Standard Motor Products Inc (SMP) 2006 Q4 法說會逐字稿

Welcome to today's teleconference. [OPERATOR INSTRUCTIONS] I'll now turn the program over to Jim Burke. Go ahead, sir.

Okay, thank you. Good morning and welcome to Standard Motor Products' fourth 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 this 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 start off our call, I'll begin with the financial highlights and then turn it over to Larry.

Okay, to begin our consolidated net sales for the quarter were $169 million, down $3.1 million in the quarter. On a full-year basis, sales were $812 million, down $18.4 million or 2.2%, which was essentially all in the temperature control area.

We'll begin to review the segments individually. Engine management sales for the quarter were $126.6 million, down only $400,000 in the quarter. On a full-year basis, engine management sales were $543.2 million, down $3.8 million or 0.7%.

Temperature control -- sales in the quarter were $35 million, down $6.1 million in the quarter. Full year -- $211.1 million, down $18.1 million or 7.9%. The temp control sales reduction reflects the difficult comps from 2005, one of the hottest summers on record, and competition from low-cost foreign imports.

Lastly, Europe -- sales in the quarter were $10.9 million, a favorable $2 million and on a full-year basis, they were $47 million, again favorable $3.6 million or 7.7% up.

Looking at gross margins, the 2006 SMP story continues to be the engine management gross margin improvement plan. As you may recall, the first two quarters in 2006 improved nicely at 24.7% and 24.9%, respectively. However, we dipped in the third quarter to 22.9%, primarily due to customer returns. We are pleased to report that we closed the final quarter at 25.8%, up 7.1 points in the quarter against the fourth quarter of 2005.

The full-year margin in engine management was 24.6% and that reflects an improvement of 4.5 points. This is a significant improvement that we are proud of and adding $23.6 million to the gross margin line in the engine management segment. This improvement was a combination of reduced costs, primarily from outsourcing product to low-cost savings, make versus buy savings and improved pricing.

Our temperature control gross margin in the quarter was 24.6%, down 2 points. For the full year, the margin was 23.8%, down only 0.1 point. Our temp control business did an outstanding job holding the gross margin percent basically flat despite the $18 million sales decrease for the year.

Europe -- the margin was 24%, even, flat for the quarter. On a full-year basis, margin was 23.3% and that reflected a 1.1 point increase year-over-year.

Overall, we are very pleased with the gross margin percentage performance in all three of our segments.

Consolidated SG&A expenses for the quarter were $41.2 million, favorable $400,000 and as a percent of sales 24.4%. For the full year, SG&A expenses were $168.1 million, an increase of $1.5 million and, as a percent of sales, 20.7%.

Our consolidated restructuring expenses increased slightly, $300,000, in the quarter. However for the full year, they were $3.5 million lower. Larry will shortly discuss opportunities that we will increase spending to approximately $9 million in restructuring expenses with a very favorable return.

Our operating income line -- and I'm going to exclude the restructuring expenses for comparison purposes -- on a consolidated basis in the fourth quarter, operating income was $4.7 million. That was favorable $6.9 million in the quarter.

For the full year, the same number, operating income, was $37.2 million and that was favorable $17.7 million. I will note that the 2005 results included $3.4 million for accounts receivable draft fees. If we exclude the draft fees from the adjusted operating income, we would still be $14.4 million year-over-year improvement in operating income.

Looking at it by segment -- engine management fourth quarter, actual operating income $11.2 million. That's up $10.8 million within the quarter. For the full year, the operating income was $41.7 million, up $21 million. If we back out the draft fees in engine management, which were $2.6 million, we would be on an adjusted operating income basis, $18.4 million year-over-year improvement in engine management.

Temperature control -- for the fourth quarter operating income $0.5 million. It was down $3.2 million in the quarter. For the full year results, operating income of $12.3 million and down $2.9 million. The reduction in temp operating income reflects the sales decrease from 2005's hot summer season.

