Stoneridge Inc (SRI) 2005 Q2 法說會逐字稿

Welcome to the Stoneridge second-quarter 2005 conference call. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session at the end of today's conference. (OPERATOR INSTRUCTIONS). I would now like to turn the presentation over to Mr. Greg Fritz, the Company's Director of Corporate Finance and Investor Relations.

Thank you, Colby, and good morning, everyone. By now you should have received our second-quarter earnings release. The release has been filed with the SEC and has been posted on our website at www.Stoneridge.com. Joining me on today's call are Gerry Pisani, our President and Chief Executive Officer, and Joe Mallak, our Chief Financial Officer.

Before we begin I need to inform you that certain statements today may be forward-looking statements. Forward-looking statements include statements that are not historical in nature and include information concerning our future results or plans. Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties and that actual results may differ materially from the forward-looking statements.

Additional information about such factors and uncertainties that could cause actual results to differ may be found in our 10-K filed with the Securities and Exchange Commission under the heading "forward-looking statements".

During today's call we will also be referring to certain non-GAAP financial measures. Please see the Investor Relations section of our website for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. Gerry will provide an overview of the business and Joe will discuss the financial details of the quarter as well as our guidance for the rest of the year. With that I will turn the call over to Gerry.

Thank you, Greg. Good morning, everyone, and welcome to our second-quarter earnings call. To begin today's call I'm going to make a few brief comments about the state of our business. Our net sales increased 2.2 million or 1% to 180.3 million compared with 178.1 million for the second quarter of 2004. The increase in sales was primarily because of the continued strength of the commercial vehicle market which more than offset the production decline at Ford and General Motors. Our diluted earnings per share for the second quarter came in at $0.12 which was in line with our previously announced guidance.

As all of you know, our industry continues to be faced with some very tough issues including lower North American traditional domestic light vehicle volumes, rising material costs, customer bankruptcies and continued pricing pressures based on global benchmarking. We are aggressively addressing these issues to minimize the impact they have on our business.

Material prices, particularly copper and plastic resins, have continued to increase. But we feel that copper prices have peaked and will begin decreasing over the next 18 months. The impact of material inflation this year will be approximately $4 million. However, we have found offsetting savings in electronic components and materials sourced in China and India to reduce the effects of these increases on our margins. At this point material inflation is manageable for Stoneridge and we will achieve margin recovery through engineering changes and product redesign.

Hyper competition within our industry has put many automotive suppliers at risk and some have sought protection through Chapter 11 bankruptcy. Included in our second-quarter results are approximately $900,000 in reserves related to customer bankruptcies. We have tightened our tolerance of delinquent accounts and are monitoring the fiscal health of a short list of customers to minimize the risk going forward.

Pricing power remains nonexistent for automotive suppliers and we are now seeing more price reduction pressure in the commercial vehicle segment as some content is sourced globally. Because of this we continue to expedite the transition of our mature products to low-cost manufacturing areas of Europe and North America. This month we notified employees of our plans to transition additional production from the U.S. to Mexico by closing one of our two remaining wire harness plants in the U.S. The effective product will transition to Mexico over the next nine months.

I want to emphasize that while we incurred 1.7 million in restructuring costs during the second-quarter and have experienced short-term inefficiencies related to these consolidations, we feel strongly that these actions are necessary to ensure our competitiveness in the future. We are confident that we will begin seeing the benefits of these actions in 2006 with an estimated annual savings of approximately $5 million.

When our restructuring effort is complete, primarily highly automated or low labor content products will be produced in the U.S. or Western Europe and approximately 45% of our revenue will originate in low-wage countries.

Despite these short-term issues we remain focused on our long term goals which include increasing Stoneridge content per vehicle, global expansion and diversification of our customer base. In the last few years we have made substantial investments in product development. During the second quarter of 2005 we spent $10 million on design proposals, product development and prototypes, an increase of 2 million year-over-year. With some major development programs behind us, this expense will be lower in the second half of the year.

Our product development programs are primarily customer driven and we are seeing an increasing volume of quotation activity driven by occupant safety, emission control and ride stability control applications where we have innovative, cost effective sensor solutions. Our gross bookings for the first half totaled 105 million of which 51 million represented new applications.

Of course, these are gross bookings and experience tells us that this projection will be netted by product obsolescence over the next several years. It is important to note, however, that this is $69 million in increased bookings over the same period last year. 33 million of our new business came from new products like diesel exhaust high temperature sensors and our new digital tachograph for EU commercial vehicles.

