Stoneridge Inc (SRI) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2007 Stoneridge earnings conference call. My name is Dan, and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a Question and Answer Session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Greg Fritz. Please proceed, sir.

Thank you, Dan. Good morning, everyone, and thank you for joining us on today's call. By now you should have received our first 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 John Corey, our President and Chief Executive Officer, and George Strickler, our Chief Financial Officer.

Before we begin I need to inform you 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 these statements are subject to risks and uncertainties and actual results may differ materially. 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 & Exchange Commission under the heading forward-looking statements.

During today's call we will also be refer to go 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. John will begin the call with an update on our results and his thoughts on our 2007 outlook and market conditions. George will then discuss the financial details of the quarter along with our guidance for the rest of the year. After John and George have finished their formal remarks we will then open up the call to questions. With that, I would like to turn the call over to John.

Thank you, Greg. Good morning, and thank you all for joining us on today's call. I would like to provide you with an update on our progress in the first quarter and discuss our expectations for the remainder of the year.

For the first quarter our sales increased 3% to $185 million. While this increase was primarily attributable to favorable currency exchange rates, it marks a notable achievement in the face of a significant decline in the North American light and commercial vehicle production. I will discuss sales in more detail momentarily. Our operating income totaled $9.7 million compared to $10.4 million in the prior year. Excluding the $1.5 million gain on the sale in the prior year, our operating earnings improved on a year-over-year basis. Finally, our diluted earnings per share totaled $0.21 in the first quarter compared with $0.16 in the prior year. We're pleased to build upon our trend of quarter-over-quarter improvement.

In many respects the conditions in our end markets performed as expected. Production in the North American commercial market declined 16%, and the North American light vehicle production was down 11% at the traditional domestic manufacturers. In addition, our largest North American commercial vehicle customers production declined over 30% in the first quarter, which created a more challenging environment for Stoneridge relative to the overall market.

Despite these challenges in North America, Stoneridge reported higher sales and earnings during the first quarter. Excluding the effects of noncash impairment charges, the first quarter marks the fourth consecutive year-over-year quarter of year-over-year earnings improvement at Stoneridge. This is attributable to our balanced end market exposures and new business wins. During the quarter, we posted strong results in our European commercial vehicle business, our Brazilian joint venture, and we launched several new products in the North American market.

In Europe, we continue to launch our next generation digital tachygraph products and in the original equipment aftermarket and augmenting this new product are our offerings in the aftermarket. This continues to post strong growth and generate strong returns for our shareholders. Our expectation is for continued strength in the European commercial markets and growth in our new product areas. Our joint venture in Brazil reported another strong quarter, local currency revenues increased 25% in the quarter, and our portion of equity earnings rose over 48% to $2.2 million.

PST continues to report strong results in its aftermarket business, particularly in the security products area and new business with OEMs in Brazil. Given PST's strong pipeline of new products, we expect to continue strong growth rates and results from this venture. During the first quarter, we also launched new business in our sensor portfolio in the areas of temperature and speed sensors. The temperature sensor program solidifies our presence in the growing emissions control market. We continue to explore exciting new opportunities in this market segment, and will continue to focus our resources to maximize our opportunities in the emissions control area.

Also, we started production of our second modular assembly platform during the first quarter. We announced this business last July and expect production rates will continue to ramp up throughout the year. While our results have improved, we are still not operating with the efficiency and effectiveness I want to see. Offsetting some of the favorability were escalated costs from product launches, high scrap and premium freight. Clearly we have opportunities to improve our operational performance. On the balance sheet we continue to struggle with improving our working capital, especially related to inventory. I have challenged our organization to refocus their efforts in the areas of working capital management. We have substantial room for improvement in the remaining nine months.

On a more positive note, during the quarter, we booked our first order in the non-transportation market. We are also actively quoting programs globally that leverage SRI's expertise in different product groups. This marks a significant change at Stoneridge and validates our reorganization initiatives. As part of our operational realignment, we have been able to reduce head count in our control devices group by 2.5% from the prior year.

Going forward, the micro economic picture continues to point towards a challenging environment in which we will operate, particularly in our North American commercial and light vehicle businesses. The North American commercial vehicle market appears to be tracking towards the lower end of our previous expectations of a decline in the range of 25 to 35%. While many industry observers previously expected a production bottoming out in the second quarter of 2007, expectations are now pointing towards a second half bottoming out of North American commercial vehicle production. We will face these challenges with the same fundamental focus that has resulted in our operations progress to date. Focusing on the aspects of our business which are in management's control.

