Wabash National Corp (WNC) 2007 Q4 法說會逐字稿

Please stand by for realtime transcript. Greetings and welcome to the Wabash National Corporation fourth quarter 2007 earnings results conference call. At this time all participants are in a listen-only mode. A brief Question and Answer Session will following the presentation. At that time if you have a question session, will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Mr. Richard Giromini, President and Chief Executive Officer for Wabash Nation Corporation. Thank you Mr. Giromini, you may now begin.

Thanks, Latonya. Good morning, before we begin I would like to make an important announcement. As with all of these types of presentations, this mornings' contain certain forward-looking information including statements about the company's prospects, the industry outlook, backlog information, financial condition and the like. As you know, actual results could differ materially from those projected in the forward-looking statements. These statements should be viewed in light of the cautionary statements and risk factors set forth from time to time in the company's filings with the Securities & Exchange Commission. Welcome to Wabash National's fourth quarter earnings call. I am Dick Giromini, Chief Executive Officer. In the conference room with me this morning is Bob Smith, our Chief Financial Officer, who will discuss the company's financials. I'd like to welcome all of the listeners today's conference call as well as those listening live via the Wabash National internet site webcast. We have much to cover today and will try to provide as much information as possible. At the conclusion of the prepared portion of our presentation, we will open the call for questions from the listening audience.

Overall the fourth quarter and fiscal 2007 results were generally in line with our previously stated expectations. Gross margins for the fourth quarter came in at a respectable 7.4%, reflecting the impact of lower volumes that we noted in our last call. When considering the current demand environment we feel very good about the gross margin that we were able to deliver during this quarter. As a point of contrast, if you compare our margins for the full year 2007 of 8.3% to the average margins that we generated during the last industry downturn, you will get a better sense of how successful our operational excellence initiatives have been over the last few years. In terms of process yield, productivity and organizational effectiveness, Wabash National's fiscal 2007 performance was at an all time high for the Company. Our strategic initiatives continue to gain traction and will serve to improve the company's long-term positioning as we build a stronger, more profitable foundation from which to grow going forward. However, macroeconomic headwinds and the slowdown in residential housing starts, continue to impact our business during the fourth quarter. Additionally, freight demand remained sluggish which we expect to continue as we move through the first half of 2008. While our recent strategic initiatives and focus on operational excellence have positioned the company to take advantage of the next up swing in the trailer market, the aforementioned headwinds will continue to I (impart) adverse impacts to our near term results, particularly in the first quarter of 2008.

In our third quarter call I noted that we are operating in a softer economic environment than we hoped for or expected. Since our last call, the environment has not markedly improved and the majority of economic indicators that we monitor, point to continued weakness in the first half of the year. The overall economy has shown signs of deceleration, primarily in job growth and in housing starts. Economic stimulus is on the way, but we do not expect the positive influence until the second half of 2008. As we are all aware, freight demand has been in a recession since the latter part of 2006 and despite the December jump in the ATA truck tonnage index to 116.7, the consensus is that while we are not seeing further deterioration, we are not yet seeing a recovery. It is our expectation that 2008 will prove to be the bottom of the cycle with improvements in demand beginning in the second half of the year. ACT research recently reported that trailer unit shipments for 2007 ended up at approximately 217,000 units or a 22% year-over-year decrease. ACT expects a further slowdown in 2008 with a particularly challenging first half of the year. Overall 2008 is expected to be down 16% from 2007, at 182,000 units industry wide, with vans only now projected at 124,000 units. Economic growth spurred by the recent cuts in the federal funds rate along with the recently improved stimulus package is expected to begin to be seen in the second half of 2008 with the trailer market improving shortly thereafter.