Lastly, Europe -- operating income in the quarter was $100,000, flat for the quarter, and on a year-over-year basis, $1.1 million in operating income and that was a year-over-year increase of $1 million.

Interest expense, as you can see, was flat in the quarter, but up $2.2 million for the year. I point this out because of the AR draft fees, which were up in SG&A expenses were reduced by $3.4 million. So on a net basis, we were favorable on interest expense and draft fees $1.2 million.

Other income for the quarter and full year included a $3.2 million charge related to the divestiture of a majority portion of our European temperature control business. This business in 2006 had sales of approximately $14 million, operating profit of about breakeven and we were able to realize cash proceeds from the sale of $3.1 million.

The culmination of this is our earnings from continuing operations and if we exclude the $3.2 million European temp write-down, our earnings were $12.4 million or $0.68 for the year.

Looking at the balance sheet, accounts receivable increased $7.4 million against December '05 as we were unwinding the AR draft program in the fourth quarter of '05, the reason for the increase.

Our inventory decreased $9.3 million in 2006. Our reduction plan was somewhat tempered by bridge inventory builds for planned facility moves. Inventory increased $5.9 million in the fourth quarter of '06.

The total debt was $238 million or down $10 million for the year. However, if we look at total debt, less cash, we were down $18.3 million for the year.

Cash flow items -- our CapEx spending in the quarter was $2.4 million, on a full-year basis, $10.1 million. Depreciation and amortization for the quarter was $3.5 million and full year was $15.5 million.

In summary, we're pleased with the operational improvements in all of our businesses and look forward to carrying that momentum into 2007. With that, I'll turn it over to Larry.

Good morning. Jim's gone over the numbers, which, as you see, are nicely improved. I just want to highlight 2 major events and then we'll open it for Q&A.

First, we have now announced two what I would call significant plant moves. One is closing the Puerto Rico facility. Once the 936 tax benefit was ended -- and it ended the end of 2005 -- Puerto Rico, frankly, became an expensive place to do business. Our plan now -- and we've announced it -- is to close this facility and over the next 12 to 18 months relocate the jobs to an existing plant in Independence, Kansas, and a new facility, which we are constructing in Reynoso, Mexico, which is just over the border from McAllen, Texas. This affects about 250 jobs.

Second, on the plant moves, we have now announced our intent to close our plastic operation in Long Island City. It's something that many of you have visited. Our plan would be to ship jobs, really, to the same two locations. The more automated work would go to Independence and the labor-intensive work would go to Reynoso. It affects something like 140 jobs.

Now keep in mind we still have to negotiate with the union and we are in the process of doing that. But assuming a satisfactory resolution, we expect this to be completed by the end of 2008.

The two moves together have a one-time cost of $9 million and annual savings, once we're fully set up and running of roughly the same $9 million. So it is a one-year payback.

I want to emphasize that these were very difficult decisions for us. These are two of our oldest and really best locations. We were in Puerto Rico for over 35 years. We've been in Long Island City since the beginning of time. Both were fine plants with excellent, motivated work force, but the economics of globalization and the loss of the tax benefit in Puerto Rico really left us no choice.

While we're on the subject of plant moves, we have begun shifting our compressor rebuilding work for Four Seasons from Grapevine, Texas, to Reynoso. Rebuilding, and some of you have may have visited that plant, is a very labor-intensive operation and we estimate savings of roughly $7 to $10 per unit making it in Mexico versus the U.S. This is necessary because we feel that to compete against the new compressors coming in from China, we need to sell a rebuilt unit for about 30% less than those new compressors from China and building them in Mexico should permit us to do this. And so now that process has begun.

Okay. That's the plant move section.

The next major news is, as you saw in the release, we saw-- we have now received our first firm new orders for OE and OES. It's a variety of product lines, but these are products that we already produce and it's through a variety of customers. The business annualizes to roughly $25 million. It is going to begin in the second half of this year. We can take more questions on that if you want to know more detail.

