Park Ohio Holdings Corp (PKOH) 2009 Q2 法說會逐字稿

Good morning, and welcome to the 2009 second-quarter 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 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 their actual results from those projected. A list of relevant factors may be found in the earnings press release as well as the Company's 2008 10-K, filed with the SEC on March 16, 2009. The Company undertakes no obligation to update any forward-looking statement whether 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 July 28, 2009.

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, to the second-quarter 2009 conference call. We will begin today with a presentation by Matthew Crawford, President and COO of the Company.

Matthew?

Thank you very much.

We are proud to report that the Company earned a profit in the second quarter despite continued weakness at the revenue line. Specifically, revenue shrank 43% from last year, to $163.4 million. EBIT was down 35%, to $10.2 million, and EPS was $0.29, versus $0.50 a year ago and a loss of $0.50 in the first quarter. We owe this quick reversal to the ongoing focus and dedication by our employees to reshaping our business model and eliminating cost in all of our business segments. Thank you to the entire Park-Ohio team.

Now, looking at the individual business units -- first, supply technology, revenue was down 45% year over year, to $68.3 million. Revenue did stabilize through the first quarter of 2009, with a drop of only 7.7%. As you might expect, revenue was down double-digit amounts for most end markets year over year, so it may be a little more insightful to talk about revenue trends in the second quarter versus the first quarter.

In general, we expect that average daily sales bottomed out during July. Specifically, a number of end markets, including truck, electrical components and lawn and garden, showed either continued or seasonal weakness, albeit with smaller declines, while semiconductor, auto, industrial equipment and medical equipment showed stabilization or even growth. Although we're not prepared to suggest the current recession has stopped affecting our customers' demand, clearly there are signs of deceleration of bad news and even a few bright spots with new account activity.

On the earnings front, profitability was well off from last year, dropping to about $2.9 million. More importantly, though, EBIT was solidly back in the black after a difficult first quarter, showing a margin of just under 4%. This was achieved through not only aggressive cost cutting but also the continued evaluation of our service model and our customer ROI expectations. We expect gross margins to stabilize and even improve slightly toward the end of 2009 as we continue to burn through higher cost inventory and move to a lower cost basis.

Now looking at the aluminum products business, again, revenue was down 51% year over year, but perhaps more valuable to note is that revenue was down only slightly, from just over $22 million in the first quarter, to just under $22 million in the second quarter. We believe that this level of sales represents the nadir for this business, and we expect some improvement as both Chrysler and GM get back into making cars. Also, on a positive note, quoting is very high due to the number of failing competitors, and we have recently been awarded several new programs which should benefit us late in the year.

Adjusted for the $2 million write-down associated with the Metaldyne bankruptcy, we're excited to report that aluminum products made a small profit. Although largely due to significant expense cuts, we also began to see the benefit of both the large facility closure in Indiana as well as better utilization in a key facility as volumes built late in the quarter. We're optimistic that EBIT will continue to show improvement sequentially throughout the second half.

Looking at manufactured products, revenue was down year over year by 38%, to $64 million. This weakness continued to reflect the slowdown in our industrial equipment group, where many customers not only failed to order new equipment, but, in an unusual extension of their desire to conserve cash, even stopped ordering spare parts. We believe strongly that this latter decision has created some pent-up demand in the marketplace, and we're beginning to see some positive signs currently.

Although new equipment orders continue to be somewhat soft, we are seeing some improvement, particularly in the developing countries, where we continue to think that the industrialization is still in its early innings. Revenue in our forge group stayed reasonably strong, although locomotive build softness did cause some decrease.

Profitability was down 35% year over year, but up 21% from the first quarter, with margins standing at about 15%. This was due to aggressive expense cuts in all businesses, as well as some good product mix in the forge business. We expect margins to stay healthy throughout the year, but there could be some compression in the third quarter as we work to fill the industrial equipment order book.

Looking at the balance sheet, the total debt for the Company was down for March 31 by about $8 million, and availability under the line of credit hovered around $20 million. Capital expenditure was $3.3 million through June 30, or $1.8 million for the second quarter. We still expect CapEx to be below $7 million for calendar year '09. Cash taxes were about $800,000.

