Standard Motor Products Inc (SMP) 2006 Q2 法說會逐字稿

Welcome to today's teleconference. (OPERATOR INSTRUCTIONS). As a reminder, this call may be recorded. I will now turn the program over to Mr. Burke. Mr. Burke, you may go ahead.

Good morning and welcome to Standard Motor Products’ second quarter 2006 conference call. In attendance from the Company are Larry Sills, Chief Executive Officer, and myself, Jim Burke, Chief Financial Officer.

As a preliminary note, I would like to point out that some of the material we will be discussing today may include forward-looking statements regarding our business and expected financial results. When we use words like anticipate, believe, estimate or expect these are generally forward-looking statements.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, they are based on information currently available to us and certain assumptions made by us, and we cannot assure you that they will prove correct. You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements.

To begin the quarter I want to point out we had a good improvement in the quarter. And I will provide -- begin with a summary of the financial results, and then Larry will follow on.

Looking at our consolidated net sales, they were 229.2 million for the quarter, favorable 2.7 million or up 1.2%. For the first half '06 net sales were 439.3 million, favorable 5.4 million, and again up 1.2%.

By segment, Engine Management net sales were 139.8 million, down 3.4 million or 2.6%. For the six months net sales for Engine Management were 288.7 million, favorable 4.5 million and up 1.6%. Engine Management net sales leveled off in the second quarter after being up 6% in Q1 to end the half at up 1.6%.

Our Temperature Control segment net sales were 72.3 million for the quarter, favorable 4.9 million, and up 7.2%. For the six months sales were 121.4 million, favorable 400,000, and favorable 0.3%.

Temp sales were stronger in the second quarter following the soft first quarter when we scaled back early spring promotion incentives. The six months results reflect basically flat sales with 2005, which was one of the hottest summers on record.

Europe. Net sales were 13.5 million, favorable 1.5 million, or up 12.2%. For the six months sales were 23.4 million, favorable 300,000, or up 1.3%. Overall the final result for the first half reflects slight increase across all segments.

Gross margins. This is the biggest improvement for the quarter that we have had. Engine Management gross margin was 24.9% for the quarter, up 4.4 points versus the comparable period last year. For the first half Engine Management margin was 24.8% up 3.2 points.

The Engine Management gross margin recovery is one of our most critical tasks in 2006. Sequentially the Engine Management margin improved from 24.7% in the first quarter to 24.9 in the second quarter, with further cost reductions planned in the second half. Larry will expand further on this shortly.

Temperature Control. Gross margin was 22.9%, favorable 1.8 points, and on the year-to-date six months margin was 22.8% favorable, 2 points.

Europe. Gross margin 21.9%, favorable 0.2 point, and year-to-date 22.6% favorable, 1.5 points. The gross margin story reflects improvement in all three segments for both the quarter and on a year-to-date basis, and most importantly the strongest results in the Engine Management area.

Consolidated SG&A expenses for the quarter were 43 million. They were favorable 700,000. As a percent of net sales they were 18.8% and reflected 0.5 point improvement versus last year.

For the first half SG&A expenses were 86.8 million, an increase of 1 million. As a percent of sales 19.8%, the same flat with last year. The SG&A expenses reflect the slight increase in marketing and selling expenses, offset by a reduction in accounts receivable draft expenses. Overall SG&A expenses reflect the slight improvement for the quarter and equal to the prior year as a percentage of net sales.

Consolidated integration expenses were nil for the quarter and year-to-date, and reflect a reduction of 3.7 million in the second quarter and 4.2 million for the first half. As stated last quarter, the Dana integration is behind us.

Looking at consolidated operating income, and I'm excluding now the integration expenses from both periods. For the second quarter '06 we achieved 13.7 million, which was an improvement of 8.5 million over the prior year's quarter. For the first half operating income, excluding integration expenses, was 23.2 million and favorable 11.6 million over last year.

By segment, and each of these by segment will exclude integration expenses. Operating margin was 11.3 million, favorable 4 million for the quarter for Engine Management. Six months results, 23.5 million, favorable 5.7 million. The Engine Management improvement reflected the gross margin recovery to almost 25%.

Temperature Control operating income,6.2 million, favorable 2.7 million. For the six months 7.6 million operating income, and again favorable 2.6 million. Lastly, Europe, operating income was 400,000 for the quarter. And it was favorable 400,000 versus a breakeven period last year. On a year-to-date basis, operating income was 600,000 for the six months and favorable 900,000. Europe continues to reduce manufacturing costs as we are able to swing from a loss to profit in this quarter.

