Stoneridge Inc (SRI) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2009 Stoneridge earnings conference call. At this time, all participants are in listen-only mode. (Operator Instructions).

I would now like to turn the call over to Mr. Kenneth Kure, Corporate Treasurer. Please proceed, sir.

Good morning, everyone, and thank you for joining us on today's call. By now you should have received our third-quarter earnings release.

The release has been filed with the SEC and has been posted to our Website at www.Stoneridge.com. Please join me on today's call -- 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 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 actual results may differ materially.

Additional information about such factors and uncertainties that could cause actual results to differ may be found in our 10K filed with the SEC under the heading Forward-looking Statements.

During today's call, we will also be referring to certain non-GAAP financial measures. Please see our Investor Relations section of our Website for 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 market conditions. George will discuss the financial details for the quarter and the future outlook. After John and George have finished their formal remarks, we will then open up the call for questions.

With that, I will turn the call over to John.

Good morning. Thank you for joining us on today's call.

As you have seen, we have reported sales of $118 million for the third quarter, a decline of $60.4 million or 34% from the prior year. The sales decline and additional restructuring costs of $1.3 million were the primary reasons for the net loss of $800,000 in the quarter compared to a loss of $400,000 in Q3 of 2008. The current quarter's loss excludes any benefits for taxes due to the valuation allowance taken in the fourth quarter of last year.

As you review this quarter's results compared to the prior year's quarter, one can see the benefits of our restructuring programs and a significant lowering of our breakeven point. While the volume drops experienced in the third quarter were not as severe as the volume drop experienced in the second quarter, the effects are still severe and remain far below our formal planning levels from earlier this year.

We have adjusted accordingly. Stoneridge generated an operating profit of $2.6 million and a gross margin of 23% in the third quarter. This is the first time our gross margin was over 20% since the second quarter of 2008.

Compared to 2008, North American automotive production in the third quarter of 2.4 million units was a decline of 20.6%. North American commercial vehicle third-quarter production was 55,600 units, a drop of 38% from the prior year.

In Europe, where we sell predominantly in the commercial vehicle market, third-quarter production was 56,500 units, a decline of 68% from the prior year and close to the 70% drop we experienced in the second quarter.

The markets remain in a somewhat stagnant state although we are seeing signs of an upturn in the North American automotive production as lower levels of inventories are being replenished. On commercial vehicles, the worst seems to be over, but the rate of growth remains a big question mark.

As we have addressed and responded to the market conditions over the past year, our plan as executed has allowed us to adjust to the lower market expectations of the downturn as well as preserve cash. We have focused on our liquidity in minimizing our cash burn rate with significant drops -- with significant drops in sales revenue due to the decline in production volumes.

Our cash balance was $84.4 million as of September 30 compared to $92.7 million at the end of 2008 and $89.6 million at the end of the third quarter of 2008. Our borrowing capacity on our asset-based lending facility remains undrawn $51.5 million of availability. Our availability has increased from the $45.5 million in the second quarter to the $51.5 million as our net sales and accounts receivable are beginning to grow again.

As part of our cash management plans, we have lowered capital expenditures in 2009, but have not jeopardized customer programs or launches for this year and in 2010. We believe Stoneridge is well-positioned from a liquidity perspective to accommodate the use of cash for working capital and capital expenditures as the market recovery begins and allows us to -- and also allows us to selectively invest as we did with the purchase of 51% of Bolton Conductive Systems.

Operationally, we continue to restructure our business units to improve efficiency and permanently reduce our fixed cost structure. We have completed our restructuring initiatives at our Orebro, Sweden and Juarez, Mexico facilities started earlier this year which are expected to save about $2 million this year.

We are continuing with operational improvements as we roll out our lean initiatives in our European businesses as we expand this -- and also expand this program beyond North America.

As we announced in the second quarter, we will consolidate our control device segment from two business units into one. We have consolidated the overhead marketing and administrative structures, which will result in an ongoing cost reduction of $3.5 million on an annualized basis.