In closing, we're pleased with the quick reversal from the loss during the first quarter. We also believe there is tremendous operating leverage in place within our operations, and we're excited to see what even a little increased revenue can do to the bottom line. Although we're not able to give precise earnings guidance at this time, it's fair to say that we expect the Company to be profitable for 2009.

Thank you.

Thanks, Matt.

A couple of things I'd like to discuss this morning -- number one, the primary goal here at Park-Ohio when we get into difficult times like this is to run the Company and really concentrate on two areas -- free cash flow and earnings per share. And I think about this every day. We think we're doing a good job in both categories. I think the numbers [physically] in the free cash flow speak for themselves.

We also feel that we're facing something we went through back in 2000, 2001, when we had our first cliff. Revenues came down nowhere like they did in this first and second quarter. Keep in mind, last year we were a $1 billion plus company on the annual run basis. In the first quarter, we were down to a $724 million company run basis. That's a 32% decline in sales, first quarter run rate against last year's run rate.

And when you face a $345 million loss in revenue, I'm very pleased, and I hope we all are -- should be pleased with the fact that the Company took the necessary steps to prepare ourselves. We weren't quite ready in the first quarter, but we are in the second. So, although our company, again, we think the wind is not at our back, but the wind is not in our face. We believe that revenues will begin to improve.

And I think we have managed ourselves through a very, very dangerous period in the Company's history. We continue to have the supports of our bank, our employees, our customers, and we have a position on this chess board, in essence, three great businesses in Supply Technologies, the capital equipment and the aluminum business.

So we have the pieces for the future. We have the businesses. We don't have to go outside those companies. And I believe that we're very close, very close. We're stabilized and hopefully we'll start moving backward towards the goal and the revenues and the earnings we've had in the past. So we don't like to be too optimistic here, but I think we've faced a crisis head-on, and I think the Company's in very, very solid position to respond to any movement in the economy.

At this point I'd like to open up the lines for questions.

(Operator Instructions).

Your first question comes from the line of Richard Paget.

Good morning, guys.

Good morning.

Hey, Richard.

So, looking at the aluminum products business, so that $2 million write-down, that was all entirely in that segment?

Yes.

Yes.

Okay, so backing that out, like you said, that suggests that you guys had a profitable quarter there. Now, I know in the past the kind of revenue run rate to get to a break-even was a lot higher, so, at this point, given all the restructuring you've done around this level, you guys can be profitable here going forward?

Well, let's put it this way. The aluminum business is ready. We're pretty optimistic. The amount of work that's being moved around the industry right now -- since the last time we talked two more companies in this space have gone out of business, so there's takeover work all over the place, new business from good customers. We will not take the business without margins, but all the work's been necessary. General aluminum's ready to go. Any enhanced volume will affect the Company. So at this particular juncture, I expect this to move forward.

I mean, you know, the second quarter we had an EBITDA on this Company of $1.7 million, an EBITDA in this Company, and it made a profit in this Company at that level. So we're all set there. I know we've been talking about this. I know it's auto, and I know it's Chrysler and Ford and everyone's all thinking the worst, but we're there, Richard. It looks good right now.

Richard, I would just kind of requote my comments when I started. We're expecting that EBIT will continue to show an increased profitability sequentially throughout the rest of the year. I think that's as clear as we can get.

Is that coming off that $2 million charge base, or backing that out it will improve from that level?

Backing it out.

Okay. When you are quoting new business, I mean, how many guys are really left? I mean, you said two more went bankrupt. I mean, sometimes are you the only guys at the table, or are there still a couple --

You know, actually, the way I look at it now, if you're going to have cars and you have the steering knuckles, you need steering knuckles to turn the front wheel, there are really only two or three really qualified people in that area, maybe four. There used to be 17. So we do think the number of cars is going to go up, and we think ultimately [cast] [plants] will go to aluminum knuckles away from steel, so this is -- we've got a great organization that's survived a real (inaudible).

And so we're just talking about sales now. We've got a lot of plants, got a lot of capacity. We haven't shut down anybody. We haven't lost any major accounts. We've added customers. We expect to write some takeover business here very, very soon that will -- from our viewpoint it's like new business.