One final point and then we'll open for Q&A. We estimate at this point -- we're in March now -- that our engine management sales in the first quarter will be below 2006.

Two reasons for this -- one, the OES business -- I say we got some new ones. It's basically a contract business, a contract typically runs three years or so. One contract that we had in the past for fuel injectors expired and because the product changed that is not being renewed. So that's not going to be in our numbers this year.

And secondly, in the first quarter of 2006 we had some pretty heavy pipeline orders to some big accounts. We have much less of that this year. However, this big orders tended to balance out, because our customers who did order the pipeline tended to work their inventories down in the second half of the year. So we think that's going to balance out over the course of the year, but it's going to show behind in the first quarter.

All right. That's the end of our formal remarks. We feel good about the year 2006 and now we will open for your questions.

[OPERATOR INSTRUCTIONS] We'll take our first question from the site of Jonathan Steinmetz from Morgan Stanley. Go ahead.

Oh, hi. This is Ravi Shankar, in for Jonathan. Can you hear me?

Yes.

Hi. A couple of questions. Please give us your thoughts on the operating conditions for the temperature control business, because I think some other competitors have said that the demand conditions are getting a bit difficult.

Okay. I'll answer that one. Yes, the business-- well, as you know, the business is very weather dependent. And '05 we had a very hot summer and we had a lot of sales. '06 the weather was less hot and we had less sales. So that's a factor.

The other factor is the product coming in from China, which some of the industries face today. We believe that by producing the compressors, which is really the heart of our business, producing them in China-- I'm sorry, in Mexico, is going to give us a good competitive position.

So, yes, it's not an easy business, but we remain comfortable with it.

Okay. And you usually have a tax benefit in the fourth quarter, but can just give us a little more color on what drive-- what drove the tax number in this quarter?

Well, there was-- there was a number of significant items that we had within the-- within the fourth quarter, many of them netting out on a full-year basis. Overall, the effective rate was in the 40% range. There were a number of true-up items that we had. I think going forward you can expect to see, on a normalized basis, the effective rate be in the 40% range.

One significant item that impacted in the quarter would have been the $3.2 million write-off that we had from the Europe temperature control sale that we took no tax benefit on. So I think you can't look at just the quarter on that and I think going forward, if-- we would be projecting that our tax rate would be in that 40% range.

Okay, thanks very much.

You're welcome.

And we'll take our next call-- excuse me, our next question, from the site of Derrick Wenger from Jefferies & Company. Go ahead.

Thank you. Just your capital expenditure estimate for this coming year, calendar year '07.

Okay. Well, for the past three years, we've been-- I think the number's been down about $10 million and we're going to size that up this year as we're going into some of these OES projects that we're doing. So that number will probably be trending more towards the $15 million range.

Okay, thank you.

And we'll take our next question from the site of Bill Dezellem from Tieton Capital Management. Go ahead.

Thank you. We had a group of questions. First of all, the OE and the OES business wins, are those tied together, meaning the same, or are those, in fact, two different wins and, Larry, you mentioned in your opening remarks that in the Q&A you dig further. I'll just go ahead and let you take this opportunity to comment in as much detail as you would, please.

Okay. Well, we use the words OE and OES interchangeably. To remind everyone, OE is what is going on new car production and OES is what is going into the service end of the business. I would say the majority of this is OES and the majority of what we expect to get in the future will be OES. It's a business more to our way of doing business, which is lots of part numbers, short runs.

Okay, I'll-- again, a variety of lines, a variety of customers, but these include GM, Chrysler, Delphi. The products, as I said, are existing products that we already make, so that's a pretty straightforward move for us and that includes wire, ignition modules, plastic caps and rotors and some sensors.

So that's what it is right now and we're putting together an organization and we're hoping this is just step one of a bigger future.

And what insights can you share relative to that bigger future potential?