In my review, this represents the majority of what we face on a daily basis. Specifically we will focus on our cost structure and control discretionary spending achieving world class operating metrics and driving our cash flow through focused working capital management. From a cost structure standpoint, we will complete our oil well facility closure during the second quarter. This production is being transferred to our Mexican wiring operations, and as a result of this -- and as a result in the closure of our last U.S. dedicated wiring facility. While this decision was difficult for all of those that are affected, the market demands necessitated a lower cost structure. We investigated various alternatives including evaluating different markets and customers to keep this facility viable and open. However, these did not prove to be fruitful.

Overall, our full year outlook remains unchanged. Our expectations for full year earnings has been $0.45 to $0.55 per diluted share. While I am pleased with the results for the quarter, we still have opportunities in our operations to for improvements and turning sales gains into improved financial performance. With that, I would like to turn the call over to George.

Thank you, John. Before we review the first quarter, I would like to share a few financial highlights in the quarter.

In the information technology area we continue to make progress in our global initiatives. We have completed an IT server room in North America to enhance our global network capabilities. Europe is progressing well to develop a common ERP system across our European electronic operations. Our ERP system went live April the 1st for operations in Sweden and Estonia.

Our hedging programs are allowing us to significantly reduce our exposure to commodity and currency price volatility. We have hedged nearly 35% of our projected copper buy for this year, which reduced the volatility of one of our major commodities, and in addition we have hedged our pace of requirements this year to reduce the cost impact during the year as the dollar continues to weaken. We have commented that we want to improve our cost to capital, the capital markets have improved in the last few months. We are evaluating alternatives that s will satisfy our requirements and lastly, we will continue to control our costs as a way to offset the lower production levels in North America to improve our financial results and continue to work on selling nonstrategic assets to improve our cash flow.

I would now like to cover the first quarter results in more detail, and then we will open up the call for questions. Revenue increased 3% to $185 million in the first quarter. Our year-over-year improvement in revenue was primarily attributable to new program launches, favorable foreign currency exchange and strong production in our European commercial vehicle businesses. These factors offset substantial declines in our North America light and commercial vehicle revenues due to production declines.

For the first quarter, light vehicle revenue increased 3% to $74 million. The increase was attributable to a new program launches in the areas of high temperature sensors and speed sensors. The new business impact was partially offset by an 11% decline in traditional domestic production. Medium and heavy duty truck sales totaled 85 million in the quarter, approximately equal to the prior year. Strong European commercial vehicle production and favorable foreign currency exchange rates were more than offset by 16% decline in North America commercial vehicle production due to the change in emissions regulations.

Sales to agricultural and other markets totaled $25.9 million and were $3 million above the prior year. The increase in sales is predominantly due to strong build rates at John Deere. North America revenue accounted for a 71.8% share of first quarter revenue compared with 77.9% for the same period in 2006. The percentage reflects the strong growth of our European operations and production declines in our North America end markets. In the first quarter, electronics revenues were essentially equal to the prior year at $100.8 million. The positive factors in the quarter were strong revenue from our European commercial vehicle operations and favorable currency exchange rates. Offsetting these favorable factors was the 16% decline in North America commercial vehicle production.

Revenues for the control devices increased 6% in the first quarter. New business revenue was the main driver behind the increase as our new high temperature sensor and speed sensor products business ramped up during the quarter. Offsetting this increase was an 11% decline in North America light vehicle production. Our first quarter gross profit was $42.8 million, resulting in a gross margin of 23.2%. Our gross margin increased 50 basis points from the prior year level. This increase was due to favorable sales mix relative to the prior year. These factors were mitigated by unfavorable operation efficiency variances during the first quarter. Our commodity hedging programs resulted in a slightly favorable offset to the first quarter copper price variances, and given the recent rise in copper prices, we expect a more significant offset in the second quarter if current copper price expectations hold.

As a reminder, we have locked in approximately one third of our total purchase for 2007 at favorable rates compared to the current price of copper. Sales from low cost manufacturing locations accounted for 38% of total sales in the first quarter compared to 36% in the prior year. With our Chinese operation ramping up and other corporate wide initiatives, we expect our sales from low cost locations to grow as we relocate labor intensive manufacturing over time as we expand our presence in three key low cost manufacturing locations in Mexico, Estonia and China.

