Stoneridge Inc (SRI) 2010 Q1 法說會逐字稿

Good afternoon, everyone. And welcome to the first quarter 2010 Stoneridge earnings conference call. My name is Tawanda and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will facilitate a question and answer session towards the end of today's conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Ken Kure, Corporate Treasurer and Director of Finance. You may proceed, sir.

Good afternoon, 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 that certain statements today maybe forward-looking statements. Forward-looking statements include statements that are not historical in nature and include information concerning out future results or plans. Although we believe 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 and Exchange Commission under the heading forward-looking statements. During today's call we'll 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.

John will begin the call with an update on our growth strategy and Business Development and his thoughts on market conditions. George will discuss the financial and operational details of the quarter and future outlook. After John and George have finished their formal remarks we'll then open up the call to questions. With that I'll turn the call over to John.

Thank you, good afternoon. In February, when we reported our fourth quarter and 2009 year-end results, I reviewed our trend of improved operating and financial performance which started in the third quarter of 2009.

As stated then and affirmed now, we have adjusted our cost structure to operate at a lower volume level and to leverage volume increases as the market rebounds. I am pleased to report that our first quarter results continued the positive trends started in the third quarter of last year. First quarter sales of $148 million support our sales guidance for 2010 of between $590 million and $610 million, a projected increase of 26% for the year.

Gross margin was 22.7% in the quarter at the low end of our targeted range of 23% to 25%. We achieved operating income of $4 million as our marginal contribution -- and our marginal contribution was nearly $0.53 of sales at the gross margin line. We recorded a net income of $1.5 million and a positive EPS of $0.06 a share, our first positive EPS since the second quarter of 2008. Even as we maintain our liquidity and reduced our cost, we did not lose sight of our growth objectives.

In the first quarter we booked $32 million in new business wins which further diversify our customer base and address the growing emerging Markets. Our net new business wins now stand at $140 million over the next three years and $206 million in the next five excluding the impact of the BCS acquisition.

Since the third quarter of 2009, we have continued the trend of positive operating income and have recorded an improvement in the first quarter of 2010 over the prior two quarters. This performance reflects the cost improvements implemented across the Company and the volume increases we are experiencing. Cash at the end of the first quarter was $80 million down from $91.9 million at the end of 2009. The liquidity used was primarily driven by higher accounts receivable which resulted from higher sales. We believe we are well positioned to take advantage of the market turnaround. Our objectives are to maintain our growth while managing our cost structure and to continue the volume leverage financial improvement on the business as volumes do improve.

Last year, we booked new business of $134 million with $99 million from non-traditional customers. In the first quarter of 2010, we have continued that trend as we were awarded $32.2 million of gross business of which $26.3 million was new business and $6 million was replacement. Of the $32.2 million amount, $11.2 million was represented by customers outside of our top four customers, a continuation of our diversification efforts where we made great strides last year.

Over the last two years, we have realigned the Company around two business segments, electronics and control devices. In August of last year, we announced the integration of our control devises division into one management team. With the consolidation of control devices we have prioritized their D&D investments to better focus our development efforts and resources on targeted growth segments and global opportunities.

Focusing on our primary market segmentation of medium and heavy truck, pass car and light vehicle and agricultural, we continue to be weighed more heavily in the commercial sector which includes expansion into the military and material handling sectors. For the first quarter of 2010 our percentage of sales was 49% from the commercial segment, 34% for the pass car and light vehicle segment and 17% for agricultural and other which includes material handling. We are continuing with our plans to enhance our sales by region and to cross sell multiple customers. As an example in the third quarter of this year we expect to begin shipping wiring products out of our Astonia facilities, Fort John Deere in Europe.

We expect to see growth in all three segments but our commercial vehicle business will experience the most significant growth due to new customer wins. In the first quarter of 2010 we were awarded the Dash 8 military vehicle for the Afghan theatre through Navistar which is expected to be in the range of $10 million to $15 million this year.

We anticipate that sales for this platform will be produced and shipped in the second and third quarters of this year. As you look at our position when combined with the acquisition of Bolton Conductive Systems these awards demonstrate we have the opportunity to convert significant military business either directly through our customers or through Bolton's customers. We have committed resources to expand our presence into China and India while continuing to focus on Brazil with our PST joint venture.