The second quarter of 2005 represented the highest booking quarter in recent years. Our design and development and sales and marketing investments are crucial to achieve our 8% compound annual growth target over the next five years. And our efforts are being rewarded. New customers include GM Shanghai, Daewoo, Mazda of Japan and General Seating, a system supplier to Subaru. We are also very pleased to report that our newly formed joint venture with the Minda Group of New Delhi, India is exceeding our expectations. It has grown revenue 80% in its first year and is approaching $10 million in sales for 2005.

We have one business to be launched later this year with Ashok Lelin (ph), Mahindra and Mahindra, Tata and Bajaj. Additionally we have won a small volume car platform for Daewoo which we anticipate leveraging into other small car platforms in Asia. The key factor in securing these contracts is the rapid migration to electronic instrumentation from mechanical gauge systems.

While this venture is relatively small it has positioned us strategically to serve the global customer. We have agreed to bring some of our commercial vehicle switches into this venture and become the exclusive agent for these and other Minda products in North America. This helps eliminate a threat by some of our customers to source these products directly in India and China. For example, Mahindra and Mahindra have entered into an agreement with International Truck to manufacture and sell their designs in India and for export. The venture, Mahindra International, is 49% owned by Navistar International.

Without our relationship with Minda this could eventually be a threat to us since these companies will share engineering and sourcing resources in India. Instead we have the opportunity to bring Mahindra International's business into our joint venture and participate in programs that migrate to North America.

Our joint venture in Brazil, PST had its best sales quarter ever due to new product launches and market share gains in the previously unserved original equipment service market. It is approaching $70 million in annual sales and is now the third-largest aftermarket alarm company in the world primarily serving Latin America.

In closing I would like to emphasize again that I believe Stoneridge has some unique strengths that will enable us to cope with today's challenges. As a technology provider we enjoy strategic advantages that make our business model more sustainable. First-to-market pricing, differentiated solutions, shorter product life cycles or planned obsolescence of our own products, frequent engineering changes driven by the customer which allows for margin recapture and proprietary know how. We are a company driven by innovation that invests in the future.

We are confident in our plan to transform Stoneridge into a leaner and more competitive company and we are convinced that once our restructuring effort is behind us we will deliver improved shareholder value. During this time of restructuring we have not lost sight of our long-term strategic goals and there are clear signs that our strategies are working. I will now turn the call over to Joe so that he can provide his perspective on the Company's second-quarter results. Joe?

Thank you, Gerry. Good morning. Our revenue for the second quarter of 2005 totaled 180.3 million compared to revenue of 178.1 million for the corresponding period in 2004. During the second quarter of 2005 North American medium and heavy-duty truck production increased 23% year-to-year and was the main factor behind the sales increase. Our sales were also impacted by favorable foreign exchange rates which added approximately $1.4 million to our top line. These positive factors were offset by a 7% decline in traditional domestic North American light vehicle production.

North American revenue of 142.8 million decreased 0.5% from 2004 while non North American revenue increased 8.6% to $37.5 million. In North America the decrease was primarily due to North American traditional domestic light vehicle market and price reductions by our customers. The increase in European sales was primarily due to increased commercial vehicle volume as well as favorable currency exchange rates. North American revenue accounted for 79.2% of the second-quarter revenue compared to 80.6 for the same period in '04.

Power distribution revenue increased 7.3% to $99.7 million. Increased commercial vehicle production and, to a much less extent, favorable currency exchange rates were the primary drivers behind the sales growth. Revenue for Control Device segment decreased 5.3% in 2005 to $80.6 million primarily to the decrease in light vehicle production and price reductions. Total passenger car and light truck revenues were 74.1 million in the second quarter of '05 while medium and heavy-duty truck sector revenues were 79.5 million. Sales to agricultural customers totaled 18.5 million and other revenues were 8.2 million.

Gross profit totaled 41.8 million for the second quarter compared to 45.6 million for the same period in '04. The corresponding margin rate was 23%, down 3% from '04. The decrease in gross profit margin is mainly due to price reductions, operational inefficiencies related to our restructuring efforts, material inflation, reduced North American traditional domestic light vehicle volume partially offset by a combination of higher commercial production volume and the Company's continued focus on lean manufacturing. Sales from low-cost manufacturing locations accounted for approximately 35% of total sales.