Selling, general and administrative expenses totaled $33.2 million in the first quarter compared to $31.8 million in the previous year. Approximately half the increase in SG&A is due to increased sales and marketing activities related to new product launches in business development in our European commercial vehicle units. In addition, SG&A increased due to systems implementation expenses related to the new ERP system in Europe which went live in April. Finally, our year to year operating income comparison was impacted by the non-recurrence of property sale gain recorded in the first quarter of 2006. This resulted in a $1.4 million unfavorable variance compared to the prior year.

First quarter income tax expense totaled $1.2 million, resulting in effective tax rate of 19%. The lower effective tax rate is primarily attributable to the benefit of the federal research and development tax credit and reduction in accrued income taxes and reduced foreign tax expense due to a more favorable mix of foreign earnings. We expect our 2007 tax rate to fall between 30 and 35%. Stoneridge recognized first quarter net income of $4.9 million or $0.21 per share compared with net income of $0.16 per share in the prior year. Depreciation expense for the fourth quarter was $7.2 million, and amortization expense totaled $400,000. For the full year we expect depreciation and amortization to approximate $29 million.

Earnings before interest, other income, taxes, depreciation, and amortization were $16.9 million in the first quarter compared to $16.8 million in the previous year. Our primary working capital totaled $113.4 million at quarter end, which increased $20.4 million from the end of the year. As a percentage of sales our working capital declined slightly from the prior year to 15.9% from 16.1% in the first quarter of 2006. While we made good progress towards improving our working capital levels, our working capital balances remain above our targeted range of 12 to 13% of sales. We see significant opportunity to reduce our inventory balances in 2007, and have made this focus area for our operations.

Operating cash flow net of fixed asset additions was the use of $11.9 million in the first quarter compared to a use of $300,000 in the previous year. Our cash flow results in the first quarter were clearly a disappointment. Cash flow particularly in the areas of working capital management will remain a focus for the remainder of the year. We continue to target primary working capital balances in the range of $0.12 to $0.13 per dollar of sales. Capital investment totaled $6.8 million in the first quarter mainly reflecting investment in new products and information technology equipment. Some significant components to our investment were in the areas of emissions, sensor products and instrumentation. For the full year we expect our capital spending to approximate $30 million.

Turning to liquidity, we currently have full availability under the $100 million revolving credit facility. Our year end cash balance totaled $54 million compared to $42 million at the end of the first quarter of 2006. Going forward, we expect we will continue to fund our operational growth initiatives through our free cash flow generation and available cash balances.

Now I would like to take a moment to discuss our outlook for 2007. As mentioned by John for the full year, based on the current industry outlook, our expectations for the full year remain unchanged at $0.45 to $0.55 per share. To date the North American macro economic challenges are tracking towards our expectations. Overall the outlook for our North America operation continues to trend slightly lower while our European commercial vehicle operations are tracking above expectations. On balance, our outlook for the full year earnings remains unchanged at $0.45 to $0.55 per diluted share. Now, operator, I would like to open up the call for questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Brett Hoselton from Keybanc Capital Markets.

Hey, guys, this is Brandon Farrell here with Brett. Good quarter by the way.

Thank you.

When you look at you guys keeping guidance the same, you basically did half of what you expected for the year here in the first quarter. And it looks like commercial volumes pretty much came in as expected, light North America better than expected in Europe. How should we think about that going forward given you did half of what you expected here in the first quarter and volumes look relatively decent in the back half of the year?

Well, what we're seeing in the North America side is the original forecast was for medium and large truck to be coming back in the second half or late second quarter, but what we're seeing is that's now getting pushed out into late third third quarter/fourth quarter. We did -- we do have some uncertainty in terms of the strength of the commercial market in Europe. First blush is it still looks continually good for the second quarter, but there is some question of the volume levels they're running in the second half, so we have taken a position that we see the markets being a little bit uncertain in terms of the second half.

If you looked at North America light vehicle production, particularly the results that happened in April there is still a troubled market out there, and those big three represent our customer base, so we're cautious on what's happening in the big three. Also as George indicated, you know, we now see copper prices, commodity prices, back up to where they were, and while we're hedged for about one third of that, there is still exposure there we have to manage.

John, when you talk about that copper exposure, I think you guys alluded to there being a positive benefit to the hedging in the quarter. Is that correct?

Yes, but it was pretty minimal in this quarter. We expect more in the second quarter I would think.

So you guys kind of expect incremental benefits in the second quarter?

If prices hold.

If prices hold where they are.