It's-- the selling business is you do your best and you keep fighting and banging on doors and that's what we're doing.

That's helpful. And then relative to the plant, I guess, cost savings opportunities, you have the Puerto Rico and Long Island molding facility announcements, are-- is there the opportunity or are there opportunities for potentially making additional changes that could also yield further savings for the business that you are evaluating?

Well--

Or that you would anticipate evaluating?

We're always evaluating and we're looking at that and we're looking at products that we make that maybe we can purchase in the Far East for less. So we're always looking, but I have nothing on the table right now.

Great. Thank you.

Our next question comes from the site of Walter Schenker from Titan Capital. Go ahead.

Good God. Hi, guys.

Good morning, Walter.

Good morning.

Two questions, I think. First one, on the OES business, in general terms, the products you were selling, like 10%, 20%, 15%, 40% of the SKUs? Just to get some idea of potentially how much bigger it could be or how small this is, relative to the full product line?

Just so I understand your question, you mean 10% of our existing SKUs? Is that what you're asking?

Yes.

Okay. It's a smaller number than that.

Okay, so this really is just a very small entree-- entry into that area, potentially? It may be all you get, but potentially it could be much bigger?

Yes, that's true. But not because of the SKUs, really, because so many of our SKUs are for very old and exotic applications that would never be in play here. But it's a relatively small range, because you're dealing with, really, one type of vehicle or one OEM company.

Okay, so this is just one OEM customer?

Yes, you'll get-- let's say, pick a product -- caps and rotors. We are supplying to a company, one of the OEs, caps and rotors. So that's-- they will take a relatively small part of our total cap and rotor line.

Now if we're fortunate to get other manufacturers, that will, then, have more of those products, if that's the question that you're asking.

Sort of. We're getting there.

Just continuing on this, in respect to the OES business, their business, in general, is more oriented to the newer models. Obviously, they may do some older stuff, as opposed to yours, which is to older models. The products you're getting tend to be, therefore, not for the newer models?

No, we are getting-- heretofore we were selling the older models to them and some of the old makes to them. That's not a very good business, because, as you point out, they don't do much of that. So this is skewed towards the later stuff, because that's what they do business in.

And this will drive you to internally manufacture more of the newer model stuff?

Well, it will increase your production of those, yes, and that has a nice bearing on the rest of your factory, because you're adding lots of hours to the factory.

Okay.

Which will bring the total cost down of the rest of the products you make.

Good. Okay and second question, unrelated. You pointed out the advances we've made in recovering gross margin. We're still not where we would like to be on a long-term basis. I assume we all agree on that.

To further make advances in gross margin, could you give us some sense as to how much of that has to come from internal sourcing and efficiencies and how much of it, potentially, has to come from improved pricing?

Well, and someone asked that about our past success, and it's very-- it's hard to measure, but I would attribute our past success to roughly 50/50 between lowering cost and raising prices. So, again, very hard to forecast, but I would imagine that same ratio would hold in the future, 50/50, roughly.

Okay. And you still are-- have a longer term goal of getting the gross margin to the high 20% range?

Yes. We previously had that before we did the Dana acquisition and that would be where we're targeting to bring this business.

Okay, thanks a lot.

Thank you, Walter.

Thank you, Walter.

Our next question comes from the site of Alan Weber from Robotti & Company. Go ahead.

Good morning.

Hey, Alan.

I missed part. The gross margins in the quarter in engine management, what were they?

We've got that-- Hold on one sec. 25.8, I think. Engine management for the fourth quarter was 25.8 and for the year it was 24.6.

And that's what you're talking about the goal is kind of getting into the high 20s?

Yes. And, again, I will-- I will coach everyone that on a quarterly basis and you're impacted by customer returns, we saw that one dip in the third quarter down to 22.9% after being 24.7%, 24.9% the first couple of quarters. We're really coming in at targeting right now at a base to start with at roughly 25%. We're 24.6% for the year.