I used the term one time, Richard, you can go into the [climbing] business by taking more of the pie, so I was lecturing at one of the universities and I tried to explain that to them. But this is a case where you can grow a business in the declining market by taking a bigger piece. And I think we're there, because we have the quality, we've got the service, we've got the people, and we've got the lowest cost.

Okay, and then on the manufactured products side, Matt, you touched upon it, saying that pretty strong margins there, a lot of it had to do with mix. How much of that mix is the particular forged equipment that you happened to sell versus how much parts and aftermarket you did versus new equipment?

I mean, clearly the forge business has continued to be a strong performer for us. I mean, it's -- at the margin line, it has continued to perform at a high level. Our -- we expect that business to continue to stay strong. But clearly the horse in that business, the horse in the manufactured products segment, is the industrial equipment group, and they have continued during the second quarter to work off of a nice backlog, and they've continued to, although there was a sharp slowdown in the spare parts and service business, I think that we -- it's not unusual, as you know, for that business to perform at this margin level. So I don't know that I would point to a specific product mix other than to say that the businesses kind of performed where they should.

And does that suggest that pricing has been hanging in there pretty well?

Yes. No, I think it has. I think that I pointed my comments to the concern that there may be some compression in the third quarter. Clearly, we are seeing opportunities to rebuild the order book. We've talked in prior quarters about the fact that we were living for the first half of this year off of a very strong backlog, so those were meaningful to our bottom line during the second quarter, even though those orders may have been actually received in prior quarters.

Yes, we've got some work cut out for us as we rebuild that order book going into the end of the year, but, candidly, I think we're seeing a pickup in the spare parts and service business and we're seeing some activity particularly in some foreign countries, China notably, Russia notably, where perhaps the stimulus worked a little better there than it has here. So we're going to be affected in that business as those countries start to succeed even if ours doesn't.

Okay. And, finally, on Supply Tech, the sequential margin improvement, is a majority of that mostly the cost-saving measures that you guys have been taking? I'm just trying to get a sense of how much is things that you guys did internally versus some of the end markets stabilizing and some areas actually getting a little bit better.

I'd say for the second quarter it is largely done through two things. One is cost cutting. I mean, clearly we have been very aggressive, and the management team there has done a very good job in cutting costs. I mean, we had to come to the realization that this is a relatively small margin business, and when you see a revenue falloff that we saw, we had to adjust. So I think that was the principal driver for the increase in margins.

I think secondarily, though, it's less about improvement at the revenue line, because that hasn't happened yet. As I mentioned in my comments, I think that we've seen the bottoming out from an average daily sales standpoint in July, but we haven't seen any incremental revenue yet. Where I do think we got some benefit, though, is we worked hard on our return on investment model to make sure that we're challenging on a customer-by-customer basis what the right pricing structure is.

And candidly, Richard, the volatility in the raw material markets, going back to -- everyone forgets this is less than a year ago where the volatility was incredible, and it took some time in some specific cases to adjust pricing to where it needed to be. So I think it's a combination of both some heavy lifting on the cost side and some good evaluation and pricing adjustments on the pricing side.

Richard, this is Eddie. I want to point out something that is the theme here at Supply Technologies, which is our largest unit. It's come down in its all-time high about half in the run rate. But we're in what we call a controlled ascent here. That's kind of the theme around here. We have the pieces in the puzzle.

And you can remember when we were doing $450 million one time we had 67 warehouses. Then we got to be $600 million and we had I think 53 warehouses. What's going to be exciting about this opportunity, and this should hit us in the margin, this business at one time was a much higher margin, it ended up at 4%. So we're picking our customers. It's a controlled ascent. We're not decided that we're just going to run right back up to the same $500 million, $600 million business. We're going to do it this time with some margin.

And our ability to track it is getting better and better. Controls, our team has been great at putting in -- as you know, we have not a new but a one-year new CFO down there. He's done an incredible job, and our ability to now look at this thing -- so, again, it's controlled ascent, meaning we're going to probably grow a little bit slower on the rebound when this explodes, which it will very soon, but we're going to be picky about the customers and about our margins, and the sales will be there, but we want the margins there this time to control cost.