In China, we are extending the usage of our low temperature and speed center technology and products. China has won four new applications during 2009 in the wheel speed sensor and oil level sensors and has won two additional awards in the first quarter of 2010 for an oil pressure switch and a passive entry switch. While these awards are small, they begin to enlarge our product and technology offerings in this important market.

We also opened a new technical center in March in Shanghai to house our sales organization, technical engineering and testing facilities. We are launching a wiring operations to support local customers and for export to our control device business in North America to satisfy customer requirements.

In India, our JV sales are forecasted to be approximately $26 million in 2010, an increase of approximately $5.6 million or 27% over 2009. Based on the markets and our products we have raised our sales target in India to reach $50 million to $75 million over the next three to five years and we are negotiating to add our sensor productlines to this venture. Our PST joint venture continues to perform well although below our first quarter expectations for 2010.

Government incentives in the first quarter increased the sales of fully equipped new cars which unfavorably impacted PTS sales in the first quarter. These government incentives cause more vehicles to be sold with more accessories at the OEM level which had a negative impact on the after market and dealer business.

Dealers also have been lowering inventories which had a negative impact on PST's after market business. In spite of the first quarter performance, PST still expects to achieve their planned sales and profits targets as the government incentives have expired and PST will accelerate new product launches such as a car stereo radio CD combination and car speakers in the balance of the year. One of our objectives of integrating control device was cost reduction and a focused approach to the global markets. In the first quarter of 2010, control devices has improved its financial performance faster than anticipated.

I'm pleased to say that they were able to improve first quarter 2010 operating profit by $13 million on a $27 million sales increase compared to the first quarter of last year. The results of the technology focus they have been implementing are beginning to bare fruit. We have won new business in the last two quarters with our magnetic sensing and torque applications and capacitor sensing which we will be launching over the next few years. We have won a shift by wire application for Ford which will start in the 2012 model year and which can be adapted for sales to other domestic automotive customers.

In operations we continue to focus on quality, delivery and cost with our lean initiatives and to develop consistency and standardization for our manufacturing and supply chain processes. Our Lean principals and concepts are beginning to drive these benefits. Our inventory days for the first quarter were 35.9 days. This is a 6.7 day or 16% improvement over the first quarter of 2009.

We have been primarily concentrating on the North American electronics unit with our Lean principals and tools; however, we are now beginning to implement these same methodologies in our control device operations. Our first quarter was also marked by supply difficulties which resulted in part shortage and excessive work by personnel to overcome these difficulties. I want to thank our team for their efforts to maintain our customer commitments.

In summary, we believe our progress demonstrates we have taken the right actions to make the Company more competitive and position the Company to compete effectively in the future on a global basis. We have dramatically reduced our cost structure and taken out nearly $50 million of permanent fixed overhead cost. As a result, during 2009, we have lowered the breakeven sales level to approximately $473 million or 26% improvement compared to the 2007 level.

We have preserved liquidity and managed our cash position. At the same time, we've clearly stayed focused on our top line growth. Our net new business has grown approximately $140 million over the next three years and $206 million over the next five.

2010 is showing signs of recovery. Passenger car and light truck production is up nearly 70% and it's expected to reach in the neighborhood of $11.6 million this year in the North American market which will benefit our control device business unit as we have built our 2010 plans around for slightly less than $10 million unit build. In the commercial vehicle market there is an improvement over the prior year but not to the levels of the previously expected industry forecast. We believe the improvements will be tending more towards the last half of this year and the 2011 and have adjusted our plans accordingly.

Finally I believe that our first quarter performance has demonstrated that as the Markets return and the industry begins its improvement, Stoneridge is poised to continue to improve our position. With that, I'd like to turn the call over to George.

Thank you, John. John shared earlier the focus of our business plan for liquidity and cost reductions. Our controllable cost reductions is focused on four key areas: manufacturing, overhead, direct labor, design and development and SG&A expenses.

Based on the results through the end of 2009, we reduced our cost excluding restructuring by $99.3 million compared to 2008 at $85.8 million compared to 2007. As we review our first quarter 2010 results, the same fourth cost line items excluding the impact of restructuring costs are down by $19.8 million compared to the first quarter of 2008, $19.2 million compared to the first quarter of 2007 and flat compared to the first quarter of 2009.