Selling, general and administrative expenses were $31.1 million for the second quarter of 2005 compared to $25.8 million for the corresponding period of 2004. The increase in SG&A expenses primarily reflect the increased investment in the Company's product development activities and increased sales and marketing efforts which accounted for approximately 60% of this increase. As Gerry mentioned, we recorded a reserve for approximately $900,000 this quarter as a result of customer bankruptcies.

As previously announced in January, the Company is undertaking a restructuring initiative related to a rationalization of certain manufacturing facilities. In connection with this plan the Company recognized restructuring charges of $1.7 million for the second quarter of 2005 and expects the total cost of this restructuring effort to be approximately $5 to $6 million in 2005. The Company has recorded $3.8 million in restructuring so far this year. We expect to begin seeing the benefit of these actions in 2006 with an estimated annual savings of approximately $5 million. Additionally, we will recognize a year-over-year benefit in 2006 from the correction of inefficiencies that were the result of the consolidation in the UK.

Interest expense for the quarter of $6 million was $200,000 below the 2004 level. The Company recognized a tax provision of $1.8 million or 39.2% of the pretax income in the second quarter of 2005 compared to $4.2 million or 31% of pre-tax income for the second quarter of 2004. The increase in the effective tax rate was primarily due to the impact of foreign losses for which tax benefits could not be provided. We anticipate a full year tax rate of approximately 43%.

The Company recognized net income for the second quarter of 2005 of $2.8 million or $0.12 per diluted share compared with net income of $9.3 million or $0.41 per diluted share for the same period in 2004. Depreciation expense for the second quarter of 2005 was $6.5 million. Earnings before interest, other income, taxes, depreciation and amortization was $15.6 million for the second quarter of 2005 compared to 25.8 million for the comparable period in 2004.

Working capital, excluding cash and current portion of long-term debt was 84.2 million at the end of the second-quarter of 2005 which was $13.6 million above the second-quarter of 2004 balance of $70.6 million. The higher level of working capital is predominantly due to an increased accounts receivable balance, decreased accounts payables and accrued expense balances as well as an increased inventory to satisfy customer requirements as the Company is in the process of consolidating manufacturing facilities in both the U.S. and the UK. We expect inventory to decline during the second half of the year as we begin to liquidate safety stocks.

Operating cash flow net of fixed asset additions was a source of cash of $2 million for the second quarter of 2005 compared to $5.8 million for the corresponding period in 2004. The decrease in our cash provided by operational activities this quarter was primarily due to our decrease in net income and an increase in cash used for working capital requirements. Capital investments totaled $8.3 million in the second quarter of 2005 reflecting investments in new programs in the areas of switch and sensor products.

Total debt as of the end of the second quarter of 2005 was $200.1 million; total debt less cash as of July 2nd was 155.5 million, down 8% from the prior year level. The revolver of $100 million remains undrawn at this time and our cash balance as of July 2nd increased to $44.6 million from 42.3 million as of the end of the first quarter.

As Gerry mentioned, we face many challenges for the remainder of 2005. We anticipate our third-quarter results to be in the range of a negative $0.05 to a positive $0.05 per diluted share. At this time we are staying with our full-year guidance of $0.40 to $0.50 per diluted share. With that I would like to open up the call for questions. Operator?

(OPERATOR INSTRUCTIONS). Monica Keaney, Morgan Stanley.

I was wondering if you could talk a little bit -- you quoted this 8% growth number in terms of the top line and you had to have that Italian switch maker that you had targeted for an acquisition. Can you talk a little bit and give us a little bit of an update on the acquisition strategy going forward and are you continuing to actively look? And is that the size of an acquisition that we should be thinking about going forward?

Monica, as we've said on previous calls, we believe we can achieve the 8% compounded growth rate through a combination of acquisitive growth and organic growth. Our organic growth we are targeting on is 4% to 5%. And we think that our results so far this year are good and are tracking.

As far as acquisitions, I think that the Vimercati acquisition was a digestible size to Stoneridge. I think we could even target acquisitions larger than $40 million in revenue. We're a very patient company when it comes to acquisitions. As we've said before, we want value, we want acquisitions, acquisitions that will be rapidly accretive. We are continuing to look and examine opportunities -- nothing that we want to discuss at this time -- but we feel that those will be focused on the European market. Again, a play to diversify our revenues both regionally and through new customers.

We think that in the Far East we have a partner in India who is very proactive and we're very satisfied with our relationship and the growth potential there. And we're looking at further avenues of growth in China that would not require acquisition.

And should we also expect that the acquisitions would be leverage neutral?