Again, we are pleased with the results, as operating performance was favorable across all segments for the quarter and on a year-to-date basis.

Interest expense was up 1 million for the quarter and up 1.6 million year-to-date, reflecting higher debt levels from our exit of the customer AR draft program and our 11.9 million repurchase of shares from Dana Corp. in December '05.

Income tax expense was higher by 6 million year-to-date. Higher profits accounted for 5.2 million and discrete tax adjustments were an increase of 800,000, for a total 6 million. Excluding the discrete tax adjustments, primarily from changes in state tax rates, our effective tax rate was approximately 38.5%.

Looking at the balance sheet. Accounts receivable increased 89 million versus December '05, which is our normal seasonal increase. Against June of '05 receivables increased 16.6 million, and this was primarily from our exit of the draft program last year.

Inventories decreased 14.5 million in the second quarter '06. Since June of '05 they have decreased 26.3 million. For the year we have reduced inventories 8.2 million versus December '05.

Goodwill and restructuring accrual, as explained in the first quarter 2006, reflected a reduction of approximately 10 million, as we are no longer liable for a long-term lease related to the Dana Engine Management acquisition.

Total debt was 291.6 million at June of '06. It reflects an increase of 43.3 million versus December '05, which is our seasonal increase. Comparing total debt against June of '05, debt is down 1.3 million, and that is inclusive of the approximately 12 million share repurchase from Dana, and the exit of the customer AR draft program. Our current revolver reflects borrowings of approximately 180 million, with excess availability of approximately 6 million.

Lastly, our CapEx spending for the quarter was approximately 2.9 million, and 4.8 million year-to-date. Our depreciation and amortization was 4.1 million for the quarter and 8 million year-to-date.

With that, I will turn it over to Larry.

Good morning. Jim has reviewed the overall numbers, which we agree we are pleased with, but I will just review a few other topics. The single biggest number of cost is the Engine Management gross margin, roughly 25% for the first six months versus about 20% for the full year '05. Two main reasons for the improvement. First, we finally completed the significant task of merging the Dana and the Standard inventories. That was done roughly by the end of last year. And all the onetime costs thereof are now behind us.

Secondly, all the work we have done in the past two years -- improved pricing, resourcing purchased items, additional manufacturing is starting to the bear fruit. And the result of all this is what you see in the gross margin improvement.

Just two other subjects and then we will open it to questions. One, always a question of what is future pricing going to look like? In Engine Management we will be implementing another round of increases in the fourth quarter, roughly in line with what we did in the last round. So a similar improvement of approximately $1 million a month.

Second, I am sure you are interested in Temp Control sales, especially since it was so hot last week. We were roughly flat in the first half; however, we're predicting a slight decrease in the third quarter for the following reasons. First, to remind everyone, we were up against the biggest year -- a very, very hot summer -- a very, very strong year and comparisons are therefore difficult.

I know it was very hot last week. However, hot weather in August is not the same as hot weather in June, and you see two major differences. First, car owners, especially with gasoline prices at $3 a gallon, in the first week of June many people are going to say, I'm just going to tough it out the next two weeks because the season ends shortly, so I think certain repairs get postponed.

And perhaps even more important, while the distributor sales may be going out the door, their reorders will not match those sales, as they also are looking to bring their inventory down at the end of the season. That will help us both in year-end returns and in opening orders next year.

Third, there has been some erosion to low-cost Chinese imports, and in the year 2007 we will be taking steps to counter that.

Despite the sales, we continue to work on cost reduction to ensure that our profits are maintained. So those are my basic comments. And we will now open it for questions.

(OPERATOR INSTRUCTIONS). [Walter Shenker] from Tieton Capital.

Well it is a pleasant surprise to hear the word favorable a lot. And you deserve credit for getting us to this point. Obviously the margins are far from historic levels in Engine Management. If I believe I'm correct in saying since we have a target 3 to 500 basis points higher, meaning 28 to 30%, -- stop me and correct me. As a longer-term goal in that business, there are only two ways to get there. One is to raise prices and one is to cut costs. I am stating the obvious. I would like you to sort of update us on as you look forward the progress you think you can make on both sides and whether that is still a real realistic goal?