Okay and-- okay, fair enough. And then, Larry, when you-- you know you've talked for a while about doing business to OES and like that. Can you talk about why-- what kind of changed in the last quarter that kind of now has gotten this kind of rolling in the right direction?

Well, it just happened in the last quarter. Selling is a long process and it's been frustrating dealing with big companies, but we've been working on this for a very long time and it just happened to come together that quarter. I'd say it's almost coincidental, as much as anything else.

But the-- the long term potential here is helped a lot, by, as you well know, Delphi, Visteon are in the process of closing down factories and they need another source. So that puts us in excellent competitive position to try to pick up some of that business.

So that's-- that's what's changed over the last year or so and that's continue-- that trend should continue. So it's a good opportunity.

Is there a way to even -- and I'm sure you'd hesitate doing this -- even potentially determine what the market-- how you view what that market potential really would be?

Well, if you want to make a very rough and crude guess, it's very rough and very crude, we anticipate-- we estimate that the total OES business, across the board, is roughly 20% to 30% of the total business.

So you can make some assumptions with that. It's a-- if you were to get it all. We'll never get it all. It's a pretty good number.

Okay. And then how does pricing work in that business?

Well, you're-- it is obviously price competitive. And as a result, your gross margins are lower than in your regular business. However, your expenses are much lower, because you don't have all the marketing expenses that we have, which are pretty substantial.

And then you have the strong benefit, as I said before, of all the hours -- lots of hours, which will-- it doesn't show up in the margin of that particular product, but it will tend to lower your overall cost of the rest of your line, so it's nice business.

Okay. Fair enough. And I guess, Jim, one last thing. Kind of to the balance of the year, any thoughts on cash flow? You said capital spending would be a little higher in terms of receivable and inventories. Can you still reduce inventories?

Yes, we would still look for inventory reductions, but I would caution that with the plant moves that we have, we would have inventory builds to be able to protect ourselves while we're not manufacturing and basically your equipment's on the water and any potential inefficiencies during this period.

So cash-- cash flow we would not get as great an inventory reduction in '07. I think we would be looking for more significant numbers as we move out and they're completed at the end of '08 and into '09. We will also have the cash flow impact on the one-time costs that'll be spread out there over the '07-'08 periods, also.

Okay. And then, I guess, in Long Island City, I was just wondering, are you going to move the corporate headquarters also?

We have no intent of doing so.

Okay. All right. Thank you very much.

Okay. You're welcome.

Our next question comes from the site of Chris Hussey from Goldman Sachs. Go ahead.

Hi, guys. It's actually [Neil Monti] for Chris Hussey, but our questions have already been answered. Thanks.

Okay. Thank you.

Our next question, then, will come from the site of Robert Smith from the Center for Performance Investing. Go ahead.

Hello, Bob.

Good morning. Hi. So I don't want to belabor the point but in the OES side, do you guys actually have proposals out there or how is the approach made? I mean--

Oh, that's a good question. We have a staff of about -- we've increased it -- it's about 3 or 4 people full-time in the selling operation and a bunch of back-office people, and, yes, that's what we're doing. We're out there. You make bids. You quote, they-- you send samples, they send engineers to evaluate, they walk through your plant, they negotiate. It's a long, long, long process.

So I know it took quite some time to bring these initial business opportunities home. What kind of proposal activity do you out in dollars?

I can't answer that, but we're knocking on doors all the time, Robert.

Okay. The-- the comment about your optimism for the rest of the year and the shortfall in the first quarter, so when do you think you'd turn positive for the year?

You're talking about sales, right?

Pardon?

You're talking about sales, because I was referring to first quarter sales in engine management. That's what I was talking about. That's where I anticipate being behind and I said that should be self-correcting except for the loss of that one account. The rest of it should be self-correcting. Beyond that, we're-- we don't like to give forecasts.

Okay, so you didn't make any comment about the bottom line?

No, not at all.