Reflecting on our operational improvement initiatives embarked on over the past 20 months -- 21 months, we have absorbed cost of approximately $20.2 million, most of which was incurred in 2008. For the three quarters of 2009, our controllable costs, which we define as labor, fixed overhead and variable overhead and SG&A expenses excluding restructuring charges was $83 million below the comparable period in 2008 and $65 million below the comparable period in 2007.

It is important to note that we have restructured much of our capacity by moving production in lines into existing facilities, not reducing capacity. When the market turns around, the impact of every revenue dollar will be magnified to a larger extent by the cost restructurings and the permanent elimination of the fixed overhead cost structure.

Though the distressed market conditions continue through the third quarter, there are positive signs of a market recovery. As mentioned earlier, North American automotive production has begun to improve and industry forecasts for next year are improving, showing a 20 plus percent increase.

Commercial vehicles are likewise showing improvement for next year as we are seeing some small increases now, which indicate that the market has bottomed and is starting to recover. One concern which we are monitoring closely is the ability of the supply base to respond to increases in demand, particularly with electronics suppliers where capacity taken off-line has not been restored. And until it is we may see supply disruption issues at our customers and from our suppliers.

As we stated last year, our plan is to have enough cash to continue investing in the future of the Company, to take advantage of opportunities from other suppliers' weakness and continue to invest in near-term launches to support diversification efforts for our customers and, finally, to weather the economic turbulence. We are doing just that.

While we have focused on liquidity restructuring efforts and cost reduction for the first nine months, we have not forgotten about topline growth as we continue to invest in near-term program launches as well as product development to target new technology (inaudible) to the customers as we grow our geographic presence.

On October 13, we announced we have acquired a 51% equity interest in Bolton Conductive Systems LLC, an electrical system supplier based in Walled Lake, Michigan. BCS designs and manufactures a wide variety of electrical solutions for the military, automotive, marine, and specialty vehicle markets. BCS has a strong product and relationships and represents an opportunity for Stoneridge to expand its presence in the military channel, which we believe has an excellent strategic growth potential as a complement to our existing business.

We are expecting to assist BCS to achieve synergies from purchasing and manufacturing for wiring, instrumentation and gauges derived from our scale and capabilities. We also expect that we will expand Stoneridge product offerings further for instrumentation, gauges, sensors and switches in the military channel.

We are currently launching five [engine gas] temperature sensor product applications, most of which are on new European automotive or North American commercial vehicle platforms. During the third quarter, we were awarded three new engine gas temperature contracts in both Asia and Europe. As a result of our North American performance, we have been working with our cornerstone customers to establish wiring capabilities in Europe and China.

In China, we are starting up a wiring line in the first quarter of 2010 to begin to support customer expectations for us to supply wiring, primarily in China, but also globally. In addition, we will either start a wiring line in our Estonia facility or we will acquire a wiring facility in Europe to continue our progress in this business by expanding our capabilities in the wiring market.

We continue to look for profitable opportunities as a result of [distressed] suppliers. During the third quarter we have won a new multimillion dollar and multiyear sales contract with one of our cornerstone customers, which starts in 2011.

Over the last three years we have secured business of $250 million with net new business of $130 million. During the next three years and $130 million in the next three years and $180 million to $200 million over the next five years.

Finally, and perhaps this is somewhat premature, we may be seeing a firming of customer orders as an indication that the bottom has been reached and we are on a gradual recovery. While the fourth quarter looks weak compared to historical standards, especially in the commercial vehicle markets, we are seeing preliminary signs of some volume stabilization to some minor upturn in demand in the North American automotive market.

In the commercial vehicle markets, we are seeing early signs of improvement in 2010 in the North American and European markets. A few of the European commercial accounts are beginning to reinstate product launches that were scheduled for 2010 and 2011.

We are seeing signs that the emerging markets are starting to grow again -- namely China, India and Brazil. Our equity earnings reported in the third quarter exceeded our reported totals for the first half as our joint ventures in India and Brazil are benefiting from a faster market recovery.