Do you think that may be -- you said it was minimal in the first quarter. Could that potentially be material as we go forward and could it potentially be better than what you baked into guidance.

I would say you are going to get a little bit more of a benefit from the hedge, Brandon, but keep in mind the opposite of that is we're variable in about two-thirds of the price. While the hedge is going to contribute more, we're going to take a larger impact if prices hold in the second quarter. That should be a net negative results overall.

Okay.

Copper has gone fairly significantly. It was running slightly under $3 a pound much it is up over $3.60 a pound now.

Still with the hedging I think it is it fair to say copper is pretty much as expected as you look out through the rest of this year?

Well, no, I think we're starting to see some negative impacts in the third and fourth quarter with the price being a lot higher than what was originally forecast.

As far as SG&A goes, we actually saw it tick up here in the quarter as a percentage of sales, and you guys have been tracking down on that. I know you talked about increases in D&D spending, you talked about the IT stuff. Are we essentially going to work our way through these incremental SG&A expenses going forward? Should we expect them to decline going forward, and if that is the case, what's the real run rate for SG&A as a percentage of sales? What's realistic? I mean typical suppliers will run 5%. What's realistic for you guys long-term?

Well, I would say regarding SG&A, if you looked at the systems expenses that we have there, we have a program to modernize all our systems across the Corporation, the European operations are the first out of the box, but we expect to roll that into North America, too, so that expense will continue over the next couple of years as we modernize our systems. We don't normally give out guidance on the SG&A. I would think as you look at some of the favorable trends we had, we have reduced the head count in some of our operations in the first quarter, and that should have some benefit, but we're going to continue as we see growth opportunities, specifically right now in Europe to make those investments that allow to us capture those growth opportunities for the future.

Okay. So there is no reason to expect major changes on the SG&A line going forward? Sounds like you have some puts and takes.

We'll manage it by business segment based on the requirements, and those that we have the opportunities we'll reduce the costs, and others where we're investing back in the business we are.

Okay. That's all I had. I think Brett had a few questions as well.

John, I have a question for you and this is more of a longer-term strategy question, kind of two fold. Generally speaking, as you speak about your revenue growth longer term, what do you see in terms of revenue growth opportunities for yourself? Are you going to be a midsingle digit revenue grower organically for the foreseeable future kind of ignoring production and so forth and what really drives your revenue growth going forward?

Well, I think as we improve our operations and become more efficient there, we can take greater advantage of some of the opportunities that are in front of us, but if you look at our product where we're heading, we like the emissions segment. We're start to participate in that. We have new products coming on in the development cycle which will come on in the later pipeline a few years out if they prove to be successful. We like that.

We do have some other products in the control devices, particularly in the area of actuation, and in the area of sensing, magnetic sensing that we're working on which could have some exciting growth characteristics, and then as we look at the commercial vehicle market, I think that our strength in Europe continues, and we see good opportunities there, so I am always skeptical because the Company, as you know, is somewhat had a history of having some good growth programs come on, but then being decontented on some other programs, so I am a little skeptical that we have to manage that end of the process, too, but we've targeted -- we're going to target certain selected markets where we think they could offer us if we're successful in there, above average growth.

Do you think in the future acquisitions, maybe even bolt-on acquisitions are a possibility and is that a significant possibility for you?

Yes. I mean, that is one of our things, one of the areas we're looking at to look at complementary acquisitions, and as you know first there is the financial wherewithal to do it but more importantly is the management wherewithal to do it. We're evaluating those things now, but I think the right acquisitions could add a lot of value to this business.

Would that be product oriented? Would it be more geographic oriented, kind of a mixture?

We've looked at it as first it could be a mixture I think. That's the fair way to say it.

Secondly, as we think about margins, you know, going forward over the next two, three years or something along those lines, how should we think about margins and I am really thinking along the operating line basis giving you both cost of goods sold and/or SG&A opportunities. I mean is this a business that you see margins are driving higher margins going forward, and if there is such improvement could it be material?

Historically as you know, the margins have been good in Stoneridge's operations and I think how we look at it is we are driving to a target on return of invested capital of 10 to 15% and really looking at the composite of all of our profitability opportunities and managing our balance sheet, and as part of that too, when John talks about acquisition, we're both very clear that we'll do that within the capabilities of our balance sheet strength and we would never lose that. That's been one of the assets that this Company has. It's gone through the cycles of the business and so it will be offset and we'll make sure that the balance sheet supports those acquisitions we're looking at.

You're probably not going to take a run at Siemens VDO?