I'm sorry, what was that?

Would be a credit neutral, like they wouldn't be leveraging?

It all depends on the acquisition. Currently with our stock price where it is the use of our stock would probably not be the -- we feel we're under valued for where we should be. So depending on the size of the acquisition, depending on whether we would just use our cash balances or whether we would tap into additional debt be it our line of credit or other vehicles in the debt market. But we would look at all options. But right now we are very, as you've seen in the past, conservative on where we're going with our debt and we're going to make decisions based on what's long-term instead of just a quick fix or anything to do in the debt markets.

And can you just talk a little bit more about -- you sort of mentioned pricing pressure particularly even on the commercial vehicle side because you're saying the product is being sourced globally. Can you give us a little bit more color on that? Is this something that's more recent than a year ago? And do you see that as an ongoing trend? Is this something that we should be considering going forward?

Yes, I think that obviously the commercial vehicle sector has observed the strategies being used in the automotive sector. In fact, they've hired many purchasing executives from the automotive sector and they're becoming more sophisticated in global sourcing. With product that is easily transportable, easily shipped they will use a global benchmark in setting the price expectancy.

And so as we look at some of our more mature products, particularly the switching commodities, we see the need to produce these in the low-cost regions and that's why we expanded our joint venture in India to include some of those products. I think we have products that don't migrate very easily that we will keep either in our Mexican operations or even domestically in the U.S. But it's a much more sophisticated market, they have high volumes. They will be looking at global platforms more and more because that is a global industry now with cross ownership and they will be combining their volumes to achieve higher degrees of efficiency.

And I think Stoneridge is uniquely positioned to serve the expectations of that marketplace because of our presence in East Europe in Estonia, in Mexico, our joint venture in India and our business development activity in China. So I think that we will be able to meet the challenge and continue to grow our market share in that segment. I failed to mention Brazil; we also have in the joint venture in Brazil the assembly of commercial vehicle electronics.

Just the last follow-up on that and then I'll get off. When we talk about the OE light vehicles side and the OEM side, we also talk about pricing down each year call it 1.5% or something along those lines. Do you have a sense of the range of the pricing pressure on the heavy-duty side, is it that magnitude? Is it lower?

I think right now it's just become a new kind of event that we're starting to see, Monica. And it's a little bit all over the range. Until we get more of a history it's going to be tough for us to give you any kind of a number.

The other thing I'd mention here is that in the commercial vehicle sector our product content is much more complex approaching a systems level product where we integrate wiring and electronics and total instrument displays. And so very often we can meet the expectation of price downs through design revisions. What you find in electronics is that the newer components coming out are much more cost-effective, much more powerful than what we've used in older designs. And so it's a realistic expectation on the part of the customer to see price downs are in the contract as opposed to the more simple automotive products where you are subject to more risk with the commodity prices.

Okay, thank you.

David Bitterman, Deutsche Bank.

A couple things. One is I was trying to reconcile -- candidly I had a higher top line number for you guys thinking that truck production was going to outpace light vehicle declines. And given the mix of your business I'm still coming up a little bit confused relative to the sales performance given production schedules light versus medium/heavy. If you could help me with that. That's question one. Question two is in the restructuring you mentioned you had a $900,000 reserve for customer bankruptcies. I'm assuming that's not in the restructuring.

I'll start with the restructuring. The 900,000 is not part of the restructuring; that is a separate number that we put aside for customer bankruptcies.

I think that in the commercial area we're more weighted toward the medium duty sector and you're probably seeing the higher peak production rates in the heavy-duty. That's one factor. I know a major contract in Europe with MAN is launching very slowly. We have the new content and that product has not taken off as rapidly as we were led to believe so we haven't seen the full effect of the MAN launch. There's some changing mix at Freightliner. I think there's a number of factors here, but we are heavily skewed towards the medium duty truck.

I understand. Thank you, Gerry. The other quick question I had was you talked about the impact of the consolidation in the UK, what was the impact of that on EBITDA in the second quarter?

That is a number that's buried within one of our segments and we're not putting that number out at this time. We can just say it has been significant and it has resulted in a three-year cumulative loss which results in us not being able to take the provision for tax. And we anticipate the consolidation to be complete here -- it's basically completed now. And as they ramp the production up coming here through the end of the year and into next year we anticipate that turning around completely where we're going to be able to take benefits from the provisions we weren't able to take in the past.