Our view of trailer demand for 2008 is generally consistent with that of ACT's prospects for the industry. However, we expect that our 2008 shipments will decrease by only 10% to 42,000 units which represents a minimal decrease in van shipments and a greater decrease for platform trailers. This better than the industry outlook, representing a 2 point share pickup, is predicated on a number of factors including the quality of the Wabash customer base which includes many of the largest and best positioned organizations in the freight hauling business. These operations include our core customer accounts in the mid-market accounts we have cultivated over the last four years. The financial strength of these customers puts them in a position to capture business growth opportunities that many of their competitors can't. Second, the quality, performance and expanding acceptance of our DuraPlate composite trailers. Our DuraPlate product, the original composite panel trailer, has now become the premier standard for the industry leading to more opportunities than ever with new and existing customers. Third, the strength of our existing backlog. As noted in the press release, our backlog as of 12/31 of '07, (inaudible) to $336 million, representing approximately 15,000 units or 35% of our 2008 units goal. Today including recently received verbal commitments, we have 52% in hand with a large number of other very promising opportunities currently being worked on. In comparison we enter 2007 with 47% of our annual units goal in hand. Recently announced significant orders from Conway and Swift are good examples of what I am referring to.

For the first quarter of 2008 we expect to ship approximately 6,500 units. In the subsequent quarters, unit production will range between 10,000 to 12,000 units with the second and third quarters stronger than the fourth. Pricing will continue to be challenging as available capacity chases limited demand while raw material and component costs will continue to exhibit an upward bias due to the continued strength in worldwide demand for key commodities coupled with the weak dollar. While volume improvements in the second half of the year will partially offset these costs, we expect gross margins for the year to be 200 basis points lower as compared to 2007. For the first quarter specifically we're are based with our lowest demand level since the first quarter of 2002 when shipments totaled some 5,500 units. Efforts during the past seven months to right size of the business to the current demand environment, have been successful, fully achieving and even surpassing the $10 million over head spending cost reduction target. However, that is still not enough as first quarter demand levels take us to a point at which gross margins are effectively break even, and we do not expect -- and we do expect that first quarter will result in a loss.

To put the first quarter's outlook in perspective, the following points need to be considered. Historically first quarter is the lowest demand quarter of the year. Units sold and shipped in the quarter will be burdened with the highest costs of the year as those units have to absorb the impact of very low production rates that were experienced in late 2007 and early 2008. Actions taken to further reduce costs in line with production requirements have been necessarily tempered in recent weeks because of the significant uptick in subsequent periods. For example, in an effort to maintain the continuity of a trained work force, we had initially adjusted working days as opposed to reducing the head count further. However, the continued softness and demand for the first quarter has forced us to take the additional necessary action of a temporary layoff of 150 full time associates. Current expectations based on backlog and timing of billed requirements are that all of these laid off associates with return to work no later than the beginning of the second quarter. Now let me be perfectly clear. Do not be alarmed by our projections for the first quarter. This is a one-time event and as a result of the cumulative affect of the aforementioned factors, the business is on solid ground and ready to take advantage as higher volumes return in subsequent quarters. There is nothing to read into this. But I expect that I will be explaining this again next call.

Next I would like to update on you some of the initiatives that we continue to work on to build a stronger more profitable foundation from which to grow and leverage long-term. While we are very focused on cost control initiatives, we will continue to invest in the business and be ready for the up swing in trailer demand. First, let me update you on some of the initiatives that I've commented on in the past. I will begin with our manufacturing process improvements. The safety performance in our factories and branches continue to show improvement. Our main manufacturing operations in Lafayette just completed the best recordable (inaudible) rate performance in the history of our company and are consistently performing at a level less than half the industry average. Doing the job right is a source of pride for all our associates as quality and fit and finish of our products continues to improve. Month in and month out, process yield in 2007 exceeded that of 2006, and our worst month in 2007 exceeded our best month in 2006. Units and work in process in hold averaged below 400 through 2007. Productivity as measured in labor hours per unit continues to show month over month improvement and at rates superior to those preceding our ERP launch in 2006. Our ERP system continues to operate extremely well. In the last year the system has gone from a top of the mind concern to a significant competitive advantage. We're leveraging the system to reduce quote turn around time, improve inventory accuracy, and inventory turns, manage vendor performance, and drive gains in process yield, productivity, and scheduled compliance, and we've yet to test the limits of the system. The up-line also continues to perform well with both unit costs and quality, the best of all assembly lines, but again it reduced daily rates due to the decreased demand environments.