Okay. And I notice on the balance sheet that the reserve for asbestos went down but post-retirement went up. Are those trends? Could you just comment on are those trends or--?

Right. Well, the reserve for asbestos went down because actually it's-- we have good news in that area and we recorded it at the end of the third quarter, which reflected our actuarial valuation, reduced it by approximately $3.3 million on a pretax basis.

So that was the significant reduction there. On the other item for the line that we have post-retirement in that, that's, again, accounting treatment is recognizing the full liabilities in those areas there that we had to set up from new accounting pronouncements. So that caused, basically, the increase there.

Overall, we continue to make modifications to our medical plan for savings and those will be reflected in our numbers. There were in '06 and we continue to make those, year-over-year. So that was really the increase of post retirement and that line there was really accounting treatment.

Okay. And how much of the future of the company is kind of centered on the restructuring of the rest of the industry?

I don't understand that question.

Well, I mean, what's happening away from you with Delphi and Visteon and the opportunities there. How much of the-- the growth opportunities are really developing from that kind of an environment?

Well, what you see is that the-- everyone's forecast for the industry as a whole is pretty flat. So, therefore, our growth is going to have to come from things like that, either because we have competitors who fall by the wayside or we get business from competitors. So that's where our growth's going to come from, because the industry itself is flat.

And finally, the reduced number of shares, are you buying back stock or--?

No.

No, we're not. I don't know where that number is. Is there a reduced number on there?

Oh, that would be-- well, there's equity programs so that the shares on the current quarter would be higher because they were issued mid-'06 versus the average for the full year '06. That's why, if you're looking at the-- If you're looking at '05, going back in memory, we acquired the Dana shares. We retired-- back in December of '05, we purchased back, I want to say 1.1 million or 1.3 million of shares from Dana.

Okay, I'm saying 18.3 million for December '06 and 19.5 million for--

That was the Dana--

That was the Dana shares that we acquired in the fourth quarter of '05.

Okay, got you. Okay. Thanks so much.

You're welcome.

Good luck.

Thank you.

We'll take our next question from the site of Bill Dezellem from Tieton Capital Management. Go ahead.

Thank you. A couple of followup questions relative to price increases. Would you please provide us an update as to what you're doing there?

Well, it's hard to forecast for the year, but our-- because we have so many lines and so many customers, but we've been providing forecasts of the 2% to 3% range and I think that's a reasonable forecast for the coming year.

And when-- when will the price book be increasing?

It's not one book. It's a bunch of pricing and a bunch of customers. So it's scattered throughout the year.

Thank you. And then, relative to the OES business that did not renew after-- after the 3 years, would you please provide us just the dynamics that took place there?

I'm sorry, I got-- Could you please repeat that, please?

Oh, sure. No problem. The OES business that you lost in the-- or the contract that did not renew, would you provide us the dynamics behind-- behind that phenomenon?

Yes. Okay, sure. It was a fuel injector that we sold to another company and they incorporated it into a larger product, which they then sold to a third party. The product changed, that's all, and so they didn't need our fuel injector any more. It was a 3 year deal and it ended.

Thank you.

And just for your information, it was about, close to $1 million a month, so you can put that into your estimates.

Great. That is helpful. And was that to one of the same OES customers that you are--?

No, it's a different customer.

Okay, great. That is helpful. Thank you.

[OPERATOR INSTRUCTIONS] We'll take our next question from the site of Desiree Thomas from Chase. Go ahead.

Hi. Larry, I have a couple of quick questions for you.

Sure.

As far as the Long Island City facility is concerned, what products are manufactured out of that facility, aside from plastics?

That's the end of our manufacturing here.

Okay. So you're only going to keep that building as your headquarters, going forward?

That's the plan.

Okay. And do you plan on doing anything with the excess space, now, that's going to be available?

Yes, obviously. We believe-- we use about a third of the building now and a bunch of it is rented. Again, this is not an overnight event, but we are, obviously, thinking about what we're going to do now. But the intent is to stay here.