This clearly shows we have permanently changed our cost structure and reduced our fixed cost which combined with our sales increase has resulted in our gross margin reaching 23% in the third quarter of 2009, 21% in the fourth quarter of 2009, 22.6% in the first quarter 2010. With our sales reaching $148.1 million in the first quarter of this year, this would represent an annual sales level of nearly $600 million, a 26% increase over the 2009 sales level of $475 million.

We have accomplished this growth with minimal increase in our cost structure. Our challenge would be aggressively manage our cost structure as tightly as we did when the market was declining because when the market rebounds. Another important achievement accomplished by our management team was the successful wind down of our Mitchell Dean UK subsidiary.

On February 23rd of this year, the Company placed its wholly owned subsidiary, Stoneridge Pollack Limited into administration in the United Kingdom. The Company had previously ceased operations of the facility as of December of 2008 as part of the restructuring initiatives announced in October of 2007. All SPL customer contracts are transferred to other subsidiaries of the Company in coordination with the administrators process.

The Company recognized a gain below operating income of approximately $2.3 million on the reversal of certain items included with other comprehensive income during the quarter ended March 31, 2010. Another important area we are monitoring are the capital markets.

We have an interest in extending the term over long term maturities and reducing 11.5% coupon rate on our long term bonds that mature May 1, 2012 and as of May 1, 2010 our bonds can be repurchased at par. As the capital markets improve we will pursue opportunities to extend our maturities and reduce our interest rates.

Now, I'd like to cover with you some of the details regarding the financial performance from the quarter. Revenue of $148.1 million in the first quarter represents an increase of $27 million or 22.3%. Our sales increase as a result of increasing production volumes in our served markets and improving economic conditions.

For the first quarter, light vehicle revenue increased from $34.4 million to $50.1 million, an increase of $15.7 million or 45.5%. The increase was primarily attributable to the 69.5% increase in traditional domestic production and our control device segment.

Medium and heavy duty truck sales totaled $70.9 million in the quarter, an increase of $11.1 million or 18.6% over the prior year first quarter.

The revenue increase was primarily driven by an increase of 17.3% in the North America commercial vehicle production while there continues to be a decline in the European commercial production by 6.5%. Sales to ag and other markets total $27.1 million, an increase of only $200,000 or 1%. North America revenue accounted for 78.5% share in the first quarter revenue compared to 80% for the same period last year. The percentage decrease of our North America revenue reflects favorable foreign exchange rates on European sales while we continue to experience a reduction in our European commercial vehicle builds.

In the first quarter electronics revenues were $91.6 million compared to $82.8 million from the same period last year, an increase of $8.9 million or 10.7%. Favorable factors affecting the first quarter performance was the 17.3% increase in North America commercial vehicle production, although we sustain a 6.5% decrease in European commercial production and favorable exchange translation.

Revenues for control devices of $56.4 million increased to $38.3 million compared to the first quarter of last year which is an increase of $18.1 million or 47.3%. The 69.5% increase in production of North America light vehicles for the traditional domestic manufacturers was the primary reason for the increase.

Our first quarter gross profit was $33.5 million resulting in a gross margin of 22.6%. Our gross margin increased 6.7 basis points from the prior year level. This marks the third quarter in a row that our gross margin was greater than 20%. The continued increase is primarily due to the cost structure initiatives and is positively benefited by higher sales volumes.

Sales from low cost manufacturing locations accounted for 47.3% of total sales for the first quarter compared to 42.8% in the prior year. The increase is due to volume increases primarily in our Mexican facilities.

Production line moves from our Mitchell Dean UK operation to China and Astonia have contributed to the increase in our low cost manufacturing locations as well. Selling, general and Administrative expenses totaled $29.5 million in the first quarter compared to $27.1 million in the previous year. The increase in SG&A is primarily due to the rein statement of certain compensation and related benefits that were curtailed in 2009.

We have increased our design and development expense from $8.6 million to $9.1 million as some of our customers have made the decision to proceed with some of their future projects and platforms that have been delayed or deferred. Our SG&A and design and development spending increased compared against our last quarter to support renewed customer requests and near term product launches, especially our European truck plant platforms and the launch of our new wiring business in North America that begins in June of this year.

As reported earlier, our SG&A expense in the first quarter of 2010 excluding restructuring is down compared to 2007 and 2008 by $3.7 million and $5.4 million respectively. The first quarter income tax benefit was $1.5 million on a pre-tax loss of $6,000.

