Park-Ohio. Matt?

Thank you, and good morning. I have a bit of a cold, so I hope everyone can hear me properly. Once again, we were well served in the third quarter by the diversity of our businesses and end markets. While the majority of our Companies still performed consistent with expectations, the third quarter represented a significant view or different view towards out outlook for the auto and heavy truck business.

In the aggregate sales were largely unchanged at $266 million, bolstered by ongoing stable sales in our largest business groups despite the well publicized struggles in the auto industries.

EBIT prior to the impairment charge was down $11.2 million from $18 million in 2007. This was driven down almost entirely, once again, by losses in the auto related end markets. These results and our current outlook for the business are what caused our choice to undertake a substantial restructuring of these amounts, including an impairment charge of just over $18 million.

We believe that this adjustment to the fixed asset base and the ensuing asset sales, as well as the restructuring associated with this will put us in a position to be more effective in a quickly changing marketplace. Earnings per share after this impairment was a negative $0.82, down from $0.53 during the same quarter of last year.

Looking at the business units and Supply Tech, Supply Tech revenue was down slightly to $132 million from $134 million. Sales were bolstered by growth in the appliance, consumer electronics, agricultural equipment, industrial equipment, and medical equipment markets. End markets which struggled included auto, once again, government, and semiconductor.

EBIT was down, as well, to $5.3 million, despite continuing improvement in recapturing loss margins due to raw material spikes earlier this year. Results suffered from lower ROIs associated with the loss of operating leverage affiliated with some of the auto and heavy truck markets.

We continue to focus on customer return on investments, and feel strongly that Supply Technologies is well positioned to succeed in any economic environment, and we're likely to see incremental sales opportunities as customers seek to lower costs and outsource the supply chain process.

On that note, we are in the process of substantially changing our relationship with our largest customer, Navistar. Our current contract expires at the end of the year and we do not choose to keep the business at the margins Navistar wants. Although our negotiations have not concluded at this time, we expect to substantially lower the size of this relationship with them, and expect to liquidate the vast majority of our investment by the end of the first quarter of 2009.

To the extent we choose to keep some business, it will be at margins which are commensurate with our ROI model. Although we're disappointed with this conclusion, Navistar has been one of, if not the lowest margin customer in our mix, and we're looking forward to reinvesting that capital in more acceptable ROI accounts. Navistar has been a long-term business partner, and we wish them well in this change.

Looking at the Manufactured Products group, Manufactured Products' revenue grew nicely in the third quarter to $99 million, up from $94 million last year. This growth was underpinned by continuous strength in our fortune segment, combined with a record quarter for our parts and service component of our Industrial Equipment group.

As some may recall, we made a strategic goal for this group of having roughly 50% new equipment and 50% aftermarket. Record sales in the aftermarket validates that we're being successful in our investments to meet this effort.

New equipment bookings at the end of the third quarter were also as strong or stronger than this time last year. EBIT was also up 23.5% to over $14 million before an impairment charge of about $4.3 million. The impairment charge in this segment was associated with our Park-Ohio Products Rubber group, who sells entirely into the auto segment and represents an adjustment to fixed assets which continue to be somewhat underutilized.

Aluminum Products, although Aluminum Products only represents about 13% of our total revenue, during the quarter it continued to be a focus for the Management Team, not only due to the earnings loss for the quarter but also because we believe that despite sluggish auto production expected for the remainder of '08 and '09 we're beginning to turn the corner on our business outlook.

Revenues for the quarter were down 13% to $36 million despite significant new business activity. We expect to continue to grow market share as our competitive position improves.

EBIT was negative $3.9 million prior to the impairment charge. The impairment charge was focused primarily on fixed assets, which are either marked for immediate sale as we close an additional facility or impairments to address overcapacity in certain production lines which are unlikely to reach previously expected volumes. These impairments are largely associated or entirely associated with older investments and do not change our enthusiasm for the recent investments in this business.

Looking at the balance sheet, total net debt increased by $5.5 million during the quarter. We expect a decrease in net debt during the fourth quarter by $20 million to $25 million, which would allow us to decrease net debt year-over-year by between $15 million and $20 million. Capital expenditure was approximately $6.7 million during the third quarter, and cash taxes were about $500,000.