We still face many challenges ahead but the signs are encouraging. Though the results of the current quarter were far from our desired results to the top and bottom line we are focused on our longer term plan while adjusting to the short-term reality of the distressed market.

We have adjusted and will continue to adjust our plans to respond to market conditions. We have improved our cost position -- our cost structure to position Stoneridge for better profitability and cash flow when the markets due return. We have protected our production capacity and have reduced the number of overhead cost centers.

We are encouraged as we generate an operating profit in the third quarter, even though sales were down 34% compared to the prior year. We have not lost sight of future growth nor our customer commitments for topline growth. We have a number of launches across various areas of our product offerings. We have continued to gain awards in new business with new technologies, new customers and have enhanced opposition with cornerstone customers in new markets.

We have added technical engineers and in Europe to address the emission sensing business and in China to address the wiring harness business with some of our cornerstone customers. Based on the current industry forecast, we are forecasting to have positive operating profit in the fourth quarter similar to our third quarter. But we do not expect to be operating -- though we do expect to be operating income positive in the fourth quarter, renewed customer requests for previously delayed projects will affect our cost structure, especially in Europe.

Over the last five quarters, we have seen markets in distress and decline greater than anyone forecast. We have modified our plans accordingly to adjust to the new reality. Even with the severity and length of this decline, we have the financial strength to get through the year, add to our product portfolio, to strengthen our future and will have a cost structure which will magnify volume increases.

In summary, we have largely finished with our cost restructuring, are still working on operational and financial improvements, allowing us to focus on growth opportunities as the gradual market opportunity -- and market recovery begins.

With that, I would like to turn the call over to George.

Thank you, John. As John referred to earlier, we have managed our liquidity, substantially completed our restructuring programs, reduced our costs, and continue to focus on topline growth and are addressing areas that will improve shareholder value and drive our return [on vested] capital in the range of 12 to 15% over the next two years.

Our cash balance at the end of September was $84.4 million. We had $92.7 million at the end of December 2008, so our burn rate has been minimal even though our sales were down 34%.

Our Brazilian operation has returned to more normal levels in the third quarter. As a result, we expect PST to remit a dividend in the fourth quarter in the range of $4 million to $5 million.

We continue to work to increase the value of our Brazilian joint venture. We have consistently indicated that we are developing plans for three key areas. Purchase a controlling interest in PST, pursue consolidation of PST under US GAAP, provide better visibility as to the value of PST and continue to pursue an IPO if and when the equity market returns from mid-cap equity transactions.

We completed the 51% acquisition of BCS on October 13. We have structured the deal such that we have the opportunity to purchase the remaining 49% in 2013, based on a pre-negotiated formula. We will provide additional guidelines to sales and profitability in the fourth quarter for BCS.

We amended our revolving credit facility to allow for the purchase of our 51% equity position in BCS, and allow certain foreign subsidiaries to become non-borrowers under the credit agreement, and permit certain internal transactions that will facilitate the implementation of the more efficient European cash management structure. Restructuring costs and their associated cash disbursements have been significant for us over the last two years. We have incurred $20.2 million since the fourth quarter 2007, incurred $1 million in 2007, $15.4 million in 2008 and now $3.8 million in 2009 and the amounts recorded impact our cash balance by about the same amount.

However, the most important point is that we have reduced $34 million of permanent fixed cost overheads from our cost structure. The $34 million will be a permanent reduction in costs that will improve our profitability.

During the first nine months of this year, we have reduced our cost structure excluding restructuring by $83 million in direct labor, overhead, SG&A and design and development expense. Some of that cost was through our restructuring programs and some was the flexing of our costs to address the significant market reductions.

Our next challenge will be to manage our cost growth as aggressively as our cost reductions when our sales revenue begins to return to more normal levels. As we mentioned a few years ago, we wanted to leverage the enterprise.