We continue to strive to that as a goal. I mentioned the pricing for the fourth quarter. The cost reduction plans are as aggressive as we ever had them. We continue to hold that out as a target, and we're working in that direction.

Since we need, obviously, 3 to 500 basis points, your costs are going up broadly defined on sort of a wide order of magnitude from a raw material cost standpoint and labor. (multiple speakers).

On a commodity basis we experience the same increases as anybody else, and on fuels, but we have been able to offset that with our sourcing of other products and bringing in. I don't have, nor do we quote what an overall inflation is, because when they are looking at 30,000 SKUs and all the components against that. The net result of all of it has been a favorable. That's the key. Again, we work on between the cost reductions, the in-house manufacturing that Larry talked about, and the pricing toward that goal of 28 to 30.

The price increase -- the next price increase, since you will be making a forecast, you won't fully agree, but -- and what you're doing on a cost basis probably is not going to get you there. I wouldn't know until next year anyway. And you have to run it through a low inventory turn and everything else. But probably there's more work beyond what you're doing in the second half of the year on pricing and costing together. That is a safe statement?

I think that is a safe statement. Another way of turning that around is saying are you going to be up to 28 to 30% at year-end or on an annualized basis? No. This is a work in progress that we're going to continue on.

On the pricing -- as you know, a big issue for me, -- this is something which is obviously being done across all your channels. It still takes many months to put one in place?

Primarily because you have to give notice. And for most of our customers we have to give at least 60 days notice. So first of all, there's the work involved. And then secondly there is the advanced warning you're supposed to get. We have been doing them on a fairly regular basis, and so far, so good.

On air-conditioning I realize in New York City it recently got hot. But I thought when I looked at the weather map going back to even June and July and looked at the southern part of the country it was actually pretty hot.

It was, but last year was a record. It was hot but '05 was one of the hottest summers in recorded history. We're up against some very tough numbers. It has been hot this year. It is probably at least an average year, probably somewhat better than average. But '05 was an extraordinary year.

Just last thing, as we address it issue by issue I realize we can't do everything at once. A longer-term target is still too hopefully significantly enhanced inventory turns we carry -- a frightening amount of inventory. That is something I will start to see progress on when?

I think we have shown very good progress since June of last year, $26 million in the second quarter of this year. But we're going to continue to move forward on that. Again, it is a capital intensive business with all the SKUs, but we continue to feel that we have efficiencies and improvements that we can make in the turns. And that will be a continuous basis as we move forward year after year.

Last question, it I think it has been along time since we've had a clean period without a lot of moving parts. There is always some moving parts. Seasonally the third quarter should be your strongest quarter?

Again, we don't want to put forecasts out, and we said that last year the Temperature Control business had an outstanding quarter in volume and sales. And again with large customers and the timing and placing of their orders between the movement of a week, I don't want to say one quarter over the other. It is safe to say -- I'm not going out on a limb much -- the second and third quarters are our strongest quarters.

It is also safe to say that you expect month by month, although I'm not going to see it, you expect to see continued progress on the sourcing and cost side?

Yes.

Derrick Wenger of Jefferies & Co.

One is the capital expenditure. I will look for the full year calendar year '06. Secondly, you had mentioned this loss of some Temperature Control sales to low-cost Chinese imports. I was wondering what steps you're going to take to combat that?

You do the first, and I will do the second.

Again our CapEx spending, it may be within timing I would say on the low end 12 million, 12 to 14 million.

And the Chinese imports?

Good question. This year of course basically is done and the next few weeks the season is effectively over. Our plans for '07 are twofold. One, we are also implementing a direct import program from China. So no one else should really have a competitive advantage over us. Even more importantly, the bulk of our sales are still rebuilt compressors, not new compressors. We think that will continue.

You have just been --?.

Let me just finish the thought. We are in the process of relocating our compressor rebuilding operation from Grapevine, Texas to Reynosa, Mexico. There is a substantial cost benefit in doing it because it is a very labor-intensive operation. We started early this year and we have a schedule to do it over the next several years. So with those two steps, we think we can compete with anybody.

But the loss of sales to Chinese imports, that is mainly in the new build sector?

Yes, it is only new. It is only new that comes in. And that is still the smaller part of the business.

Roughly what are those percentages, new versus rebuild?

It is less than 25%.

25% new?

Yes, roughly.

Industrywide?

That is not an unreasonable estimate.