Finally, both our flooring operations, Wabash Wood Products, and flatbed business (inaudible) continue to perform extremely well, delivering better than expected results in spite of the tough demand environment. In addition to our successful execution on the manufacturing side of the business, we've continued to make meaningful progress on our margin enhancement initiatives. The aggressive strategic pricing initiative that we set in place in late 2006 geared to attain pricing levels that is capture all previous commodity and components parts cost increases, has been affective despite a very challenging pricing environment. While we have had to manage our expectations as the market has continued to soften and as competitors have become increasingly less disciplined, I am pleased with the progress we've made as average selling prices have out paced materials since we began the effort. Recapturing material cost increases has helped offset the impact of declining volume. Our position in the market is leader in size and product innovation as well as our strong customer relationships, affords us the opportunity to be more disciplined in our approach to pricing. So, despite a tough environment, we are doing a very effective job of maintaining our pricing levels. Finally, our strategic sourcing initiative to offset the impact of rising raw materials costs through effective price negotiations, resourcing, and offshoring, are paying off. The strategic sourcing team continues to seek alternative source -- supply sources both domestically and internationally in their pursuit of lower cost opportunities. While certainly more challenging than first hoped, we now have introduced the steel wheel offering manufactured in China, that provides a cost effective alternative for our customers to choose. Other efforts continue. With the current offshore buy of only 5% of our total annual purchases, we have significant opportunity to continue to drive down our costs through our sourcing initiative.

As mentioned earlier our efforts during the course of last year to right side of business to the current demand environment was greatly successful. Exceeding our target of $10 million in over head cost reduction including the elimination of some 60 salary positions from our core business. This will translate into greater profit leverage as we come out of the current trough as we have now learned to execute effectively at these lower spending levels. For the long-term we remain focused on identifying opportunities to grow our business by leveraging our core strengths in ways that is we have not yet realized. To this end we completed the development of a comprehensive strategic plan in the third quarter that will serve as our road map for the next five years and beyond. While we have already begun to execute the plan internally, we will be rolling out the plan externally as part of an Investor Day which is scheduled for March 26. This event will provide investors with a good opportunity to combine a visit to our Lafayette manufacturing facility, learn the details of our plan, along with attending the Mid America truck show in Louisville which opens on March 27. Key elements of the long-term strategic plan that we will review in depth at our Investor Day include a significant expansion of our DuraPlate product sales efforts.

In the third quarter call we referenced our efforts to expand into other markets both within and external to the transportation segment including both OEM and aftermarket. Key to this strategy is the strength in relationship we have built with Alcoa, the first legs of which now allows us perpetual exclusive rights to take our steal composite technology into all markets except in building (inaudible) applications. Additionally, this strength in relationship, provides for us to market Alcoa's unique (inaudible) plate product, which is an aluminum composite designed specifically for weight sensitive applications for the transportation industry. Other opportunities to further strengthen our collaboration including technology sharing are currently in discussions. To drive this growth and diversification initiative and to create the necessary focus we have established the DuraPlate products group. We will also be leveraging our innovative heritage and core competencies to develop the next generation dry van and refrigerated trailers, designed to meet the growing global challenges to our domestic industry. Additionally, as we have done throughout these past several years, we will continue to leverage our cost structure across all areas of our business. Currently we are upgrading capabilities at our Transcraft division that will enable the business to bring more parts production in-house, resulting in reduced materials costs of some $500,000 annually.