As reported for December 31 of last year, 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 first quarter of this year for US federal and State tax purposes.

The impact of those valuation allowances was partially offset by a tax benefit for losses incurred in Sweden and Ireland along with a tax benefit related to the SPL winddown activity. Due to the valuation allowance and pattern and projected earnings, the quarterly effective tax rates will fluctuate significantly. We expect the 2010 annual effective tax rate to be between 36% and 39%. The higher effective tax rate anticipated for this year is due to the circumstances that caused us to write-off our deferred tax assets in December 2008 and which will continue to prevent the Company from recognizing a tax benefit for domestic and certain foreign losses.

As the market stabilizes and profitability returns, we expect the effective tax rate to normalize and be in the range of 27% to 30%. Stoneridge reported a first quarter net income of $1.5 million or $0.06 per share. This compared with prior year net loss of $11.6 million or $0.49 per share.

Depreciation expense for the first quarter was $4.8 million and amortization expense was negligible as most of the intangibles have been written off in December of 2008. Our primary working capital totaled $89.3 million at quarter end which decreased by $1.7 million from the first quarter of last year. As a percentage of sales our working capital increased from 13.6% to sales in the prior year to 17.8% to sales in the first quarter this year.

Our working capital measures have been significantly influenced by the drop in sales revenue in the last 12 months and the current working capital levels are a function of increasing sales and operational activities. As markets return our long term goal remains to reduce primary working capital of $0.12 of sales. We are projecting we can reach 13.7% by the end of this year.

Operating cash flow was a cash use of $7 million in the first quarter compared to a cash source of $1.2 million in the previous year. Our cash flow results in the first quarter were affected by the increase to accounts receivable and inventory offset partially by accounts payable which are a function of increased sales and operational activities. Capital investment for the quarter totaled $3.6 million mainly reflecting investment in new products and sensors in wiring as well as IT spending for our ERP implementation in North American electronics.

We are forecasted to finish the year with total capital spending in the range of $23 million to $25 million. We will continue to focus on cash flow and liquidity as a high priority. And as of March 31 of this year, we have $68 million of availability under our $100 million asset based lending facility, a significant improvement from the $57 million level at December of last year.

Our borrowing base has increased by $11.7 million since the first quarter of 2009 as increased accounts receivable balances are the direct result of higher sales. We have no borrowings drawn against our asset based lending facility which has a maturity of November 2011.

Our quarter end cash balance totaled $80 million compared with $89.2 million at the end of the first quarter from the previous year. We will continue to manage our Capital Expenditures and working capital to sustain and/or improve our cash flow. Going forward we expect we will continue to fund our operational growth initiatives through our free cash flow generation and available cash balances.

As the market recovers our working capital will begin to grow in dollar terms but we will continue to improve our days to achieve our primary working capital target of 12% of sales. The environment so far for 2010 has shown signs of economic recovery though our plans will remain cautiously optimistic.

Based on our first quarter results and our April forecast it appears the market will continue to improve compared to the second quarter of last year. We have experienced significant improvement in passenger light trucks in North America. Our emerging Markets are returning to their historical levels. India and China are also experiencing improving market conditions.

Our PST joint venture did not perform as expected in the first quarter due to the expiration of the government tax incentives in new cars and build up of inventory at our dealers. PST, however, still out performed the first quarter of last year and is reducing their inventory from 90 days to 40 days. We still continue to expect significantly improved performance compared to last year.

On the cautious side the commercial vehicle market in North America continues to stabilize but no significant growth is forecast for 2010 compared to historical levels. Our sales are up due to new business and product launches.

The story is different in Europe as we do not expect the European commercial market to recover in 2010; however, we have been encouraged by many of our OE commercial customers in Europe reporting stronger than expected results in their first quarter. As John stated before, we are optimistic as our financial performance trend for the last three quarters reflect the significant accomplishments by the Stoneridge Management team and all of our employees. We have permanently reduced our cost structure which has lowered our breakeven sales level. We have maintained our liquidity and our cash burn rate is being controlled by actively managing working capital.

Most impressive measurement of the management team is that we never lost focus on our future growth. We have the largest book awards we've had in a number of years, $140 million over the next three years and $206 million over the next five years, and we couple our net new business with volume from a market rebound and a much improved cost structure, Stoneridge will generate shareholder value and have the ability to hit our long stated goal of reaching an ROIC of 15%. Operator, I would like to open up the call for questions at this time.