How much would I pay for a new one versus one that was rebuilt?

You mean in absolute dollars?

Yes.

By the time you get down -- there's a lot of markups between us and you. But our goal is to have a 20 to 30% price advantage rebuilt versus new. And as long as we can do that, we think we will be in good shape. And we're confidently we can with the move to Mexico.

Are the guarantees roughly the same on the product to the end consumer?

Yes.

Robert Smith of Center for Performance Investing.

Congratulations for a good quarter. Could you give us a little more color on the highlighted factors like resourcing of purchased items and additional in-house manufacturing?

Sure. Let's see, how do I phrase it? The resourcing -- the overseas resourcing is -- and additional manufacturing are our two biggest thrusts, certainly in Engine Management, and actually in all our divisions. And again the new manufacturing had been put on the back burner since so much of our resources was tied up in putting the two lines together. And once we finish that we could put those resources back on manufacturing. We have a substantial aggressive program. We have achieved some of the benefits, and we see more to follow in the future.

Resourcing has begun, especially overseas resourcing, is a major investment for the Company in every area. Temperature Control has a full-time person working for us as an agent in Shanghai. And that is their main job is to find sources for us in China. In Engine Management we also added a full-time person. That's all they do working on is getting long-term relationships with potential future partners in China.

And in our European business we essentially have ceased manufacturing in the UK. And everything is either purchased from low-cost places in Eastern Europe or the Far East or -- and in addition, which I think I mentioned at the last conference call, we acquired a small manufacturing operation in Poland which has a combination of low-cost wages, roughly the same level as Mexico, with a highly skilled and highly trained workforce. And we think that is something we can build on.

I would rather not get into some more specific numbers, but just to say that this is the most important thing everybody in the Company is working on.

Larry, do you not have an in-house raw materials price index or something? A cost index?

We do. But it is across multiple segments, and because of the 30,000 different SKUs we have it broken up between finished goods, components, different commodities in the different business segments.

I was just wondering what an increment might look like ballpark that you guys have been dealing with.

When we can amalgamate them it is actually a minus -- a reduction. We don't quote or put out the forecasts on the individual ones. We have had the fortunate benefit of outsourcing a lot of our products that we call resell products that we purchase and outsource to the Far East.

That sounds -- that's good. In the present years so to speak, have you guys at all been approached by private equity this year?

Well not -- any phone calls, and anything private equity, anybody looking to make investments, those calls come in on a daily, weekly basis. We feel that we have a financing plan and capitalization plan that we address on a regular basis. We realize we have our revolver coming due in December of '08 and our convert in July of '09, and we're looking at that. Our current revolver has significant access availability. And we feel that our cash generation over the coming years is going to be very favorable.

And you want to remain a public company?

That's a decision, obviously, we always review with our Board, and that is not on the table.

Could you give us a brief assessment of the domestic automobile market as you see it, and with all the machinations that have been happening recently?

Are you talking about the new car sales?

As it relates to parts and stuff like that.

I'm not sure I would answer succinctly. Obviously you have the growth of import cars. It is growing. Overall part sales, however, for the industry, all the statistics we look at are a slight increase, a couple of percent.

As the shift goes continually to the new computer controls and all that might entail, how does that affect you guys?

Well, what you're trading off is lower piece sales, but the unit pricing is much higher. Those tend to balance each other out. That is what has shown in our numbers over the last three years. Your same roughly flat to up a couple of a percent. That is our expectation going forward, and that is what you are seeing throughout the industry.

When the prior questioner brought up this 28 to 30% margin range, and you called it a work in progress naturally. What time frame are you looking at it -- say, three to five years is that --?

This is Jim Burke. Really for all our investors we put out guidance when we were coming out of the Dana integration because our margins had hit a low point of 20%, and we wanted to identify and say what we thought was realistic. Like many other companies, we don't want to put out short-term goals. We have stated here a long-term goal, but we do not want to tie ourselves down specifically on that.

I was just wondering about semantics and what long-term is?

The Company's response, we don't put out forecasts.

Well, again, how would you define long-term? It is not actually a forecast, is it? It is a question of do you have an internal plan? Is it based on three or five-year program? What are we (multiple speakers).

With all due respect, Jim has said we don't give forecasts, and I want to hold to that. Yes, we have an internal target. Yes, we have internal goals. We are working very hard to achieve them. But, frankly, we don't want to announce those numbers. So I'm sorry.