In the third quarter, we have approval to begin our effort for a common ERP platform in our North American electronics business group, our European operations already on the same ERP platform. We anticipate completion of this effort by the end of 2010. Then in 2011, we will include our control device business unit on the same ERP platform. So all of Stoneridge will be under one common ERP platform.

As I said in the beginning, we were fortunate we started restructuring efforts prior to the economic downturn. However, our management team stepped up to aggressively manage our restructuring and cost reduction programs. We made liquidity our number one priority this year. We have been very successful in minimizing our cash burn rate.

Now we are focused on topline growth, independent of market forecasts. The last [two] years we recorded net book business of $180 million to $200 million. During the first nine months of this year, we have been successful in winning additional business awards, which we will update you on our next analyst call.

We have completed the 51% purchase of BCS. We are introducing low temp and speed sensors in India and China operations. We are pursuing additional wiring capabilities in both China and India. These efforts are directed to drive topline growth, independent of the market forecasts.

Now I'd like to share with you the performance of the third quarter. Revenue of $118 million in the third quarter represents a decrease of $60.4 million or 34%.

Our sales decrease was the result of decreases in production volumes and the served markets, [severe] restructurings on new consumer credit and general economic conditions. For the third quarter, light vehicle revenue declined from $49.5 million to $43.7 million, a decrease of $5.8 million or 11.6%.

The decline was primarily attributable to a 20.6% decline in traditional domestic production in our Control Devices segment.

Medium and heavy-duty truck sales totaled $59.4 million in the quarter, a decrease of $42.8 million or 42% over the prior year. And the revenue decrease was driven by a decline of 38.4% in North American commercial vehicle production, and a decline of 68.6% in European commercial vehicle production.

Sales to agricultural and other markets totaled $14.8 million, a decrease of $11.9 million or 44% below last year. North American revenue accounted for a 78% share of the third quarter revenue compared to 66.6% for the same period last year. The percentage increase of our North American revenue reflects the more dramatic effect of reduction in European commercial vehicle [builds] and unfavorable foreign exchange rates changes on European sales.

In the third quarter, electronics revenues were $70.2 million compared to $126.6 million last year, a decrease of $56.5 million or 44.6%. Unfavorable factors affecting the third-quarter performance were the 38.4% decrease in North American commercial vehicle production, the 68.6% decrease in European commercial vehicle production and unfavorable foreign exchange translation.

Revenues for control devices of $47.8 million declined from $51.8 million, compared to the third quarter of 2008 which is a decrease of $4 million or 7.7%. The 20.6% decline in production in North America light vehicles for the traditional domestic manufacturers was the primary reason for the decline.

Our third quarter gross profit was $27.1 million, resulting in a gross margin of 23%. Our gross margin increased 3.1 basis points from the prior year level. And this is the first time our gross margin was greater than 20% since second quarter of last year.

The increase was due primarily to our cost structure initiatives. Gross margin in the third quarter of 2009 was not affected by restructuring costs. This compared to the third quarter of 2008 which included $2.1 million in restructuring costs to facilitate production line moves.

Sales from low-cost manufacturing locations accounted for 44.9% of total sales for the third quarter, compared to 39.4% in the prior year. The increase is due to lower overall Stoneridge sales in the current quarter and with our China operation, our announced production line moves from our Mitcheldean UK operations to China and Estonia. In our corporate wide initiatives, we expect our sales from low-cost locations to continue to grow in the future.

We will continue to expand our presence in the three low-cost manufacturing locations in Mexico, Estonia and China.

Selling, general and administrative expenses totaled $24.4 million in the third quarter, compared to $34.4 million in the previous year. The decrease in SG&A is primarily due to cost structure savings which are the result of the previously discussed restructuring initiatives and lower compensation related expenses in 2009.

We have reduced our design and development expenses from $10.2 million to $6.9 million as some of our customers have delayed some of their future projects and platforms. We expect their SG&A and design and development spending will increase modestly in the fourth quarter to support renewed customer requests.

We are, however, continuing to export near-term product launches and customer commitments which John discussed earlier.