Thank you. (Operator Instructions) Your first question comes from the line of Matt Mishan with KeyBanc. Please proceed, sir.

Good afternoon, gentlemen.

Hi, Matt.

Good afternoon.

I don't know where to start. Lots of information. I'll start with the sales growth. Agriculture kind of struck me coming in at $27 million. Is that new business coming in because I think the previous quarter was $17 million or is that seasonality or are we just back to normalized levels of ag business?

Well, I think it's really more seasonality as they load their pipeline and go forward. I don't think, I don't recall any new business awards year-over-year but I mean in that category but the ag business is strong and somewhat offset by what's happening in forestry and that particular segment of the business.

Matt, I think what we did say though is the ag sales were flat in the first quarter, so we have not seen a lot of uptick but yet John Deere is starting to improve significantly in the second and third quarter but we did not see much of an up lift in the first quarter.

I was sort of talking in reference to the previous quarter, the fourth quarter of 2009.

Oh. That would be cyclical.

Right.

Okay, the backlog I want to make sure I got the numbers correct. Did you say $140 million over the next three years and $230 million over the next five years?

$206 million over the next five years.

And previously, it was $120 million and $170 million?

Yes. That's right.

What do you think is the difference? What's improved?

Well it's coming in a couple different sectors. In the commercial side we've got new launches there and I think we share with you the last time we've got new technologies in the magnetic sensing, torque sensing and control devices. Those are firm orders, now we've landed the capacity sensing business and the drive by wire is now coming in in 2012, so we're starting to see growth coming across all our key sectors plus we continue and we mentioned we've got additional wiring business that we pulled in, that that starts in June of this year so it's really a little bit across all of our segments and across each one of our key business groups.

Okay, could you elaborate a little bit on the sequential, from the fourth quarter to the first quarter the sequential bump in SG&A, how much of that was incentive comp and how much of that was some of the temporary salary cuts coming back in and whether or not they've already come back in and it's just a one quarter event or if we expect to see some more in the second quarter?

Well, Matt, I think you almost have to go back to the third quarter last year and the third quarter was a little bit I'd call it a little bit Cicionnian because we took a lot of furloughs in that period, we took a lot of unpaid leave so it ramped down probably a little what I would call abnormal, it started to come back in the fourth quarter in terms of where it would stabilize and then what you're seeing in the first quarter is one an increase on our sort of incentives for our employees.

We have held our merit increases by a quarter when they were due, so merit increases will not begin until the second quarter so that's not really in there, so it's mostly the incentive. We have seen some pick up in the D&D side which is including the SG&A that you referred to and it's really with our European launches and we've had to spend some additional funds with our new business that's launching in North America in June of this year.

Okay.

So I would say the annual incentive is probably about $1 million to $1.3 million of that and then the rest would be the additional costs that we're incurring with our start up and our launches in Europe and our new business in North America which begins in June.

And our incentive compensation, I mean, as we looked at our plan and how our plan year is rolling out, it looks to be a good year as far as what we thought the year would turn out to be and I think as you've seen it in the volumes in North America and automotive they are better than projections so that the one of the other factors that are driving the incentive plan, as our results start to improve, the amount that we fund that will improve.

And I did want to share as I did share with you, Matt, and with everybody in the call is that if you look at the trend of costs from first quarter 2007-2008 and even in the first quarter of this year, we're down when you look at the aggregate of direct labor overhead and the SG&A costs which include the D&D, so we continue to run this pretty tightly in terms of even with a ramp up of sales that have gone from manual rate of about $475 million now are running at about $600 million. And the ERP system. The other thing is we're starting to ramp up the cost in our ERP system. George mentioned that we're going to the system for our North American electronics business and that cost really starts to ramp up as we go through the year.

Okay. Just following up on that question and moving on to contribution margins, and I think quarter-over-quarter and sequentially, I think we saw an 11% contribution margin, I think you had hinted the program launches and increased cost of that would keep the contribution margins down a little bit in the first quarter. As we look to the second and third and fourth quarter we start to see ramp up especially in the commercial vehicle production, what contribution margin would you expect on the incremental sales?