In closing, obviously, this quarter was a mixed bag. Although we're concerned with the uncertainty weighing over certain of our customers and our self, we are pleased with the diversity of our Company and the solid capital structure in place. We believe that a severe downturn in the economy, while presenting some challenges, will also present opportunities, much like in 2001 when we made strategic investments which reshaped the business for the future.

Thank you very much. I'll turn it back over to you.

Thanks, Matt.

Okay, just a couple of thoughts. I want to point out, again, this relationship with Navistar has been a great long-term relationship. We wish them absolutely the best. This is clearly a decision made by our Company based on margins and return on investment. And every single one of our accounts in our Supply Tech business is always addressed, but in these times and conditions we are particularly careful about margins and commitment of capital and a fair return on investment to our Company.

And we believe that the recovery of our investment in the Company across the board on receivables and inventory will be 95% plus, so this is not something in which it's a broken relationship, it's just a business decision on both companies. And, again, as Matt indicated we wish them well.

I'd like to -- I think Matt has pointed out that we have two of our three Divisions, Capital Equipment and Supply Tech running very well. And I wouldn't surprise you that the issue here relative to our earnings is the part of the business that addresses the automobile industry.

I'm looking at a copy of the [Plain Dealer] this morning, it says auto sales are the worst since World War II. Well, we all know that. I think that's no surprise. But let's talk about how it's impacting our Company. And I continue -- and I'm sorry if maybe some of you are getting fatigued about my belief in the aluminum business and the strategy here at the Company.

But let me point out a couple of things I think that might make you more comfortable that we are at this, what I call an intersection between the supply and demand. And when you start a year with sales historically around 17 million, 16 million, 17 million cars, and you're flattened out at 10 million or 12 million, unless I've missed something there's still a lot of cars out there going back and forth, particularly since gas has come down.

And there has been and continues to be what I have anticipated and what we have invested in is in the shrinkage of the supply base. It is a fact that in '07 we wrote $35 million worth of new business. It is a fact in '08 we wrote $50 million worth of new business, that's in the pipeline. And I'm pleased to say since the beginning of this year, we have written in excess of $75 million worth of new business going into our plants, particularly our new acquisition of the FSI assets.

You'd say, "Well, Ed, since you're having all this volume come in, and that sounds pretty exciting, what's happening"? Well, I think you'd find it, and I'd find it quite amazing that the volume year-over-year is about the same and our earnings are down, and we've absorbed these sales.

And let me give you just a sense of what can happen as an operating person, and I'll take just the general aluminum segment of it and how quickly things change. We all know in the first quarter of this year we lost $1,055,000.

We started taking all the necessary steps to get it under control. We saw the volume coming down. We took the first cut at the operations, and the second quarter it came down to $62,000. We were pretty excited about the fact that we thought we had it under control. We thought maybe the cars were running at 14 million.

At that particular time, before the credit crisis, before all of a sudden you could not lease cars, you couldn't buy cars, and what happened, this is hard to believe, but in one quarter, the third quarter, we lost over $3.5 million in just that one business. And quite frankly, 90% of it was in one of our super plants where we were set-up this year to do over $100 million in sales and probably will do $50 million. Because we happened in that particular facility, not all the facilities, got matched up with all of the vehicles that used a lot of gas.

Now, we've taken again the second cut, the dramatic cut on the overall business, and we're operators over here, and I think we have a background of being able to address crises and problems. So we have taken another cut at the fourth quarter, and we expect dramatically to reduce the losses in the fourth quarter. And I think dramatic is a good word. And it is, because now we're running the business, and we're addressing it as a $10 million to $12 million market in '09.

The difference is that as we have scaled back and gotten more streamlined, we are still a benefactor of this tremendous consolidation of business. The reason we wrote $75 million in business is because people have been going out of business and whoever is left is scrambling for supply base.

And as I've indicated before, and in my career there was 17 to 20 people in this business. Well, there is three-and-a-half in the business today. And, yes, and I happen to believe, quite frankly, I'm hoping and I believe that the auto industry is still going to be in America. They're all not going to be offshore companies. Chrysler, Ford and GM are going to survive, if not survive in some sort of combination. So the business is not going to go away.

There's going to be more aluminum in cars. We have the best format in what I call the full house of comparable and all types of production and machining, and I think very quickly it's like building a road and a new house, you put down the dirt, and then you come in with a couple truckloads of gravel, and a range, and the gravel goes down, and keeps going down. Ultimately, it gets hard packed. and that's when the turn comes.