No.

I understand. Gentlemen, thank you very much for your time. Thank you.

Thank you.

Next question comes from the line of Paul Ross from ING. Please proceed, sir.

George, a couple of details on some of the financial items, please. In the capital spending number in the first quarter, a little over $6 million. Can you tell us what portion of that related to productive capacity as opposed to IT or items which would not give you the potential to improve revenues?

I think, Paul, if I may, it's Greg. The bulk of that is is going to be mostly expansion-related things. We did note IT spending but for us, that's not a significant number per se, but it's mostly expansion for new business.

Can you tell me at what plant locations?

We don't disclose at that level, but I think if you follow some of the areas that we are growing successfully, it will track that.

And George, on the 12 to 13% goal of working capital to sales, could you talk about the variances on the accounts payable side that you mentioned in the press release and i know you've had this goal since you arrived and you're still striving to get to it but is it possible given the growth in the European business that it's an unrealistic, that it is a hard objective to expect? We should have a harder time expecting you to be able to get there in a reasonable period of time?

I think it's attainable. I think we have made progress. The payables is really an issue from first quarter to first quarter during the course of '06, we have improved our days over the year.

Right.

So that part is really improved really nicely. Our receivables are tracking. They are up slightly in terms of days, a couple of days from where they were at year-end, but we think we can manage that level. I think the big opportunity we have is in the inventory side and we're up, if you just go through the calculation, we're probably up 5 or 6 days there and when you start looking at our operations, that will be the area that we'll really focus on , and we have examples in our Company that we run with very high turns. We have some that are not, so we have best practices in our own organization, and it comes down to forming strategic suppliers to do that, demand forecasts, and really running at the work cell level in our plants and we're moving in that direction. We've got five lean initiatives going on in our operation today, so I think it is attainable that we can get there during the course of '07, early

That will be something that we will look forward to seeing, George, thank you. And then lastly, it's almost behoven on me to say the bonds became callable and you have not taken an action to refinance them and lower your cost of capital, although you made reference to it in your comments. Are there any other remarks you'd like to make about the status of the cost of capital and your balance sheet?

No. I think all I would say to add is that we always look at alternatives and ways to improve our operations and that's clearly one, and as you know, the capital markets have improved immensely over the last few months, so we'll explore ways and we'll look at alternatives.

Thank you very much.

You're welcome.

Your next question comes from the line of Derrick Wenger from Jefferies & Company. Please proceed, sir.

Yes, I was just wondering if you could give any guidance with your EPS calculation on revenues or gross margins?

Derek, it's Greg. We don't give gross margin or revenue guidance specifically.

Okay, and what about the share count? Is that expected to change at all?

We don't give specific guidance but I think if you look at the current share count, that generally you look at last years trend it doesn't change a whole lot.

Okay and are there any letters of credit outstanding or is it fully available?

No. There's $3.3 million of letters of credit outstanding as of the end of the quarter.

Okay, so you have the 96.7 available?

Yes.

Thank you.

Your next question comes from the line of Jonathan Steinmetz from Morgan Stanley. Please proceed, sir.

Thanks. Good morning, everyone.

Good morning.

A few questions. Can you talk a little bit on PST? First of all, are you able to give the revenue an EBIT at that venture?

We don't have that with us right now, but I think we did discuss the local currently revenues were up about 25% and it was about a $100 million U.S. operation last year, Jonathan.

Okay so you're tracking towards North of $30 million quarterly run rate let's say?

That should be approximately and we do disclose that in our Q. I just don't have that information with me right now.

Okay, and you talked a little bit about some of the drivers on that in terms of both OE and after market but can you give a little more detail, are the gaining shares just a penetration story within the market and maybe what type of revenue growth do you think we can see over the next couple of years?

Well I would say that in the alarm system, they are certainly I think it's penetration into the market, although we are working with closely with Honda for a motorcycle alarm and they are one of the biggest suppliers of motorcycles down there. We would supply their plant so that would probably be a share gain so an alarm system, that's very positive. Some of our tracking systems, it's new product going into the market. We expect some good growth coming from that, and I think that again penetrate, market penetration as we go into perhaps a new category that's more attractive to people, and then they are working on some OE business that actually would probably be, I would guess just shifting of production, so it is share gain.

Okay, and any guidance you could give us on the amount of dividends that you could call or even maybe a pay out ratio if you don't want to forecast income so to speak?

I think, Jonathan, we'll look at dividends along with income flow consistent with what we've done the last two years.