Richard, I'd also add one point that we're sort of overlooking, because we try not to talk about it anymore, but although we did take a write-down associated with the transition on International at the end of the year, there were some costs that were not captured in there that hurt us in the first quarter. So as we unwound that relationship in the first quarter, I don't think that the first quarter was a clear picture of the margins of Supply Technology on a go-forward basis.

Right.

As we've had a chance to completely unwind that, I think what you're seeing is a second quarter of a more normalized profitability, or I shouldn't say normalized, a balance off of those costs. I think normalized is somewhat higher, obviously.

Right. Okay, great. I appreciate the call. I'll get back in queue.

Your next question comes from the line of Michael Levine.

Good morning.

Hey, Mike, how are you today?

Good, thank you. How are you?

Very well, thank you.

You know, just looking at the costs, I mean, you've done a pretty incredible job cutting costs and actually increasing margins. I heard your controlled ascent and that. Is this, I mean, can you operate -- if you had to operate at this level, the costs are sustainable? That's a question. And then going forward, as you improve, it sounds like you're planning on actually keeping your costs lower than they were before as the businesses improve. Is that all correct?

Michael, it's Matt. Absolutely. I think that -- I think a lot of work has been done, so I don't want to take anything away from the operating teams. And there's been a lot of change in those businesses, and unfortunately it's cost a lot of jobs. But the changes that have been made are not temporary in nature.

I think that if need be we could obviously cut deeper, but our expectation, candidly, is that we're partnered in every one of our businesses with the best customers available. Our customer list in each business are the best providers of that service, whether it be IBM or whether it be Applied Materials or whether it be Bow Steel. So we certainly do expect and have retained some costs associated with building back with those customers, because they're taking market share. So, although I agree with your premise, which is we've cut a lot of costs, obviously we would have to be more aggressive if we were going to stay at this level. But we don't expect to.

Hey, Mike, one of the things, if you go back and just look at the charts of the Company, we're in a similar position, quite frankly, that we were probably when you look at '03. We were sitting in there at some $624 million in sales in '08. In that five-year period got over $1 billion. And the EBITDA is coming out of the cliff. Should be very, very strong. This is a better company. Every time you go through what I call a shakedown like this you come out a -- you should come out a better company.

So you're right. We expect to keep our costs under control as we have this controlled ascent. I mean, we've got to get back the dollars we left on the way down. So this is not -- we're not going to just start opening warehouses and doing things. I can tell you, I can speak for the aluminum business, and that's a lean, mean operation and it's going to stay lean and mean, and we're just going to get more volume out of the plants.

So, yes, that's our responsibility. We did it once before. I mean, it wasn't too long ago. I mean, we went from $624 million in '03 to $1 billion. Debt only went up $50 million in that period, and EBITDA I think combined was $371 million. So we're right back at the same game we were before. We're going to do fine here. We just need -- we don't need a storm. We just need a little breeze.

Good. Good. And so in manufactured you mentioned you had kind of been living off the order book a little bit and you have some work to do to get that back. Reasonably encouraging signs that you can maintain that or build it back?

Yes, I think there are. I mean, interestingly enough, because of the global footprint of that business, we're seeing more activity, as I mentioned, unfortunately in some developing countries than we are here domestically. But our footprint serves that very well, as I've discussed in prior calls. We've got flags sort of planted in the important spots around the world, so we are seeing some activity. It has not translated -- well, it's started to translate into a meaningful order book, but obviously we'd like to see that grow.

From a new equipment order side, the third quarter could be a little bit of that rebuilding. But the good news is that pent-up demand on the aftermarket side we're starting to see meaningfully happen now, and that's pretty high-margin stuff. So we've got some work cut out for us on the new equipment side, but I'm hoping that the aftermarket piece will sort of pick up in the meantime. The good news is we're seeing activity. So it should be -- if there is any compression, it should be short-lived.

Okay. And then just a couple of technical questions -- can you go through how you -- you said $20 million revolver availability. I kind of thought it was going to end up more based on your borrowing. Could you tell me how you get there?