Now, I would say that I feel comfortable in saying that we're going to have a much better year in '09 than we have had in '08. And that's not saying much, but it's enough to tell you that I believe the combination of a shrinkage of the supply base, consolidation, and even at auto rates of 10 million to 12 million we're going to be fine. If, if at every turn, in '10 and '11 and beyond we're going to have a very, very profitable Company.

So we've made our investments, we all know we bought assets for $3 million, and incidentally, those assets that we bought for $3 million, those assets in a little town in Cleveland called Rootstown -- not Cleveland, in Ohio, Rootstown, will do $45 million this year.

So I think we're doing the right things. We're sticking to our plan. It's been brutal. And when I look at impact of the Company, and you take just the auto companies alone, the related auto companies where we are, with our rubber company and aluminum and so forth, I mean you're talking about $12 million to $14 million of EBIT losses we're anticipating.

That's a big number, and, again, come back to the share count. For every million dollar change in the EBIT that's approximately $0.06 a share, so you look at the Company and you look at the impact the auto is having on it, and we believe this is going to change or we've right sized ourselves to make sure we can make money at $12 million, and we will be there, and we are the quality company and the low cost.

When you think of a million dollars being lost, forget about $14 million, and multiply it because a million dollar loss, EBIT represents like $0.06 roughly in EBIT -- excuse me, in earnings per share.

So I don't want to -- hopefully, I'm not sounding like I'm real optimistic, but I feel good about the two companies and how well they're doing, the other two Divisions that Matt talked about. And the auto industry, which * are under control. We've got costs, but there's a tremendous bright side if, in fact, anyone believes there's going to be autos sold in the future, they will be refinanced, you know. The leasing will start back again, the cars will come up 10 or 12 and higher, but we are prepared in '09 to run this business, have a dramatic impact or change in '09 over '08, and we'll do it at 10 million cars if necessary.

And when you look at the results year-to-date, of course we're disappointed, but we're going to make the changes necessary, and when it's all over I think there's still and hopefully I'll continue to be able to continue to say that and for the first time, and I thought it was going to be this year, and I'm sorry the cars, my projection didn't come out, but I expect cars to go from 12 million to 10 million, or I mean from 17 million to 10 million or 12 million.

But we're ready for that, and we want to address -- and I gave you a little color on that because I think you should have a pretty good understanding, when you look at the Company, and what's happened to us. And if you'd asked me in June in that particular plant if there was going to be this cliff, the auto industry, a combination of a lot of things but not only the gas mileage but clearly the availability to lease cars, to buy cars, and the credit scores have impacted that. That will change, you know.

And we look forward to controlling our costs, running a tight business, and finishing up this year, get into '09, but I think the Company is solid in many ways, particularly in our positions with the banks and the bonds, so we are -- we're pleased, and when we get into it, Matt will just suggest some good news we had from one of the rating agencies.

So thank you very much, and we'll be glad to take any questions.

(OPERATOR INSTRUCTIONS.)

Your first question comes from the line of Richard Paget with Morgan Joseph.

Good morning, guys.

Richard, how are you today?

Doing all right. Just wanted to get a little bit more clarity on the aluminum business and how you guys have -- what kind of assumptions you've made with the write downs? I mean have you kind of assumed, let's call it a worse case scenario, 10 million run rate next year, are you managing that business to be breakeven on that kind of basis or could we see further write downs and possibly some operating losses next year?

Richard, let me -- I'm going to address these write downs in the aluminum business, okay? And I don't want to get too technical but this is a very important consideration.

In the last, let's say six, five, six, seven years ago if you were going to take an order from let's say Chrysler and it consisted of 400,000 pieces, you were asked to put in place what I would call a dedicated line, substantial CapEx, substantial amount of robots, and quite frankly 400,000 pieces they wanted you to verify or certify in advance that you could make 600,000, because they always wanted you to overbuild the capacity.

And so you were forced into building dedicated lines, you know, automation, conveyor belts that were absolutely of no value, once that -- excuse me, 90% of that line was of no value once the end of those lives of those parts.

Now, that has completely changed. We have a part coming on, down in Rootstown, which the annual volume next year hopefully will be 400,000 pieces, that's being done on standard turntables, okay? And dedicated molds, but the whole concept of how to run an aluminum business, how to address the production, this is more like the Chinese system.