Further at our Wood Products plant we are upgrading and consolidating production capabilities into one building which will improve yield and reduce costs by some $600,000 annually. In our Lafayette facility, we're undertaking a number of projects to simplify the manufacturing process and reduce costs. We are in the process of eliminating product design differences that have historically restricted the line that a trailer can be produced on. Once completed, we will have increased manufacturing flexibility and will be able to realize those benefits in 2009. Longer term we are also taking the proper steps to further enhance the Company's manufacturing cost footprint. These efforts will serve to improve our margin expansion potential and strengthen our competitive positioning. Our goal is to streamline the production process and improve manufacturing efficiency. During previous calls I have discussed that the Lafayette facility's layout and the accommodations we have to make in our manufacturing process and the efficiency sacrificed due to plant configuration. This is an issue we will address in order to maintain our position to the lowest cost, highest quality producer in our industry. We will have more to share on that on March 26 and in the months that follow.

Finally, an important component of this strategic plan will be to diversify our business model to counter the cyclical nature of the trailer industry thereby providing the platform to deliver more consistent, reliable results to our shareholders. These actions are designed to do deliver consistent shareholder value throughout all industry cycles, something that we have not been able to deliver in the past. These initiatives will take time, but we're committed to making them happen. We plan to discuss these strategic initiatives in greater detail during our upcoming Investor Day on March 26. Invitations will be sent out shortly. We hope you can attend in person or listen in via the webcast. With that I will now turn the microphone over to Bob Smith our Chief Financial Officer who will provide detail behind our financials. Bob.

Thanks, Dick. We'll take a few minutes and run through the particulars of the fourth quarter. Sales were $258 million on 10,800 units, approximately 10,100 van trailers and 700 flatbed trailers during the quarter. The net income for the quarter amounted to $5.6 million or $0.18 per diluted share. As noted in the press release, we have a few moving pieces in the quarter, results that I need to describe for you. Two of the items are in other income, and the other is in income taxes. In the quarter we effectively wrapped up our direct participation in the Canadian market. As you will recall, we sold the last of our Canadian retail branches in Q3 of this year and in the fourth quarter we completed the mop-up process. Exiting the business in Canada triggered two events, first, the cumulative translation adjustment which is as you know recorded as an element of equity was recognized into the income statement and so in the FX line $3.3 million is recognized there. The cumulative translation adjustment does not attract any income taxes which accounts for the difference between what our normal statutory rate is and the rate that we recognized in the quarter. Also in the quarter we realized a gain of a $0.5 million dollars on the early extinguishment of debt, net of remaining deferred debt issuance costs. We retired $20.5 million of our convertible notes for $19.9 million. Equivalent shares of approximately 36.1 million shares were used in the determination of EPS. The share count includes the effect of options in our convertible notes. The press release has the details. The retirement of convertible debt, reduced equivalent shares by approximately 1.1 million shares on a weighted average the impact was approximately 0.5 million shares in the fourth quarter. During the quarter we did not repurchase any common shares as we thought it more prudent to deal with the debt. Total shares repurchased under the $50 million repurchase program amount to 1.6 million shares at a cost of $24.2 million. The current authorization expires in September of 2008.

Let me go through the details here. Sales for the quarter, $257.8 million on 10,800 units. This compares to sales of $291 million on 12,100 new trailer units in Q3 '07 and $354 million on 15,400 units in the fourth quarter of 2006. By segment manufacturing sales were $238 million on a total of 10,700 units. Retail and distribution sales, $33 million, 700 units, eliminations amounted to approximately $13 million and approximately 600 units. When you look at this by product line, new trailer revenues for the quarter amounted to $235 million on an again 10,800 units. The average selling price of 21,800 hours per unit. This compares to $265 million on 12,100 units with an ASP of $21,900 during the third quarter of 2007. A year ago's fourth, we reported $325 million in sales, 15,400 units with an ASP of 21,100. Units shipped decreased 9% or 1,000 units from Q3 '07, and were down approximately 28% from the year ago quarter. Van trailer ASP's in the quarter decreased approximately 300 hours on a quarter over quarter, and improved 3% from the fourth quarter of '06. Compared to '06 we are continuing to see the impact of our push to improve prices and a slightly higher percentage of refrigerated trailer sales. On a units basis, sales to our core partners accounted for 35% of van units sold in the fourth quarter and that compares to 32% in the third quarter of this year. Used trailer sales amounted to $7 million on 800 units, ASP averaged about 8,800 hours per unit.