Bill Dezellem with Tieton Capital.

We have a couple of questions. First of all, relative to the OES opportunity would you please bring us up to date as to the dynamics there? And the second question is relative to these discrete state tax issues that you had this quarter. Did we interpret it correctly that this is a onetime phenomenon and won't be repeating in future quarters?

Let me do the first part and Jim will do the second part. Regarding OES, yes, we see this as a potential avenue for growth. And I know I have been saying that for many quarters now. In the short term, I think our best potential will be those major companies which are starting to exit some product lines, i.e., Delphi.

We think we may have some potential there. However, A., I have nothing firm to report at this point, although discussions are going on. And B., they have not fully announced what product lines they are exiting. We think these will start to become known as the year progresses, and we look forward to some growth there, but I have nothing to report at this time.

Before we go to the next question, as a follow-up, would you qualitatively characterize the OES arena as making progress towards ultimately seeing some sales, or are you really in a -- I guess it would be a stalled out mode? It doesn't sound like you're going backwards.

I'm optimistic. Let's put it that way.

On the discrete tax side items, they are onetime in nature, however, they relate to state rate changes. So that they would not repeat themselves again unless we got further state tax rate changes. And then again, they would be onetime in nature. They are related to deferred tax assets. But I think no one can project that, so I think I would exclude them as onetime in forecasting an effective rate.

Jim, these changes result when various state jurisdictions raise taxes, would that be correct?

No, it is actually ironic. The charge to us is when they have actually lowered a tax rate. Because we had a benefit on the books to be able to take a deferred tax asset and utilize it. So it is actually a reduction in the state tax rate.

That makes perfect sense. Thank you both.

Alan Weber of Robotti Company.

Jim, can you talk about the balance sheet going forward over the next year or so? As you said it, your inventories are down from last June. Do you expect that to continue -- declining inventory?

Yes. Year-over-year we expect to make further improvements in inventories.

What about receivables and payables?

Payables, again, is more a function of our manufacturing. Any opportunities that we can take with vendors, we try to take them. We try to match those with our receivables. However, within the industry a significant amount of pressure is always on receivables because of the investment that our customers have to handle. I would not looking out see any opportunity in accounts receivable. Payables, I think will move with production and cost of sales. And I think we have opportunity to make improvements in inventories.

Then, Larry, you had made a comment on the air-conditioning side. I think you said 25% is new and 75% is remanufactured?

I think it was more 20/80, but that is a very rough number.

Fair enough. I was just wondering how has that changed over the last few years for Standard?

Not so much for Standard but for the industry there has been a slow and steady increase in new versus rebuilt in all product lines. But again, we feel that as long as we can sell a rebuilt part for 30% or 20 to 30% below a new that the rebuilt business will stay healthy. That is the bogey.

Okay.

We think we can do that profitably once we are it in Mexico.

Fair enough. Then on the Engine Management, can you talk about -- I don't know if there are goals in terms of sourcing the products differently to be cheaper, and how much competition there do you face from lower priced imports?

In Engine Management? I'm not fully -- understand your question. You asked two questions. Could you rephrase it please and I will try to answer.

In Engine Management -- well, first, how much competition from lower priced imports? And then your sourcing overseas, where does that stand, if there's some goals or like that?

Fair enough. There is actually less competition in engine than in Temp from Far East sourcing for the following reasons. Temp has -- essentially you were talking about a compressor -- it is a simpler product, less technical, and many fewer SKUs, and more volume per SKU. Everything is opposite of that in Engine. Highly technical, highly sophisticated, a plethora of SKUs, and not that much volume per SKUs, with the result that there is more competition in Temp than in Engine, if that answers that first question. Not that there is none, but there is less.

The second question, what is our goal? Our goal is to maximize the amount we get from low-cost areas. And certain products will make sense to do it and certain products won't. The ones that won't make sense are typically the ones which have a very low labor content and are highly automated. The others we're going to maximize the amount we get either through purchasing or manufacturing in low-cost areas. That is a very high priority for us. Does that answer your question?

It does. Thanks.

Mario Gabelli of Gabelli & Company.

You have covered a lot. I was going to ask you what customers you gained or lost, but we reviewed that with people in the trade, and I don't think you would want to share that with everyone else. Sorry about that.