You build, you know, you don't build dedicated lines, you buy general, like the machining, instead of a dedicated spindle cutting machine you're talking about general [CNC] machines right off the rack. So the whole approach to being into the aluminum business is changing.

One of the reasons we've accumulated so much of these dead assets or weakened assets are these all the turntables and everything else and all the generic equipment, so we will not be in the position, we will never make a $25 million or $15 million investment in a dedicated line for any aluminum product.

And what we're finally doing here is addressing that. We've got to get those items which are absolutely of very little value to us because they're dedicated. These were jobs that we took, these jobs are virtually over, and this equipment is not part of the future. We don't do that anymore.

What we do is simple, simplicity, and we set-up lines that make parts, exactly what we need, and quite frankly this is the way they do it in Asia. I think it's a better way to do that, and we're not going to be talked into by anyone else into buying these products to build dedicated lines.

Now, I think I answered one part of it. Let me to go to the other part about the, you know, let's put it this way, at 12 million cars, in my opinion, we will not lose money. And I'm not saying that, and don't ask me about 10s because I think there'll be 12, but the question is there is going to be in my opinion at 12 million this company is going to do a lot better than it did this year at 12 million, because it's a different type of business, there are different margins. The business we're writing now is more profitable than we've written before because there are few people.

We were called in to one of the big three in the last 45 days and offered $15 million business, transfer business. We're taking it out of the current facility and moving it into one of our facilities. No CapEx, a $15 million straight transfer. Why? Because the other guy went out of business.

There's another company going out of business. We already have the equipment, we are in position to take transfer business. That's what we've been -- we invested in advance of this. We're the only ones sitting around with the capacity and the capabilities to take the transfer business.

And as this gets weaker, as this gets weaker, you know, maybe we don't need 12 million cars, maybe we can do with 9 million cars because we're going to take a bigger piece of the pie. I mean we're working on this for three years, and I think we're at that intersection now. I think we're where we want to be, we're in the intersection with all the equipment, we got it at low cost and we're ready to go.

And if you can, when they are survivors they're going to need aluminum companies, and we are highly qualified, safety critical parts. We can do most everything, and that's what we're betting on.

Now, we've positioned ourselves -- I'm sorry that if we'd have been at 15 million cars, we'd be talking a different game here, okay? We'd be talking the numbers I've been talking about for a long time.

And I know everyone is tired of the fact that if I say to you right now I'm finally in '09 going to do $200 million in sales, you'd say, "Well, Ed, how can you do $200 million in sales when you're down to 12 million cars"? Why? Because we've written all this new business, and we're not finished. People are going out of business, they don't have the capital. We're there, we have it, and so I think we're going to do better, definitely better in '09, and I'm hoping to stem the tide of losses.

I mean is there any way you can kind of quantify market share gains, at all, at this point? Or are there too many moving parts?

Too many moving parts? The only thing I can tell you is every time I report in we have less people in the business. Now, I think we're down to three-and-a-half, okay? Soon to be three. So I think you have a -- there's plenty of business for three companies and I doubt if somebody, if you go back in it, it'd be impossible to do it that way.

But I would tell you because I'm not -- we're not waiting around for any new business, we're just taking up all the transfer business. The new business is going to come. They're going to have new steering knuckles. Honda is going to go from the steel to aluminum. They're going to be lighter cars. There's going to be more aluminum in the cars and, quite frankly, that's going to benefit us. But I don't hear anybody out there thinking about new models and everything else, everyone is trying to keep what they have in business.

But this will change, and when it changes, fine, but we're not waiting around for that, we're in the business. I call general aluminum, the fire department as the aluminum business, and I was just too -- I'm very involved in this. We're -- I was with -- in two of the big three in the last 10 days talking about being the fire department. What do you have that someone else has that you're concerned that they're going to go out of business, that we can take on because we have the capacity in our facilities? Why don't you transfer that business rather than run the risk?

So that's what we're after right now. We're in the business of being the fire department. Anyone that's got troubled suppliers, we're there. And I hope there's going to be some new designs, but I'm -- we're making our bet there, that's why we've accumulated all these assets at very low bases, and again I think we're right. I mean that's all we can say is we've got a good plan.

And one of the interesting things about the aluminum business, it's hard to believe this, just take the aluminum business, with all the catastrophe in the aluminum business, it's still going to have an EBITDA of $2 million. Think of that, with all the problems we're having, it still has an EBITDA of $2 million. That's a long way from what it was.