This is a slight decrease in sales from the third quarter of this year. Availability of used trailers has continued to be a problem. We haven't had any significant large trade packages available to us since late '05, early '06. We have recently started to see an increase in this availability. Mix, product type and age were the major influences on ASP during the quarter. Parts and service revenues amounted to roughly $13 million in the fourth quarter of this year, and if you look back over the last four or five quarters, they run between $13 and $15 million a quarter. The parts and service business remains sluggish as truckers have parked equipment and -- due to the reduced freight demand. Other income which includes some leasing revenues runs approximately $2 million during the quarter and this is primarily freight revenues that we have.

Gross margin in the quarter came in at 7.4%, down about 1.1% from the 8.5% we registered in the third quarter of this year. This is down again about 0.6 from the 8% we had in the fourth quarter of '06. Gross profit declined $5.5 million from Q3 to Q4, and the decline can be categorized into three buckets. Volume related approximately $3.8 million, 75% of new trailers with parts and service accounting for the remainder. Price related is about a million dollars which is partially mix related. And in the quarter we recognized reserves on used trailers of approximately $1 million. SG&A amounted to $14.9 million or 5.8% of sales in the quarter compared to $17.1 or 5.9% of sales in Q3 '07. SG&A in Q4 '06 amounted to $18.8 or 5.3% of sales. The decrease in SG&A expense versus Q3 primarily attributable to spending controls, reduced litigation costs and reduced allowance for accounts receivable. The fourth quarter year ago was adversely impacted by high professional fees related to IT accounting and Sox. Interest expense amounted to $1.3 million in the quarter. We essentially had no borrowings under the revolving credit line. I touched on the FX already. Taxes again we recorded $1.3 million of tax expense in Q4. This brought our effective tax rate to approximately 19% of income. Again, this is primarily attributable to the CTA gains recognized in FX that don't carry a tax effect with it. Our NOL going into next year amounts to $63 million, and as a consequence cash taxes will be very little in 2008. The EPS details are including included in the press release. Depreciation and amortization ran at $5 million for the quarter, and for the year we had approximately $20 million. Capital expenditures in the quarter were a $1.5 million coming out to a total of just under $7 million for the year. Capital spending was primarily geared towards maintenance capital that was spent.

Head counts -- we ended the year with 3,100 full time associates, and as Dick mentioned we've been reducing the associate count, first the temporaries, and now some full times so that the ratio of full-time employees to part-time amounted to 95 to 5 at the end of the year. The backlog amounts to $336 million versus $393 million at September, and it was down from the $512 million that we had 12/31/06. Cancellations are netted out at the reported backlog. On the balance sheet, we ended the year with $41 million in cash. Our liquidity position which includes cash plus available borrowings under our line of credit, amount to $234 million as of the end of the year. Accounts receivable just under $70 million at 12/31. We're down to a fairly low number, today, sales outstanding were 25 days which is an improvement of roughly 7 days from where we were at September 30. Inventories -- we took inventories down to $113 million versus $133 million a year ago. The big change essentially all of the change came out of our raw materials inventory which is a function of both the decrease in demand but probably more importantly the attention that we have paid to -- how to control raw materials inventory, and we think this is an ongoing item that we can continue to improve on. Intangibles and other assets reflect the Transcraft goodwill for the most part. As you know on the convertible notes side we have these coming due in August, but effectively we have to diffuse the convertibles by May, and our plan continues to be to use the used -- the availability under our revolving credit facility to deal with the convertible note. I think at this time, operator, we can turn it over to questions.