The third-quarter income tax expense of $1.5 million were 228% of pretax profit. As reported for December 31, 2008, the Company is in a cumulative loss position and continues to provide evaluation allowance offsetting its federal, state and certain foreign deferred tax assets.

As a result, no tax benefit was provided for losses incurred in the third quarter of 2009 for federal and state tax purposes.

The negative impact of those valuation allowances was partially offset by the tax benefit for losses incurred in Sweden, in which it is more likely than not that the benefit of those losses will be realized in the current year.

Due to the valuation allowance and pattern of projected earnings, the quarterly effective tax rate could fluctuate significantly. Currently we are projecting that the 2009 annual effective tax rate will be between zero and 4%. The unusually low effective tax rate anticipated for 2009 is due to the circumstances that caused us to write off our deferred tax assets in December of last year and which continue to prevent the Company from recognizing a tax benefit for domestic and certain foreign losses.

Once the market stabilizes and profitability returns and we are able to reverse the valuation allowance, we expect the effective tax rate to normalize in the range of 27 to 30%. The outlook for 2010 would be a tax rate comparable to this year, including charges for pretax restructuring costs in the third quarter, $1.3 million, Stoneridge recognized a third-quarter net loss of $800,000 or $0.04 a share. This compared with the prior year loss of $400,000 which included pretax restructuring charges of $2.1 million.

Depreciation expense for the third quarter was $4.9 million and amortization expense was negotiable as most of the intangibles had been written off in the prior year.

Earnings including equity and invest (inaudible) but before interest, other income, taxes, depreciation, amortization were positive $11.2 million in the third quarter compared to a positive $12 million in the previous year, a decrease of $800,000. Our primary working capital totaled $79.7 million at quarter end which decreased $36.7 million from the third quarter of last year.

As a percentage of sales, our working capital increased from 14.9% to sales in the prior year to 16% to sales in the third quarter this year. The primary reason for the increase was higher accounts receivable days outstanding, and lower accounts payable days outstanding in relation to lower sales activity.

Operating cash flow, net of fixed asset additions was a cash use of $400,000 in the third quarter compared to cash source of $18.1 million in the previous year. Our cash flow results in the third quarter were affected by lower sales activity, generating lower net incomes offset by lower working capital.

Capital investment totaled $8.9 million in the first nine months of 2009, mainly reflecting investment in new products and a building expansion project in our Lexington, Ohio facility.

Some significant areas of our capital investments were in our ignition, switch and actuation products and wiring. We are projecting our capital spend to be in the range of $14 million to $16 million this year.

Two of our most important measures starting in the fourth quarter of last year and continuing this year has been cash flow and liquidity. As of September 30, we have 51.1 million -- $51.5 million of the availability under a $100 million asset-based lending facility. Our borrowing base has increased by $6 million since the second quarter of 2009 with accounts receivables and inventories recovered from cyclical lows.

We have no borrowings drawn against our ABL lending facility which has a maturity of November 2011. Our quarter end cash balance totaled $84.4 million compared with $85.5 million at the end of the third quarter from the previous year.

We will continue to manage our capital expenditures and working capital sustain and or improve our cash flow. We continue to work to sell our closed Sarasota manufacturing facility though the commercial market has been very difficult.

Based on current performance, we expect to receive dividends for 2009 from our Brazilian joint venture in the range of $4 million to $5 million and going forward, we expect we will continue to fund our operational growth initiatives for our free cash flow generation and available cash balances. We acquired the 51% share in Bolton. As part of this process we amended our ABL facility.

The amendment not only allowed for the acquisition of BCS, but will also allow for our European tax restructuring project to go forward. The amendment was done at a minimum cost with no impairment of borrowing capacity. We want to thank our banking group for their cooperation in this initiative.

The environment for 2009 has been very difficult. And based on our third-quarter results, it appears the market bottomed in the second quarter of 2009. We have experienced improvement in passenger light trucks in North America. Our emerging markets have returned to historical levels.