But this is not a broken situation. This is a situation, we deliberately put ourselves in this position to take advantage. Not quite of this meltdown, excuse me, I never expected this, but I did expect something like this.

So with all the [murving] over here and all, you know, we don't have our heads down. Because again we had an EBIT, so this is -- talk about cash, you can't even fall -- even Jeff, our new CFO, can't even fall on cash. He keeps looking, you know, the new guy in town, you want to beat me up on the cash on this thing. Think about that.

All right. And then I noticed in your comments and as well as the press release you didn't make any reference to the guidance of $1.45 to $1.50, is that still in place or is there kind of a question market given the uncertainty out there?

Well, it's in place. Of course, there's uncertainty out there. And who would be able to possibly look into further deterioration? Are we able today to say that cars are not going to get sold? Is it going to stay the same way it is?

And you do your best in making an analysis, and if we felt that we had any significant information that we had to address, of curse we would change that, up or down. But the question about it is, it is where it is today, and we are -- when we think about our stakeholders we think about exactly what can we do, can we make changes, can we adjust as quickly as there are soft spots in the economy.

It's hard to do. I'm not a fortune teller. The only thing I can do is tell you that as we sit here today, we feel that we are not going to address that. I mean it's out there, we're going to do our best to make it, and hopefully things will -- there'll be some breaks for us, but that's where we are today.

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

Your next question comes from the line of [Louis Gaboski] with [Moss Capital].

Hi, good morning.

Good morning.

Yes, I just have two quick questions. With respect to Navistar, could you tell me how big of a customer they were, as compared to your revenues?

Sure. Approximately -- I think somewhere -- I mean I would say between $70 million and $80 million expected for 2008.

Okay. And then my other question, I'm not sure if you had mentioned this already on the call, but do you have an expectation for what EBITDA is going to be for the fourth quarter with your guidance in place?

We don't specifically give guidance for EBITDA for the fourth quarter, but I can tell you that our expectation based upon the guidance we've provided, EBITDA should be in the high 70s for the year.

High 70s for the year. Okay. Great. Thank you very much.

(OPERATOR INSTRUCTIONS.)

You do have a follow-up question from the line of Richard Paget with Morgan Joseph.

So I just wanted to maybe get some more color on the other businesses. I mean you did give some comments there, but with more of the statistics of the general U.S. economy becoming a bit more negative, I mean ISM was pretty rough this week, I mean are you expecting further slowdowns going forward, or are you still seeing orders coming in? I mean I know you said your Capital Equipment was still at a -- did a pretty good pace, but what about just general Supply Technologies, is that -- are there parts of the business -- I mean has your outlook, I guess compared to the last time we talked, gotten a little grimmer?

Well, Richard, that question is a very important question to all of us. The only thing I can tell you is that with our visibility things are changing at such a rapid pace today, it was very sound yesterday, we're expected tomorrow.

I mean it's pretty hard to say that we see any particular weakness. We've indicated that the Capital Equipment business looks very strong at this point. We hope that continues. Supply Technologies are -- is doing well, through the third quarter.

Could they have a fall-off in the fourth quarter? Well, I think it really -- it falls into -- it measures into when people are going to start shutting down their plants. And if everyone decides to shut-down their plants in the fourth quarter, and on the Supply Technologies' side across the board, across all industries, because everyone is just tired or whatever, of course it could happen.

But at this particular point we can't see that, but the question is could it happen? This is November 1st, for all practical purposes. I'm hearing that there's people considering shutting down the whole month of December in some pretty good businesses.

So we just can't make this up. We have to have some substance to it. But I will tell you the one thing, just like the aluminum business in the third quarter, it can change dramatically, it can change dramatically. And under these circumstances, the problem is it can only change for worse. But the point as we sit here, we only can work with the information we have, but this is not any longer a slow, gradual slow-down, okay? It comes in huge pockets and quickly.

If we've learned anything, we learned in the third quarter in the aluminum business in the economy in Ohio, it can go from being in control to no business. And I hope we don't see that, but we just have to deal with the facts and with the information we have today, but that is not indicating that we feel anything other than we're doing the best we can under the circumstances, but this is a new world and right now through the third quarter I think we've done a pretty good job of controlling things and we hope to continue to do the best.