Well, I have to tell you we were a bit surprised at the gross margin level was 50, but we historically have always used right around 30-35% and I would continue to use that as a factor, Matt.

Lastly, and then I'll jump off and see if anyone else has questions, on the Brazilian PST, can you elaborate a little on what incentives the Brazilian government was giving, why it impacted you this quarter and not in previous quarters?

Well, in the first quarter, to stimulate the market similar to what we had here was a cash for clunkers. In Brazil they offered tax incentives on the purchase of a vehicle and what that did is that stimulated demand. The car companies down there have a limited amount of capacity, so they have quickly saw that demand was going to exceed their ability to produce and so what they started doing was moving everybody up to sell fully loaded vehicles, and so as they move people up and from a persons point of view. When they were buying a fully loaded vehicle because of the government incentive they were not paying the full price, so it was a benefit to them so as they moved up to the fully loaded vehicles, the normal add-on accessories that would happen did not happen. Because they were already on the car, so both our OES business through the car dealerships and our aftermarket dealer business suffered as they happened, so I rolled those incentives off and it was, so we expect to see the business pick back up, plus we had an inventory adjustment there as dealers adjusted their inventories to compensate for what happened in the market.

Okay, and you'd mentioned a plan, you'd mentioned being still believing that you could make the plan for Brazil and PST. What is that? Do you have a revenue projection for 2010 that you expect to hit or do you have an equity income that you expect to recover from that business?

The sales forecast that we're looking at essentially takes us back to the 2008 level, roughly about the same, and then the marginal contribution from Brazil, I mean you know the margins have historically run in that 48-50% and we don't see any reason they should change from that. They are introducing as John mentioned some new platforms that will offset part of the decrease that we saw in the First Quarter as they introduce the new audio and the stereo. That will help cushion some of the drop that we experienced from the luxury tax in the First Quarter.

Okay, thank you very much guys.

Thank you.

Your next question comes from the line of David Leiker with Robert W. Baird . Please

Hi, good afternoon. It's Keith Schicker on the line for David.

Hi, Keith.

Matt actually asked most of my questions here, so just a couple. Can you just rundown what the non-recurring gain was again in the quarter? I didn't quite get that one down.

Keith, it was $2.3 million and it was really the reversal of the currency exchange in SPL plus the write-off of the cash and the inventories and receivables that were sold to the Stoneridge organization so the net amount was $2.3 million included in other income below operating income.

Okay.

And then the tax credit, the $1.5 million, off that, a $1.2 million was the kind down of the SPL operation as a one-time item.

So 1.2 of the 1.5 was a benefit from that?

Right.

So you actually saw a pretty sizeable benefit from that transaction or that event.

Right, and then that will finally wind down all the obligations that we have with the SPL closure that we started going back in 2007.

Okay. If we look at just a couple quick ones on the top line, did Bolton add anything to revenue versus the prior quarter?

They have a lot of quotes in right now, but there was very little pick up in revenue. We're looking at that more for the second half of this year.

Okay. Was there an FX impact on the top line?

There was but it wasn't huge.

It was negligible, Keith, and we'll send that to you. We'll give you the actual number.

Okay, and then I think when we talked last quarter on the earnings call, we kind of talked about if we look through the course of the year, Q3 was going to be the weakest quarter followed by Q1 would be a little bit stronger and then Q2 and Q4 would be about equal and stronger than where Q1 was. Do you think that trend still holds given changes in the industry since then or should we think about that differently?

No, I think you should probably think about it the same way. If anything I'm hoping that it may be even better because if the commercial vehicle comes back a little bit sooner as we start to see some of the positive news and as George said if you looked in Europe some of the major truck manufacturers over there recorded very good earnings so maybe we'll see some faster uptick in that and I'd love to see it come back up at the same rate that the automotive came up because I think that surprised everybody how fast the North American automotive came back but we're not projecting that but I think you'd still stand by what we said before.

Okay, an then it sounds like on the SG&A side, we had some temporary cost productions that slowed back into the business. Was there anything similar to that on the gross profit or gross margin side or did you think that's sort of the 22% to 23% level sustainable at $150 million plus in revenue per quarter?

I think we've proven that that's the level we run at. I think we can improve as the volume continues to go up because at that point, it reflects the direct labor and then the raw materials side tends to fluctuate based on our sales mix so I think that marginal contribution will be there.