PST and Brazil performed very well in the third quarter. India and China has also experienced improved market conditions. Commercial market in North America has shown signs of improvement. And the commercial market in Europe is still running at significant low levels.

Based on the efforts of our restructuring programs, headcount reductions, adjusted 2009 compensation programs, flexing our production schedules and our reduction in design and development expenditures, we have quickly adjusted our 2009 cost structures to lower our breakeven level. Based on the market forecast we are experiencing, our goal has been to return to profitable operations and liquidity in these very difficult times by lowering our breakeven sales level for both profitability and cash flow.

We returned to a positive operating income in the third quarter and we continue to expect Stoneridge to return to positive operating income in the fourth quarter while cash flow will depend on the bottoming of the market drop. As the market stabilizes some of the growth returns, we will need to rebuild some working capital, especially receivables, to support higher sales.

However, as we have demonstrated already, we will manage our liquidity and cash balances to deal with market conditions.

We have announced one additional action to integrate our control device division under one management team. We are now developing plans to control our costs for the anticipated market growth to ensure we generate the profitability and cash flow to generate return on invested capital in the range of 12 to 15%.

In summary, we continue to modify our plans to respond to the rapidly changing markets. At the same time, we are driving cost reductions, we continue to focus on liquidity and balance sheet strength. We will continue to strengthen our balance sheet by managing working capital and reducing capital expenditures to meet customer requirements.

We will continue to monitor business conditions and we will take necessary steps to ensure Stoneridge is positioned to deal with the current economic environment, while positioning the Company for growth when the markets turn. Our actions have not taken capacity out of our operations, but positioned us to reduce our overhead centers to improve our capabilities for improving profitability and generating positive cash flows.

Operator, I would like to open up the call to questions.

(Operator Instructions). Matt Mishan with KeyBanc.

Good morning. I guess I will start off with a couple of questions. I guess the most important one I have is you guys had tremendous improvement, remarkable even from 2Q to 3Q in your gross margins, like 970 basis points. What were the primary drivers for that improvement?

I think there's three or four things. As the market took a significant downturn in the third and the fourth quarter last year, I think the first challenge we had is how do you adjust the inventory? As you know we have a pretty stringent policy in terms of what we do with what we call excess and obsolete inventory.

So there were adjustments made for inventory. Plus there was a product launch we had in Europe. And then we had a transition phase of the restructuring as we took down our Sarasota Plant that we incurred some costs and some inventory adjustments. So those things happened in the first half as we began to adjust our inventory and they probably accounted for the range of about 2% in the first quarter of '09 and up to about 4.5% in the second quarter.

So I would look at our normalized gross margin running at about 18% in those two quarters.

In the third quarter as you have now seen is the commercial truck market has taken a significant [reduction]. In fact it was running around 70% in the second quarter. It was down about 69% in the third quarter. So as that started to move and as you know we took two restructuring programs in Europe, but we have also furloughed people. We have taken time off without pay.

So there has been some very what I would call abnormal adjustments in the third quarter to try to reflect the schedules that we are seeing and how we managed our way through that. That has probably benefited the third quarter by about 1% or 1.5%.

As we look to the fourth quarter, and depending on the product mix, because we are still getting -- you are seeing an improvement in the passenger light vehicle in North America, commercial is sort of flat to some extent in North America in that 40% range. The question mark is probably Europe and what range they are going to run at, but we see those margins then running somewhere between about 21 and 23% in the fourth quarter.

So I think that will give you a little sort of trend and a history of what we see in margins right now through the first half, the third quarter and then our expectations for the fourth quarter.

So even if end markets do well, a little bit especially on the light vehicle side and trend slightly higher on the CV site, you are thinking that gross margins would come down a little bit in the fourth quarter?

Yes. We have a couple of things that we are as the volume comes back up we've taken some abnormal things. We've taken people out, we've cut work shifts, time off without pay.

So those were real aggressive moves that we took in the second and third quarter. And those will tend to normalize and will increase our costs in the fourth quarter.