And, as we anticipate, if we thought it was going to slow-down in our other Divisions we'd already be starting to cut headcounts, we'd be making changes, and so I'm not trying to be evasive, I'm just telling you what the facts are as I see them.

Okay. And then I'm asking most companies this question, any ramifications of the election for your guys' business that, in particular, we should be looking out for?

No.

Okay. All right. Thanks. That's it for me.

Your next question comes from the line of Michael Levine from BB&T.

Good morning.

Good morning. How are you doing?

Good morning, Mike.

Good. Thank you. Can you, just in regards to SG&A, overhead, you know, maybe I've got it wrong, but I was kind of expecting some sort of decline or a little bit better SG&A number. Can you tell me what you think the run rate is going to be going forward?

Are you specifically asking relative to the Corporate?

Yes, Corporate, just overall? I mean you came in with I forget, $20 million, almost $29 or something million SG&A, is that kind of like your run rate?

Well, that's going to be a little high. We came in at $29 million, and the areas of increases were in Supply Technologies, where we have some issues going on with some contracts that we talked about, the contract, one in particular, which have added some costs in SG&A. We have, within Manufacturing products SG&A is up as they've ramped up their selling efforts, and you can see that in the sales increases within that group.

And then from a Corporate perspective, we're up about $1.5 million, $1.7 million. Let me run down a couple of onetime issues in there. We had some losses on some investments we had that run through that line, of about a half a million. We had some severance in there, approximately $400,000. We had some timing of some professional fees that was approximately half a million. Those things should be mitigated, other than for onetime charges going forward. Our anticipation for Corporate SG&A going forward would be a run rate of about $3.5 million.

Okay. And with the roll-off of the Navistar business, do you estimate further adjustments in that area, so I mean I assume Navistar was paying for a good portion of that?

Yes, we can't tell you what that's going to be today, but if that business rolls off, there'll be adjustments behind it.

Okay. I think you mentioned the CapEx number for the quarter, but I missed it, could you repeat that?

It's just under $7 million.

Okay. And when you talk about new business, the $75 million, $50 million or $35 million last year, I don't know how much of that is autos and what kind of -- I mean it's -- autos have a benchmark as far as units built to compare to, your other businesses don't have the same benchmark, but all of it has kind of an implied economic run rate of sorts.

And the problem is that the economy goes down, maybe you don't really get as much as you were expecting. So I guess when you talk about those numbers what kind of economic conditions are you assuming and might they be a bit less than what you're talking about or I guess even a bit more?

Well, it's -- let me go back to the numbers. You start the year with, and let's say, and then we're talking about the aluminum business, that's the business we're talking about.

Right.

When I talk about that number. And it's based on the fact that you start the year, and if we anticipate 17 million cars and end up being less than that, each part that we sell for every car, fewer cars, less and less, so you lose sales in what has already been established as platforms that you're going to supply.

By adding new business, obviously, you begin to fill that hole. It's the same thing. With the new business would say that is our business is going to be, our sales are going to be as high or higher in '09 if the cars go down to as low as 10 million to 12 million. If they're in that level our sales will turn because we've added the new business.

We do not believe if we do approximately $160 million in sales in '08 that we're going to lose $75 million of that slow-down because a lot of that's already reflected. But the $160 million wasn't at 17 million, the $160 million was at some composite of it, let's say 15 million. So we think we've had more sales than we anticipate the potential shrink in cars, and that's the strategy.

Okay. All right. All right. That's fair enough.

Just, and I know you commented on this regarding the Manufacturing business and equipment orders, but can tell me based -- can you tell me how far out your order book takes you and how long you think your visibility is? And could that change, I don't know how firm your orders are, can companies cancel things without much penalty? And might that, I know you said you could see a quick reversal, but just give me an idea how far out you're looking?

It's Matt. I would say that typically our visibility relative to our new equipment backlog is between 6 and 9 months, so that is -- and obviously it is somewhat shorter, and in some cases a lot shorter as it relates to the aftermarket business, which as I've pointed out had its strongest quarter on record in the third quarter.

The new equipment business, which I think is what you're focusing on, is typically done on terms that we try to achieve are cash neutral, meaning that payment terms typically are near or ahead of costs incurred.

As it relates to cancellations, certainly they can and do exist, although we do not put ourselves in the position, as I've pointed out, whether that be contractually to take a loss on that project, whether that be because we have cancellation charges or because we keep money on a down payment or however it may be structured.