Michael, this is Jeff Rutherford. Where we're at on -- let me talk to you a little bit about our bank agreement between guarantors and non-guarantors. We -- the U.S. companies, Canadian companies and two of our U.K. companies are guarantors under the bank debt, so their receivables and inventory are obviously collateral and make up our borrowing base. Where we're at right now through the first half, and this is true through July also, is that we're -- as you can see on our balance sheet, we're harvesting receivables, and we're beginning the process that we didn't do a good job in first quarter but the operating companies are doing a very good job coming into the third quarter of harvesting inventory, and Matt talked about that.

The good news is that from a cash flow perspective we harvest that working capital and pay down supplier payables and have it available for cash flow purposes. But it does lower our borrowing base 85% on eligible receivables, 65% on eligible inventory. So that's what has squeezed us down from the availability at year end to the availability today. We're borrowing less money, but our borrowing base has dropped accordingly.

Okay. So $20 million is pretty much the right number.

We're bouncing around there on a daily basis, but we're managing that. Remember also that against that borrowing base are lines of credit. And what we use lines of credit for in our business is for exports. Now, we provide lines of credit to export customers relative to their deposits with us. So, we're -- that -- you have to know that that's reflected in there.

Okay. And so no issue as far as operating cash, and you have plenty?

Yes, no, we have access to the line. We're looking forward -- we're doing a better job now than we probably were in the first quarter of forecasting where we are on cash flows. I have to -- I do have to say that our operating companies' CFOs and controllers have done a great job of working with us through these projections.

We are forecasting -- I mean, if you look at what we did in the second quarter, we paid $10.5 million of interest, just under $1 million in taxes, $2 million in CapEx, and at the same time paid down debt. So our operating companies have done a great job of cash flow management, along with the folks here at corporate. Our expectation is that that is going to continue into the third and fourth quarters. We're looking at somewhere in the vicinity of free cash flow generation maybe a little better than what we had in the second quarter, so we're predicting, forecasting about $15 million a quarter for the next two quarters.

Okay. And you said CapEx was $2 million for the quarter?

CapEx was $2 million for the quarter. I do need to add something, though, on top of that. $1.6 million of that $2 million was funded by state of Ohio and state of Arkansas development fund. I'm not sure we would've spent that money -- we would've made those capital acquisitions if it hadn't been funded by those states. So the net, our net CapEx for the second quarter was approximately $400,000.

And that's what you're saying kind of your run rate is?

No, it's probably -- maintenance was probably a little higher than that. I mean, I'll be honest, I can't remember the last time we had a CapEx meeting. I think we need to have one just so we stay in the groove. But we're not approving capital right now until -- we're listening, but we probably won't see any capital, non-maintenance capital, until sometime in the third or fourth quarter.

This is Eddie. Let me address that. I don't want to leave the impression that we're letting all of our equipment and everything that's going to, particularly on the manufacturing side, lead this bounce, or letting this equipment go idle and go unmaintained. Okay? We're doing the necessary things to keep this equipment ready to go. So there is a maintenance CapEx. It is there. We're not trying to increase what appears to be the earnings on the back of not running a company over here. So our manufacturing companies are ready to go. This is not bleeding off those dollars.

Yes, we still expect CapEx for the year to be somewhere around $6 million, $7 million.

Okay. Okay. And you actually got cash from Ohio and I forget the other state?

Arkansas.

Arkansas? That was actual cash that came in for that?

Yes, Arkansas for our Southwest Steel business, for robotics.

Okay.

And the state of Ohio was for the aluminum business.

Okay. All right. Thanks very much. Great. That's all for me.

Thank you very much.

Your next question comes from the line of Douglas Ruth.

Hi. I've got a couple questions about the finances. Can you -- has there been any dialog with the banker on the -- with the banks on the bank revolver and renewing the bank revolver?

You know, we have a good relationship with all of our banks. We're in constant discussions with them. We have until the end of 2010. So we're always in productive conversations with our banks and lending institutions.

Do we have a goal to when we're hoping to get that revolver renewed, or --

To put a timeline on that would be difficult. We think the Company is going to be improving continually as we go forward. I think the banks are really back in business, at least our banks are, so the conversations about that are ongoing and will be ongoing. And we're not going to put a date to it, but we feel there will be no issue (inaudible) getting it accomplished. That's where we are.

Okay.