So if memory serves me it was a little less than half of the income comes out of that or something like that?

Yes. In that range.

Okay, you said you expect European commercial vehicle to be very strong in second quarter but you were a little more cautious on third and fourth quarter. Are you seeing anything or hearing anything in the marketplace that tells you that or is that just sort of general conservatism and you don't want to extrapolate super robust conditions?

Well, I think that we're not seeing firm evidence that there is going to be a shut down, but we've had such great success in the first quarter and projected into the second quarter that we're probably tamping down the growth expectations because some of it is with the new product launches and the digital tachygraph and as that levels out some of that growth will come down to a more normal level.

Okay. you mentioned some emission sensor products. What exactly are you working on and can you try to quantify if something really hits what kind of revenue potential there might be?

Well, I won't quantify revenue because they are a little bit farther out in our time horizon but the gas sensor, the gas temperature product that we just launched was the first step into that area. We are looking at additional chemical sensing products for the diesel market and we're working on those, which could be very good because of the mandated laws that will be put in place that are in place now and will be put in place again in 2010.

Okay, and last question, George, just housekeeping. Do you have currency impact, I guess excluding Brazil just on the base business currency impact on revenue and EBIT FX translation for the quarter?

Jonathan, revenue impact was $5.1 million and then the impact on EBIT was roughly just under $500,000 although there was an offset below the line, we booked currency so on that basis the currency gain in income pre-tax income was more like $200,000.

Okay, thank you very much.

Yes.

Thanks, Jonathan.

As a reminder, press star one to ask a question. Your next question comes from the line of David Leiker from Robert W. Baird. Please proceed, sir.

Good morning.

Good morning.

Did I hear you correctly to say that your revenues in your commercial vehicle businesses are flat?

Yes.

I missed part of the call. What was the offset there in the quarter to the very weak volumes?

There's a few things. One was currency as you know, the big piece of our European operations are commercial vehicle, so that added probably around 3 or $4 million a segment and then the second piece was relaunching new products over in Europe and you're seeing strong growth rates and then we were just able to, you know that offset the declines in North America obviously.

But what portion, I'm sorry, go ahead. No, sorry there. What portion of of your revenues today are commercial vehicle?

I believe it was $85 million of the $185 roughly and that's purely, that wouldn't include ag though, so if you're looking at just medium heavy duty truck it's 85 of the 185.

That's medium, heavy, and how much of that is in Europe?

You're testing me, David.

Sorry.

I would say in this quarter, just give me one second and see if I can -- if you have another question I'll look that up.

Yes, so in terms of, as we go forward to the truck build rates are going to fall out further in North America, do you have enough new business to offset that decline or are we going to start to see that hit the revenue line?

Well, we think that as we've looked at it, we think that the launch of the modular product that we talked about last year and now actually coming on stream will help us with some additional volumes, but I think in our current forecast , we're looking at as we said the production ranges to be at the lower end of the industry expectations, and we're taking appropriate steps to try to adjust to

And just to answer your previous question, David, roughly 45% of this quarter's revenue were derived from European operations in the commercial segment.

So maybe 20% of your total revenue was tied to the North America truck market ballpark?

That's ballpark.

Okay. Great. Thanks. Did you make a comment about the tax rate and where you think that's going to be going forward?

Yeah, I think for the year it will be in the range of 30 to 35%. It reflects the R & D credit which was finally passed and just had a major influence in the first quarter.

The next three quarters it will be 30 to 35 or the full year ?

I think the full year we'll end up in the range of 30 to 35%.

And as we look at the quarterly flow here, you talked earlier basically half of your guidance in the first quarter , would guess that the next two quarters are relatively lean and then the fourth quarter makes up the

We don't give specific guidance on that, David, but we can't quibble with your logic.

I was trying not to ask a specific question. I think that's all that we need then. Thank you.

Thank you, David.

At this time there are no further questions in the queue. I would now like to turn the call back over to Mr. John Corey for closing remarks.

Yes, well, again I'd like to thank you and just comment. We're very encouraged by our progress, but and when we look at that progress, I mean most encouraging is that we're starting to see some of our growth initiatives take hold and add benefits and value to the Company. We're still, we still have a long way to go on the operations and working capital side, and we are targeting the programs in there to aggressively go after that so I think that as we look at the future, we can continue to see hopefully that those operations will improve and will have a good value add story for our shareholder base. With that, if there are no other questions I'd just like to thank you all for joining us on today's call.