Were there any specials in terms of dating programs in the movement of merchandise in the second quarter different than what you have done in the past? I just starting zeroing in on your accounts receivable.

No.

Going to the '08, '09 liquidity dynamics, in terms of pipes, when you guys get around to looking at your converts, we would really like to see a 3% up 50. If you're going to redo that, we would like to be offered an opportunity to exchange our existing converts for that, okay?

Okay.

We don't need to give investment bankers fees for doing nothing but selling it to ourselves and recycling it. Though I must admit last time they really did a good job in marketing it for you.

Jim, you don't want to share any capital balance sheet transactions for -- that you're thinking about at the moment?

No, I don't.

You're just totally flexible for the next twelve months, work down your debt and --?

Yes, that is our plan. We are generating cash. We will pay down our debt. And then we're looking at it. Again, it will depend upon there is a number of features that we will look at with the interest rates, the terms, a number of items -- the mix between variable and fixed and how we address it, and that will be reviewed with our full Board for probably mid '07 is safe to say. Then we will look at it.

You guys have always done everything very slowly. You might want to accelerate that process to get that overhang. It would certainly be of interest to all of us that follow your stock for more than six weeks.

(OPERATOR INSTRUCTIONS). Derrick Wenger of Jefferies & Co.

What is the availability on the revolver? I believe you said it, but I'm not sure I heard it correctly? And the total size is 305 million?

Yes. The 305 -- and the availability was 60 million. We're borrowing currently at 180 million.

Bill Dezellem with Tieton Capital.

Larry, it would you please review the timing of the Temperature Control production move to Mexico please?

Yes. We want to make sure we do it carefully, and we want to make sure that we don't have any quality issues. My guess is it is going to be at least a three-year project as we shift it over.

Have you begun to shift any product there? I guess the question is --?

Yes. We started. We started early this year.

Two additional years, with that be the proper way to think about the three-year project, or three additional years?

I don't want to pin it down that closely, because we want to make sure everything is good and then we go to the next step. So I don't want to give you a number that I may have to retract. We will do it as quickly as we can and making sure that the quality holds.

To make sure we understand how you're going about this, you said you wanted to do one step and then make sure that the quality is there and then move to the next step?

That's correct. We tend to do a product line at a time.

Okay, there was my question. It is are you doing -- you are doing it productline rather --?

Yes. There may be -- I'm not an expert -- 9 or 10 different guidelines. We do one, and if that works we will do the next one, and that works, we do the next one, and that works. Within that rule we will go as fast as we can.

Then, Larry, because I have never refurbished an air-conditioning unit before, this is a naive question. But why is it that after the plant in Mexico has figured out how to successfully, with the right quality, refurb the first unit or the first type of unit that the next, say, nine won't just be very, very easy to flop in because it is really the same processes?

It is the same process, but you need some trained people. There is a fair amount of employee skill involved in this. Because it of its rebuilding, you have to look, and there is some judgment involved. So the critical path is not knowing how to do it, we know how to do it. The critical path is having the skilled people to do it. And we want to make sure we have them.

From your standpoint it just simply takes time to train the folks -- enough people in Mexico to actually --?

That is exactly right. It is a training and learning curve.

Robert Smith of Center for Performance Investing.

Looking at China, long-term is it fair to say that there will be an aftermarket parts business in China?

You mean in China for Chinese cars?

Yes.

Yes, that is quite a while away, but yes. I think in the long run that will be there. It is not imminent. (multiple speakers) It's cars and cars and then it is many years beyond that before there's an aftermarket. So I think ultimately yes. They're predicting China to be that the third car market in the world, so ultimately they will have a parts business.

Alan Weber of Robotti & Co.

On the Engine Management business, I assume that most of the improvement is really internally driven. I'm just wondering though have there been any macro changes, good or bad, specific parts, or like that, or productlines or -- keeping the end customers that was kind of unusual in the quarter, the first six months? And do you see many changes looking out over the next year?

Nothing extraordinary happened in the first six months, just doing better. And I'm not -- that is our forecast for going forward. We have a very high marketshare. We're not looking to gain a lot of new customers. We're not anticipating losing any major customers. The parts themselves change very slowly. So the improvement are all internal, and we're working at them as hard as we can.

At this time it appears we have no further questions. I will now turn the program back over to Jim Burke.

With that, I want to thank everyone for joining our conference call. Thank you.

This concludes your teleconference. Thank you for your participation. You may now disconnect.