So there's no doubt that we're going to get it accomplished. It's just a matter of looking at it and comparing and making sure it's set up again for the future. We need financing for the future.

Sure.

And we want it on a fair basis, and probably will face the facts and are facing the facts that pricing is going to go up, and -- but it's access to capital. We have it. We get tremendous support. We'll get it done, and we'll get on with business.

Okay. Could you add a little color to how you're deciding how many bonds to buy back and what you might be doing in the future?

We're opportunistic buyers. We are not out soliciting for bonds. We're on the receiving end of that. Let me tell you where our funds are coming from for that. As I mentioned earlier, we have guarantors of the debt and non-guarantors. And basically the non-guarantors are our international businesses, operating companies. And just so you understand, they are not part of our U.S. bank agreement. So they can't draw funding from the U.S. bank agreement. They are on their own.

And they've done a really good job. Our operating companies have done a really good job historically of funding our foreign operations with their own cash, transferring it between entities, between countries, to provide working capital, because they do not have their own working capital line, which is something we are addressing.

But they also have been, fortunately, very good cash-generating companies, and they have accumulated excess cash internationally. So that non-guarantor cash is unrestricted. That's the cash we use through a subsidiary in Ireland to buy those bonds.

Okay. Well, I encourage you to keep doing that. That's been pretty productive for the Company.

Yes, so we're opportunistic. We're not driving toward any particular goal.

Okay. And the final question for me is do you have an inventory goal, what you might be able to -- where you're hoping to get the inventory down, what the final goal might be for 2009?

We do, but I'm not sure we're ready to share that.

Okay.

We do have a goal of inventory reduction. It's fairly aggressive, especially in this third quarter. We've probably tempered that a little bit in our cash management discussions. But you'll get to grade us on that when we get to the end of the third quarter.

Okay. That's fine. And you're happy with the progress you've made so far?

Well, happy, I don't know. We continue to work with our operating companies. I am happy with the way our operating companies are addressing the issue. I don't think our results are there yet.

Okay. All right. Well, thank you, and congratulations on a nice, profitable quarter.

Thank you very much.

Your next question comes from the line of John Baum.

Hi, guys.

Hi, John. How are you today?

Excellent. In a very tough environment you guys showed a profit. And I know you gave an indirect accolade there to Mr. Rutherford, and I'll make that direct. Having an excellent CFO at the helm during times like this is proving your mettle, and, again, congratulations on that quarter, and I'll go on to a few questions here. On the EBITDA calculation, do you have -- you're able to include the gain on those bonds in EBITDA?

Well, we prepare that EBITDA calculation based upon our agreement, our bank agreement. The bank agreement as written -- and you can pull it off, obviously it's a public document -- is net income adjusted for taxes, interest, depreciation and amortization and noncash expenses. So by definition, we start with net income, so that bond issue -- although those bonds are not redeemed. Those bonds are outstanding and held in account in Ireland. But when we consolidate that Irish -- our international businesses, our non-guarantor businesses, up through Park-Ohio Industries, it gets consolidated in on a GAAP basis, because they're intercompany -- it becomes intercompany debt, it is eliminated and the gain is recognized.

Very good. Any chance on that Metaldyne bankruptcy? Is there any potential recovery from that with whatever the government Tier 2 supply or anything else like that, or do you figure the $2 million is going to be the hit you're going to take?

Yes, this is Eddie, I think there are opportunities there for us to board. Obviously we were very disappointed in that action, and particularly when you look back at our bad debt record history here in this company, which is I think last year it was like 2% of sales or something like that. Historically that's kind of been the number. But, no, I think there's definitely going to be a real good chance of getting some of that back. Again, we are uniquely positioned as a critical supplier on numerous platforms here. Okay? And as this thing begins to ramp back up we're starting to see some orders. So we've got lots of bites at that apple.

And Eddie -- I'm sorry, Eddie, while you're talking there, John Baum in Detroit here, what do you see? Give us a little color, auto, truck, "Cash for Clunkers," court orders, both in Supply Technologies and aluminum products. What do you see for third and fourth quarter and going forward?