Okay. And what about the facility that you're now going into in Reynoso, Mexico? Will you only be manufacturing compressors?

No, no, no. It's going to be a big place there. It's not one place. It happens to be in the same town, but there'll be different factories. But we'll really be doing three different operations there. We've been doing wire sets there for, probably, 5 years and about 200 jobs and we were very satisfied with the results.

So that's what's given us the incentive to do more. So we are now adding this engine management product, which is going to soon begin, and we also talked about compressors.

Okay. And that facility is going to be unionized?

Yes, every-- every-- I'm not an expert here, but you have unions in Mexico. It's-- every manufacturing operation has a union, but it's not the same dynamics as dealing with a union in this country.

Just for clarification, Desiree, for comfort, in Reynoso, Mexico, we'll be in 3 different facilities, so we're not concentrated in a single facility, and we're also using a shelter arrangement where someone is providing the labor for us as we go in there and minimize any risks that we have.

So we're in 3 different locations, different employee base in different-- in different areas there.

Jim, when you say someone will be providing the labor, you mean like a third party that will be staffing the people?

Exactly. They provide the service almost as if you were looking at what would be a turnkey operation.

Okay.

So that-- they're able-- one of the big things in the area there is securing the people and doing the training and working through that. They have the expertise. They'll be able to provide that and that minimizes our risk and exposure as we bring product in there, train and bring up manufacturing.

Another thing that minimizes the risk, we're very pleased that almost our entire management staff from Puerto Rico has agreed to relocate, most of them to Reynoso -- actually, they'll live on the McAllen side of the border -- and to Independence. So this will really minimize our risk of moving jobs.

As far as the-- you're closing the Puerto Rican facility. Do you have any severance or anything?

Oh, yes. That's-- when you see the $9 million of one-time costs, the vast majority of that is dealing with people.

Okay, thank you.

You're welcome.

[OPERATOR INSTRUCTIONS] We'll take our next question from the site of Alan Weber from Robotti & Company. Go ahead.

Hi, just a followup. Larry, when you talked about the fuel injector, can you kind of, taking a step back on the engine management side, how do you see kind of the products you have today and how, potentially, do you see a lot more things like the fuel injector that, for whatever reason, the product's not made or it really is declining compared to where you are with products for cars that are 2-3 years old that you should be able to grow those product lines?

Okay. Well, again, this is a one-off. The OE business-- the OES business is-- that was one part number, okay, which had a specific request. It was actually a number that we don't normally make at all, but it was used in this particular engine, which was shipped overseas somewhere.

And, again, the OES business is not lifetime business. You get it, in fact, you could call that one was probably more of an OE business, because that was probably going on a vehicle.

So the OE business tends to be contract-related. It goes on a vehicle. That vehicle is produced for a certain number of years. That vehicle isn't produced any more and your OE business goes away, so-- on that particular item.

So your OE business is blocks of things. OE service is just like what we do all the time, it's just going to a different customer. And if you're asking for the future of that, we have-- our forecast, which we've had for the last several years, and it seems still valid, there's a constant change of product. Of course, it moves very slowly, because the car population changes very slowly.

But our forecast has been, in general -- we'll get some new products, we'll lose some other ones, but the bottom line will be a slight decline in units, matched by a slight increase in pricing, so our sales forecast going forward, not counting gaining or losing accounts, is roughly flat. And that's been the experience for the last few years.

Oh, okay, and so the actual-- so within engine management, when you talked about the revenues being down in this quarter, when you talked about one product, it was all related to that-- what really was-- the reason it was a one-off, it really was an OE kind of related product.

Right. It was an OE product and the contract ended. But when you lose it, you lose it.

Right. I understand.

It's not a symptom of anything larger than that.

Okay, I just wasn't sure-- Okay, fair enough. Thanks a lot.

Okay. You're welcome.

At this time, there are no further questions in the queue.

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