But one of the things we are doing, just to add, we are looking at the month of December, particularly in the North American automotive production. Because we are not sure if we're seeing some pull ahead demand into November which would normally come in December. And as we look at this, we are looking at options to take down our production plants towards the latter part of December timeframe if it's possible and necessary.

You guys mentioned some supply, the possibility of supply disruptions. Can you quantify the magnitude? Are we talking about days or weeks? A major supply disruption or minor ones that just cause you some headaches?

Well, we're seeing -- we have dealt with some minor ones. I mean for instance when we start, when one of our suppliers of plastic started back up they sent us a batch of parts that were deficient and defective, we had to send those back that was what I call a minor supply disruption, but it really is concerning. Because I think as a lot of people restart idled capacity they have, they will have some start up problems.

I think the biggest area of concern for us is in the chipset area on the electronic side, where a lot of these chipset manufacturers may have taken capacity off-line. And that takes a rather lengthy period of time to bring it back on. That lengthy period of time is like four to six months because they have to rehire the people, retrain the people, qualify the people.

So we are watching that very closely and we are trying to see where else -- I think that would be the most significant, most severe one that we would anticipate. Now it is all happening real-time as we are adjusting to it.

And in addition you saw some announcements from both --. I think Ford came out and talked about a problem they had with their Indian supplier. That happens to disrupt us on the other side. If we were shipping product in for those Ford products that aren't being produced because another supplier can't supply we are going to get that as a disruption.

GM came out and said they are shutting down their production for a week here because of supply disruption of a crossover plant.

So it's those type of things that we are concerned with as we look forward. And it really is, it is a supply chain disruption that we just can't fully quantify.

Fair enough. Moving on to Bolton. It seems like a very strategic acquisition for you guys. Puts you in front of some new customers, especially on the military side.

But currently what are Bolton's revenues and do you plan to consolidate them or run it through the equity income lines?

We haven't disclosed their actual sales. We will do that as we get towards our budget plan on that and share that on our next analyst call. But they tend to sell across a broader range of the military.

As you know our real penetration has been through [Navistar]. They clearly -- there are five or six key suppliers into the military defense and the wiring side but we also, as John mentioned, we see advantages also selling our instrumentation gauges, sensor switches in through that and a full range of more than -- you know our application with Navistar has been more the MRAPs and MATV.

There's a lot of other vehicles that get sold in the military that really opens and broadens our whole range of potential penetration into that market.

And we will consolidate.

And we will consolidate it.

Okay. Lastly, I'm not sure exactly how much exposure you have to the commercial vehicle aftermarket, but Goodyear, it looks like, ran into a pretty big problem there.

Are you seeing any kind of real issues? Or do you have a lot of exposure to the aftermarket there?

We don't have a lot of exposure. We do ship in switches and some other products out of our control device business. But it is a relatively small part of our business so we are not experiencing what Goodyear might be experiencing. Is that in North America market, Matt?

Yes, it was North America commercial tires and they were saying demand is just terrible. So I just wanted to see what your exposure was there and if you were seeing anything kind of like similar?

Not in the North America market. In our aftermarket in Europe, though, we actually are starting to see improvements come through in that market. So that's a positive sign for that market.

Okay. Thank you very much and really a great quarter.

(Operator Instructions). David Leiker with Robert W. Baird.

Good morning. It's Keith Schicker, calling in for David.

I just want to start with the new business that you were talking about on the call, just to make sure I understand that. So you are looking at something in the range of $130 million over the next three years and $180 million to $200 million over the next five years? Did I understand that correctly?

That's right and it is about evenly split throughout the months. I think some of the launches will start in the first half '010 but I think it's more weighted second half '010 then 11, 12, 13, 14 scattered evenly over the years.

And then if I think about SG&A during the quarter, you mentioned that there was some temporary cost actions that you had taken on the gross profit line. Was there anything similar on the SG&A line? Or is this pretty much a run rate that you would expect going forward until sales begin to improve meaningfully?