So I think that those our goals, that's sort of the visibility. And I would also point out the nature of a lot of the projects are infrastructure related, particularly some of the global products, and because of the infrastructure type investments they are, these are not short-term purchases, these are purchases related to in some cases government projects, in some cases motivated by a desire to build-out capacity in certain areas in certain parts of the world.

So I don't want to give you the sense that these are the kinds of investments that just go away because somebody doesn't have money for that particular moment in time. These are typically conducted in the confines of strategic plans that could be a decade or two long, so although I think they're -- it's worth considering and a good question, that's the nature of that business.

Okay. Thank you, Matt. That's it for me.

Thank you.

(OPERATOR INSTRUCTIONS.)

Your next question comes from the line of [Dave Garth] with Trilogy.

Hey, good morning, guys.

Good morning.

Could you give some -- good morning -- can you give some color on the Supply Tech business in terms of the percentage of different segments that it has exposure to? I mean generally sort of a broad exposure to the economy, but are there any particular portions of the economy that it has more exposure to?

We've never specifically gone through and broken those out, but clearly heavy-duty truck and bus has been the single largest segment, but also notable segments include Appliance. It's certainly an important one for us. Our Consumer Electronics segment is significant. Our Power Sports segment is significant. Our Agricultural and Lawn and Garden Equipment business is significant. Those are some examples, our Industrial Equipment is important, so that's a smattering of some of the largest segments.

Between these five or six segments that you just mentioned, would that compromise with the 70%, 80% of Supply Tech?

I'd say 50.

50. Okay.

It's a pretty broad -- I mean it's a pretty broad list of customers covering a lot of different industries, but those are some of the biggest.

Got it. Can you give some color if the revenues sort of don't come out to be -- don't pan out in that segment, how does the -- sort of the contribution margin work in that? I mean how is the con structure, basically?

Well, there's a couple different ways that you could address that, but clearly there is a -- the nature of a distribution business, particularly as revenues drop, is a loss of contribution which can impact earnings to the down side. That's the bad news. The good news, of course, is that it typically comes with strong cash flow performance.

Right. If you look at, let's say, third quarter, what percentage of your constant business you would say reflects versus variable?

Well, on average and, Jeff, this may be a little off, but on average call the purchase of items, purchase of sort of material being between 75% and 80% of the cost, so that is completely variable.

Right.

So, obviously, the single of that, the largest single component is variable.

And then you guys have delivery trucks and sort of salesmen and salespeople and stuff like that which is -- also affects cost?

The most of the freight is outsourced, so I would call that as well. I think fixed cost or, well, I'll call it temporary fixed cost, if you will, are [non-current] fixed costs, would include things like leases on buildings, warehouse space, and then the more permanent employees among the 900 or so that work at Supply Technologies.

And systems.

And systems support.

Got it, got it.

Very little of it is truly fixed in nature long term. Most of it is sort of semi permanent, if you will. We try to aim towards leases that are three to five years or less. We don't -- aren't able to do that in every instance, but we recognize how fickle this business can be, and candidly more often than not, we're increasing our space needs rather than decreasing.

Got it, got it. And can you give your EBITDA number year-to-date?

Sure.

I mean I'm sure it's in the press release, but?

Oh, you can't get it out of there really. Hang on a second. It's ...

$58 million?

$58 million, well, that's adjusted for -- with the way we look at it for -- with the banks, so it's a defined term $58 million, so I mean that's a good proxy for it. It's going to be around $60 million.

Got it. And that's the number you are sort of giving guidance would be in the high 70s for this full year?

That's correct.

So does that mean that compared to fourth quarter of last year you would actually have an up fourth quarter this year?

Yes, yes, it does.

Can you expand on that?

Our * is to be up a little bit on cash flow in the fourth quarter versus prior year cash flow.

When you say cash flow, you mean EBITDA or you mean free cash flow?

EBITDA, yes, I'm sorry.

EBITDA, got it. And can you just give some color on sort of what might the enablers be for that?

Why that would be up?

Uh-huh.

Well, our guidance has our earnings up over last year's fourth quarter, and it's going to be mainly generated by the Manufactured Products group, which has had a phenomenal cash flow through the first nine months.