Let me ask the question a little differently. If I basically take the EBITDA number that you reported of 15.6, I've got a restructuring add back of 1.7 plus the reserve for bankruptcies, it gets me to a little north of 18 million. Even if you're not going to give out the numbers, is there any other numbers in there that I should be thinking about other than obviously this consolidation number for the UK?

Well, the consolidation number for the UK, there is additional -- we did have significant inefficiencies during the second quarter which will not happen again in next year which would be a benefit if we were giving out a number. But there's really nothing else around the whole corporation that I can see at this time that is onetime items that would be coming back, added back in the second quarter.

Okay. Very good, thank you.

David Leiker, Robert W. Baird.

Could you go back on the revenue number where you broke it down by segment and give us the year-over-year comparisons?

Hold on just a second. Total passenger car and light truck revenues were 74.1 million for the second quarter, medium and heavy-duty truck were 79.5, sales to the agricultural customers totaled 18.5 and other revenue was 8.2.

And was that for this year's quarter?

That's this year's quarter, correct.

Do you happen to have last year's then?

We've got to -- hold on --. Passenger car and light truck were 78.4 in 04 second-quarter, medium heavy-duty was 77.1, ag was 17.3 and other was 5.3.

Okay. Then on that truck number, I'm a little surprised, I think you said that medium heavy truck build was up 22% that that number is not higher than that. I'm kind of going back on a question but --.

We said medium heavy-duty production was up 23%.

Okay, and your revenues are only up a couple of percent?

Correct.

Is that, I mean Navistar's numbers were pretty good and most of that business is Navistar isn't it?

There is a bit of a mix change in there. Gerry, do you want to add some color?

Yes. There are facelifts going on and new product launches and so we are affected by that as well. Content at Freightliner has shifted and a lot of that revenue comes from Europe.

Also we anticipated some of the European through the tachograph which of course has been delayed into the '06 time period which we anticipated being part of our commercial vehicle side of the business, too.

And then these restructuring costs of 5 to 6 million for the full year, that number has been consistent all year, is that correct or is it (multiple speakers)?

No, actually we were slightly higher than that, but we were able to complete our restructuring for about $1 million less than what we anticipated. We were at 6 to 7 in our last guidance and we've come down to 5 to 6 because of some things that we did not have to spend money on that were a benefit to the Company.

Will that balance flow through in the third quarter or third and fourth quarter?

It should flow through in both quarters combined.

David, in taking a quick look at the numbers, that increase in heavy-duty, medium-duty production was a North American number and a significant amount of our commercial revenue comes from the European market which is flat year-over-year.

Okay. Do you have a depreciation number for the quarter?

It was 6.5 million, David.

Okay. And where do you think full year capital spending comes in?

$25 to $30 million range. It all depends on the timing of our new projects and new products coming to launch and whether we get the spending into this year or it flows into next year.

Okay. I think you said the tax rate -- 43% for the whole year?

43%, and that is driven out of our UK consolidation situation where we're in the three-year loss and we cannot take benefit for that loss.

Okay. And then can you give us an update on exactly where those operations are in the consolidation and manufacturing issues that you're running into?

Which operations are causing the inefficiencies?

In the UK.

Where are they specifically you mean geographically?

Well, where you stand in terms of correcting them.

I'm sorry, I misunderstood you. We're starting to -- as I mentioned in the first-quarter call, we anticipated a greater number of employees relocating to the new site which is not significantly -- apart from the old site. And we found that this wasn't the case, that there was a great resistance to any kind of commuting. So we've had a substantial turnover in the work force; nearly 70% of the workforce has turned over and because of that there are training inefficiencies, productivity inefficiencies as well as statutory severance benefits that we have to provide to the employees who declined the transfer.

Most of that is behind us, we're starting to see an increased productivity and we're starting to achieve the overhead reductions we expected to get from the consolidation. So the second half is going to be a lot more productive than the first and I think that all that will be behind us before the end of the year.

So you're running at a normal productivity level going into '06?

Yes.

Okay. Thank you very much.

Mike Kender, Citigroup.

Just wanted to follow up on -- you had mentioned earlier in the call a $4 million number for raw materials. Is that a net hit or a gross hit and is that for the year or for the quarter?

That's an annualized number and it represents the material inflation that we're seeing in the major commodities that we deal with primarily copper, some steel -- not too much steel, a lot of resin both in the manufactured plastic parts and the raw resin. But those are the major categories. As I mentioned, we have the ability with some of our other commodities to offset these price increases particularly in the electronic component area where prices tend to decline over time. And also by sourcing some mechanical components through our joint venture in India and our printed circuit boards in China and we continue to explore other commodities in China. So we can reduce a significant amount of that price increase in commodities and then the balance we'll get from engineering changes.