Well, to the extent that we had some temporary furloughs and time off without pay that was in the quarter, there will be some of that and it will come back in the fourth quarter. But I think to offset that would be the consolidation initiative that we took in the Control Devices group which will -- we took the charge in the third quarter and we will have the first start of the benefit in the fourth quarter.

And then to your point, Keith, is it's really in the D&D area because there are some actions. We have actually pulled back on some of the engineering support in Europe, but we are seeing a couple of platforms being re-activated with two key customers in Europe that will start up and that will drive some expense in the fourth quarter.

Okay. You gave a cash flow -- can you just give a cash from operations number either for the quarter or year to date? I think you gave it net of CapEx, right?

Yes. I think one attached to the press release is the net cash at the operating level was for the nine months is 2.6.

I'm sorry, I missed that.

Yes. It's -- there's a cash flow right at the end on the back of the press release you can use.

It's been a busy morning. And then I guess lastly you didn't want to talk about the Bolton yet, but is there any way you can just put sort of a framework around the revenue?

I mean is it -- or is it small enough where I'm not going to really miss a lot if I can't put anything in my model? How should I approach that going forward?

I don't think you will miss a lot in the short term, but I think we will come out and give guidance for toward 2010 on how we see it framed.

I think this will be something that as we -- as they get ramped up or as we get them ramped up -- when we ramp up together I should say in 2010 is really the year we are looking at.

Okay so basically it's not going to be real material here in the fourth quarter?

Wouldn't say it is.

And then I guess lastly just on the equity income, you guys had a very strong quarter there. Is it the India business? I think that has typically been breakeven or a small loss in the past? Is that becoming a larger contributor or is that still mostly PST there and --?

It's still predominantly PST, but the Indian business is not a small loss. It is making money now and it's on a growth trajectory. So we look at the Indian business as being about three years behind the same kind of trajectory that PST was on. So as that market continues to ramp up.

To help you, I think that business is up to about $25 million in sales and it's making about 5, 6% net income.

In India?

In India. We're about 49% owner of that business.

Okay. Perfect. That completes the list here. Thank you.

Derrick Wenger with Jefferson Co.

I'm joining the call late. I'm sorry. If you could tell me what D&A was for the third quarter and then net capital expenditure outlook for Q4 in 2010 and then just review the bank lines? What is available? What is the size of the facility? What is drawn and what are the LOCs out against it?

The bank line is $100 million. Our availability is now up to $51.1 million at the end of the third quarter. It has got a maturity through November of 2011 on it. You ask about D&A. (multiple speakers) Yes, it was just under $5 million for the quarter. I think it is 4.9 million -- $4.9 million (technical difficulty) forward. You are talking about depreciation, right?

Yes. Depreciation and amortization.

Yes, it's $4.9 million. And then our overall capital spend this year will be in the range of $16 million to $18 million -- 14 to 16, I think. And the next year, historically, it has run around the range of around $20 million to $23 million.

So we haven't completely finished the budget, but I would assume that depending on historical launches we should be in that range of $20 million to $21 million for next year.

Okay, great. And when is the Q filed?

Second week in November, I think.

Yes, it will be filed within the next two weeks. Next two weeks it will be filed.

Okay, but the D&A was $4.9 million?

Yes.

Thank you. And what about drawn on the -- anything drawn on the line and what about letter of credit?

Well, we have $3 million of letters of credit and nothing other than that is drawn against the line.

Which was included in the availability number you quoted.

Great. Thank you.

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

Again, I would like to thank you for joining us. You know, we are encouraged by the performance that the team has done. We feel very -- I think our team has done a good job in a rather difficult environment and I think that is showing up in our results.

But, really, until we get to seeing some additional market improvement and we can leverage this performance, that is when we really will get excited. I mean we are encouraged by what we're seeing. I think as I concluded, we have largely finished with our operational restructuring. We will continue with operational improvements. We will continue with financial improvements, but our focus now will be on how we grow the business going forward to leverage this new cost structure.

So with that I'd like to thank you all.

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