Right. Now, essentially through cost cuts I suppose, right, because I mean revenues, one could argue are going to be under pressure?

Not -- for Manufactured Products, we have pretty clear visibility as to what the fourth quarter looks like for them, based on what Matt talked about earlier as the backlog and the manufacturing time, the 6 to 9 months between orders and so.

Okay. All right. And are you able to give any color on what '09 might look like?

Not today, we're not.

Okay. Thank you.

Your next question comes from the line of [Dion Ishwar] with [Singular Research].

Well, hi. Two questions. One is on the aluminum business, you talked about the new business that you got in, have you lost any business on the aluminum side?

No.

Other than the normal replacement from the customers?

No, we have not lost any platforms in '09 that we started with, no, that's not the case.

Okay. Now with Navistar, what is the profitability on the Navistar business?

Dion, I'm sorry. It's Matt. I didn't hear the question?

What is the profitability on the Navistar business?

Yes, we weren't specific but I think we were -- I tried to say in my comments that they are one of if not the lowest margin account in our portfolio.

Oh, okay. I guess the average profitability there is about 4% EBIT profitability. Would you say Navistar is still a positive contributor or was it a negative contributor?

I -- you know, it's -- I kind of decline to answer that specifically, other than to say clearly the truck volumes, the heavy-duty truck volumes of the last two years and what we expect to see in '09 has put additional pressure on already what was a challenging margin account.

Okay. Thank you.

Your next question comes from the line of [Sara Thompson] with Barclays.

Hi. It's [Dory Koenig] for Sara. Just one question on your SG&A, it looks like it's up about 183 basis points year-over-year, is there anything in there that's -- that you could elaborate on?

Well, as I talked about earlier, we had -- in the Corporate side we had some onetime things coming through. We had some investment losses of half a million, we had severance costs of approximately $400,000, and we had some timing on professional fees, Corporate professional fees of approximately half a million. Those things are -- we wouldn't plan on recurring, and that's why we're seeing the run rate for the Corporate side of SG&A should be about 3.5 going forward, although my expectation would be to be better than that.

The rest of the increase is, as Matt talked about we're incurring some administrative costs related to contract, the contract at Supply Tech, and then increase of the sales effort in Manufactured Products has increased SG&A.

Okay. Thank you.

Sure.

Your next question comes from the line of Douglas Ruth with Lenox Financial.

You had talked briefly that the bank was giving you some encouragement, could you expand your comments on that, please?

I'm sorry, can you say the question again? I apologize.

Why -- I thought that Ed had said specifically that the bank had given you some positive feedback, and you were going to talk some about your bank revolver and perhaps the bonds?

I think actually what he may have been speaking towards is that we just, that Standard & Poors reaffirmed our B+ rating table on the bond last Friday.

Okay. And are you talking to the bank about the 2010 revolver, at all, at this point?

Yes, I mean obviously we're in constant communication with our bank group. Candidly, more recently based on some of the concerns we have with the players in our bank group, although we're very fortunate to be led and have a number of very strong financial players in our bank group being led by JPMorgan Chase.

But sure we're in constant communications with them, and I think that I'm not going to surprise anyone when I say that talking to them about extending or doing anything with a revolver at this point is probably out of the question not only for us but for almost the entire economy or entirely -- I think that's not new news.

And can you talk, at all, about the bond prices, and there's been some weakness recently in the Park-Ohio bond prices?

Well, I think there's been weakness in all bond prices. So I don't think we'd stand out particularly, although we're pleased to have at least Standard & Poors reflect and reconfirm our position, so.

Yes, it'd be hard to speak specifically to how our bonds have traded, other than to say that, obviously, Standard & Poors, who knows the Company well, seem to think it's the same credit and give it a stable outlook.

Are the bond prices under priced do you think at this point?

I'm not a bond buyer, so I don't know what the relative opportunity is versus other people in the marketplace.

Okay. Thank you very much.

At this time, there are no further questions. Gentlemen, are there any closing remarks?

Yes, I want to thank all the stakeholders of Park-Ohio. These are difficult times, but we feel that we're well positioned, particularly with the support of our bank group and the position of our bonds out there in the future. So now it's a matter of working our way through a pretty dicey economic atmosphere, but hopefully we'll be readjusting the Company in a positive way in our next meeting. Again, thank you very much for joining us. Have a good day.

Thank you. This does conclude today's conference call. You may now disconnect.