Yeah, we mentioned we have some supply difficulties along with a lot of other people in the first quarter and a lot of that in order to make sure this is really where I think the team did a good job, in some cases we're going hand to mouth as we're getting parts in, we were working to produce the product and ship it to the customer so there's probably some excessive cost in the labor lines as we work to ship that product out so the supply chain disruption starts to ease as it is now and we think it will probably take through the Second Quarter, sorry to ease, we'll see some recovery in that.

Okay, and then lastly, George, can you just update us on what your current thoughts are for the 2012 maturity?

Yeah, clearly, Keith, the Markets are getting very robust so John and I are much more active now starting to look at the capabilities of what we can do in the debt Markets and clearly, I think the bond market for a change is looking forward as opposed to looking back on LPM, so that I think the rates are attractive for a number of ratings that a Company may have, so I think our rates now coming down at the level that it makes extreme sense for us to really look at refinancing our bonds.

Okay. That's great. Thank you very much.

Keith, by the way the currency for the quarter is $3 million, $2 million favorable.

(Operator Instructions). Your next question comes from the line of Steve Nicol with ACK Assets.

Hi guys, how you doing?

Steve, yourself?

Good. Good to talk to you. Most of the questions have been answered but just a little more clarity on the incentives in Brazil. When did those actually end?

Well, at the end of the first quarter, at the end of March.

End of March, okay. And then since March, have April volumes picked back up to your plan and has there been any type of restocking at the dealer level?

Actually, the dealer restocking probably has not happened yet. Because we actually were in a inventory reduction mode as we were adjusting our inventories too so I expect we're probably going to have to get into the May and June time frame to start to see things coming back. Not only was it an automotive incentive in Brazil but there was incentive for white goods too so a lot of things going on for sure the Brazilians could have gotten some kind of incentive for.

Right. And any updated thoughts on the potential monetization?

The equity markets, they returned for the large cap and not for the mid cap and small cap and we continue to monitor that but at this point in time, the market has not seemed to be robust enough in the mid cap and small cap.

Okay, and then just quickly on your contribution margin, you said of 30% to 35% and $473 breakeven run rate, what type of contribution are you assuming from potential cross-selling that you're doing, new platforms? Are those typically above margin or are you just looking at your current business run rate and what that should be once the commercial Markets pick up?

Well, I think on our new business clearly we're pricing that as higher contributions and the new technologies differentiate ourselves like magnetic sensing cylinder positioning, all of those. When we say $0.30 to $0.35 that's more of the base business of where we are today and that will start to change with the new technologies we've been referring to the last couple quarters.

So as we see this new dollar business increasing, that potentially creates upside from the contribution margin?

Yes. I think you've got to break it out. Some of the business wins are in existing business. I mean for instance, in our wiring business wins you won't see any significant increase in contribution margin from historical levels. When you get into as George said into the magnetic sensing product where we think we have proprietary technologies, we are going to price appropriately for that to improve the margin capabilities there, so but I would still say that if you looked at our business, I would say that you're going to look at three quarters of it running at about the historical rate and then the other quarters where we're going to start as we expand into those segments you'll see we get some capability there to move the contribution margin up, but that's going to develop over next couple years because that's part of the shift of the strategy we've taken in this business of getting out some of the commodity type products where we couldn't and moving more into some more technologically oriented products where we had a different position.

I'm assuming the new ERP system can only help those numbers as well?

Yeah, well that system is going to go like through 2010 and into 2011 to be installed but we expect to see some benefits from that system here, correct.

Okay, thank you guys.

You're welcome.

With no further questions in queue, I would now like to turn the call back over to Mr. John Corey for closing remarks.

Well, thank you. I think as our First Quarter as we've said, we are building the business back, rebuilding the business consistent with the theme that we established all last year as we went through this terrible downturn in the marketplaces and we're optimistic because as we come out of this we're seeing as I think we've demonstrated in the First Quarter seeing type of leverage we can get on our new cost structure so I think our challenge now is just to see we've got the automotive Markets coming up, if we can get our commercial vehicle coming up our electronics we'll leverage the same way we leverage automotive so we're very encouraged by what's happening. As we've always said we look at this as a two year plan, 2010-2011, but hopefully it will be a little bit better than that so I appreciate everybody's participation on the call today and with that, I'll say goodbye.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect and have a great day.