Well, third quarter I don't think there'll be any movement in the aluminum business in the third quarter. I think I would love to have a repeat performance in the third, maybe a little bit better improvement. But the fourth quarter, clearly we are preparing for let me say a modest ramp-up in the auto business, and primarily, if it doesn't come, John, from current platforms that we have, it'll come from selected takeover business. Okay? One particular order which is pending, which I think is pretty solid, is in excess of $10 million. So on our current platform it's a very, very nice piece of business. I think we'll have that up and running in the fourth quarter. And if we get -- and this is brand-new business, quality business, fair margins, and that only enhances the platforms we have going forward.

So we've got our heads still really down here in the third quarter running for -- not to get hurt. But I think we really start to move in the fourth quarter. Again, as we move into 2010, any movement on the cars to get up around that $10 million, $12 million level, some takeover business, and I know I've been singing, I've been talking about the aluminum business for a long time and everyone's tired of me, but -- hearing about the aluminum story, but I hope to have -- enjoy its rebound. But we're very close, very close. I think that the pain is over in the aluminum business.

Okay. On manufactured products, was there any big ticket or big order shipments that might have bumped the sales up and the profit up right there? Because I see the unbilled contract revenue came down about $10 million.

I'm sorry, John, can I have the latter part of that question again?

On manufactured products, was there any like shipments of some big order items that might've bumped up sales and profitability? Because it looks like the unbilled contract revenue declined about $10 million from that first quarter.

Yes, John -- this is Jeff -- that's just inherently going to happen as we're running off contracts. That's the difference between the timing of recognizing that asset, the revenue associated with revenue recognition under percentage of completion and when it's actually billed. So it's as we've run off the contracts, as that volume of revenue has come down, that's -- as we've run off contracts they come out of unbilled and they aren't being replaced, so that's the decline.

And I know you're not trying to forecast, but manufactured products, I mean, looking at revenue for the third quarter, is it kind of -- are you sticking with kind of what we see for second quarter or is it -- can you give any color on that?

Yes, John, it's Matt. Yes, I kind of did the best that we could earlier in our comments, our answer to a different question, which is clearly we did see some runoff of some large projects, which we knew would help the P&L through the first half of the year. So I think that the third quarter will be on the new equipment side I think I said kind of a rebuilding period. Having said that, we are seeing activity right now, so that bodes well.

Secondly, I think that we struggled in the second quarter with the shutdown in the aftermarket business, and we're seeing some good things happen there. So I think it'll be a different kind of product mix in the third quarter, and it's difficult to say exactly right now where that margin's going to shake out, but there's certainly going to be some potential compression on the new equipment side.

Excellent. All right, again, great quarter, guys. Keep up the good work.

Thanks, John.

(Operator Instructions).

Your next question is a follow-up from the line of Richard Paget.

Just real quick on the corporate costs, I mean, you guys have done a pretty good job of getting that down. Is this like $3.5 million run rate kind of what you expect for the next couple of quarters or the balance of the year?

Yeah, we -- $3.5 million sounds high to me, just for everybody out there who's spending the corporate dollars. It's going to be between $3 million and $3.5 million.

Okay.

$3.5 million's the high end of the range.

And then just housekeeping, on the tax rate going forward what's a good one to think about?

Boy, that's a tough one. I'll tell you what, what we have in taxes right now because of how we have to account for on a U.S. GAAP basis, our taxes basically are what we're paying in international tax. And I'd say for the next couple of quarters what we're looking at and what we're doing inside is just assuming we're going to pay somewhere between $750,000 and $1 million in foreign tax each quarter.

All right, so kind of keep it on an absolute numerical basis versus a percentage.

Yes, I'd say that's the best way. And I know you don't want to do that for modeling purposes, but for GAAP purposes that's what it's going to end up being. And then for modeling purposes I'd say we need to get back to a 39%, 40% effective tax rate.

Okay. I'll keep it there to be conservative. Thanks.

There are no further questions at this time. I would now like to turn the call over to Mr. Edward Crawford for closing remarks.

Again, I want to follow up on Matt's earlier comments. We have a number of our employees that pick this up later and listen to it after hours. And, again, thank you for your cooperation. And I want to again reach out to all the people that continue to invest and believe in the Company and assure you that I think we're on the right track. I look forward to speaking with you at the end of the third quarter. Have a nice day. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.