It's actually smaller than I would have guessed. So basically a million a quarter. And then the second question is with your SG&A, it was up call it 5 and change million in the quarter, how much of that was what I would characterize as voluntary increases in product development expense -- your reference is about $2 million -- versus involuntary increases?

This is Joe. The majority of that is decisions that we have made to do product development and marketing and spending. As we mentioned, we also -- in the SG&A we have $900,000 worth of the bankruptcies done by customers that are in there. And there's a few little other things, but the lion's share outside of the 900,000 of the increase is what we have decided because, as Gerry mentioned, we have seen gross bookings continue to be significantly larger than what we've had in the past and we're going to continue to fund those things going forward anticipating much better future year growth.

I agree with Joe. I sort of look at that as a leading indicator of our business. We monitor this expense very closely to see that we're getting traction, that we're getting business awards and we won't hesitate to throttle it back if it's not productive. But in an engineered products company this is a sign of a robust market where you can go out and pursue new opportunities and where you're seeing an increase in requests for engineering proposals.

I did mention that we completed some major programs in the first half; one of them was the European tachograph that was a good deal of that expenditure because we had to have it qualified and certified in the EU and we used a lot of consulting assistants in that effort. So we expect the expense to come down somewhat in the second half and we'll continue to examine it to see that we're getting the bookings results that we expect from this effort. Certainly we did in the second quarter and we're very happy about that.

And then the last question was on the truck side. Did you guys lose some content per vehicle on some of your major programs during the quarter? Or was it -- I'm just trying to get at why revenues were relatively flat given the production increase and a follow up to the previous question?

I think we gained some content in Europe with some of the European OEMs and we lost some content in North America and the launches in Europe are slow. The launch of the tachograph is extremely slow. We now believe that it will launch in 2006. Some countries will lead and launch in the first quarter and we think that the EU will follow with a complete launch by midyear 2006. There's a shift in volume there and there's some delays that we had not anticipated in the beginning of the year.

And what's the order of magnitude of the tachograph volume?

We have not made that number public.

Okay, thank you.

Blaine Warner (ph), Globe Partners.

Joe, would you expect with inventories coming down the rest of the year and your restructuring charges a bit lower than you thought that you can cover your capital expenditure and the restructuring and the working capital increase with cash flow? In other words, will you have anything left after all that -- will you generate a little free cash after all that or about even or what?

At this time we anticipate being even to slightly above positive cash and our target is to have positive cash this year and that's what we're striving for especially through a reduction in inventory.

What are you looking at for CapEx for the year?

I just mentioned $25 to $30 million and that all depends on whether we are able to spend the money. We've got launches coming up and new products coming up and it's whether the timing permits us to spend it in the fourth quarter or whether that goes into the first and second quarter of next year.

Okay, great. Thanks.

Also, I'm sure you recognize that when you move the volume of product that we're moving to protect the customer we're required to have significant safety stocks because every process has to be requalified once it's moved. And so that inventory did peak on us at midyear and as these processes are qualified we will burn off that safety stock inventory. So we feel relatively comfortable with the inventory reduction in the second half.

Okay, great. Thanks.

David Leiker, Robert W. Baird.

Just a follow-up on this truck number here again. How much of your business is in Europe on the truck side?

Hold on just a second; we're trying to pull you a number here real quick. I'm trying -- to get you a number relatively quickly, of the non North American revenue increase or the number of 37.5 million, the vast majority of that is commercial vehicle in Europe. We do have some volume on the passenger side, but the majority of that product is actually coming back to the United States.

So you got impacted by Volvo's quarter here that was announced yesterday? Okay. And then on the bookings, the new business that you've been booking, when are we going to start to see that show up on the revenue line that we'd start driving something more than single digit -- low single digit revenue growth?

I think that 2007 is realistic. Some programs will come into 2006; but the bulk of them, because of the development time, will be 2007.

And did I hear you correct that about half of that 8% revenue growth is new business, half is acquisition?

That's how we've targeted it in our strategic plan, yes.

(OPERATOR INSTRUCTIONS). There are no further questions appearing in the queue, sir.

Thank you very much. Thank you for joining us and participating in our conference call. We certainly look forward to having you join us again at the end of the third quarter for an update on Stoneridge.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Good day.