Thank you. We will not conduct a question and answer session. (OPERATOR INSTRUCTIONS) Our first question is from Peter Nesvold from Bear Stearns, please proceed with your question.

Good morning guys.

Good morning.

Good morning Peter.

Dick, in our opening comments, did you say that you expect gross margins to be down 200 basis points year-over-year in '08?

Yes, I did.

If I, you know, am looking at the income statement, if I kind of take that down 200 bips, if I take revenue down 10% or so, and I kind of run forward the operating expenses from 4Q, given that you've got to staff up I guess in next quarter or two to handle the swift and the Conway orders, I only get a million or two of pre-tax. And so I can understand the comments seasonally, 1Q is really week, you expect to lose money that quarter, but I am certainly (inaudible) kind of going to break even for the whole year. And thats only 10% down, top line. Am I looking at that the right way?

Yes, in most respects, that's correct, Peter. We're looking at a year that is going to be influenced by -- as Dick mentioned, capacity chasing a rather weak demand environment which will impact what is the selling prices that we're able to command on the deals that are out there, so you're going to end up with a confluence of negative -- on the selling -- selling prices, a continued pressure from the raw materials as we've mentioned, the fact that the industry is down, has -- certainly hasn't impacted worldwide demand for most the commodities that we're dealing with, and then couple that with what that means to the production and how that plays with the cost structure, we're looking at 2008 as being a break even type of a year.

Got you. And Bob, I think one thing that you've done well in the last two years or so is cleaning up these financial reports, and given how low production is, it is actually a fairly clean report. When I look back three or four years ago, 40,000 to 42,000 was also considered to be about the break even point. Now, again, it was always -- it was exceptionally noisy and you really couldn't trace any of that through the financials under the old financial -- .

Yes, I think as you go back, Peter, you have to look at a couple of things because things have moved over the last three or four years. We certainly didn't burden the P&L with the impact of stock options and restricted awards and things like that. And to the extent that we've continued to work on the cost structure, we did have an incremental step up in costs as we put in new systems to give us more visibility on what's going on in the business and really give people a better view of why things are happening to them and hopefully why things are going to happen to them in advance of when they do happen. So, yes, I think the structure -- cost structure has moved up, and that has an impact on us.

Got you. If '08 -- if we don't see any improvement in the back half of '08 and if things continue to get worse in '09, although, we're all crossing our fingers it is not the case, are there other severable assets that you have now that you sold off the retail stores in Canada, are there other potential sources of liquidity on the balance sheet that you can monetize?

Peter, we feel very good with the actions that we've already taken with our business, and we believe that with the exception of the first quarter, with the very, very low volumes that we have for the first quarter and the inherent costs associated with those, we feel very good about subsequent quarters as we go forward.

What if you don't get that, though? Are there other assets around? You have Transcraft, which obviously you wouldn't want to sell this soon, but are there other things like that?

I think we have monetized the non-core assets that the business had back in the '02, '03, timeframe. Obviously we continue to lament having sold the parts business but can't do anything about that. You could sell another branch, but net -- net it doesn't change the shape of what we're looking at.

Okay, and then finally, on this new relationship with Alcoa, are there any initial investments required out of Wabash in order to start exploring some of these new markets opportunities and on the aluminum composite material, what other than wheels would be a very heavy type material or part that's used on a heavy truck where you have the market opportunity?

Okay. Let me try and clarify a couple other points you made. There is absolutely no investment required. We have our own DuraPlate panel, our manufacturing facilities here on site in Lafayette. That gives us a tremendous competitive advantage and gives us a jump start into leveraging the relationship that we've been able to build with Alcoa. Regarding the ALU-plate product, it is a aluminum composite panel product that we can offer to our customers for those very, very weight sensitive applications, so those are where we see some real opportunities to leverage the relationship and get into some areas that we've not been able to participate in in the past.

Thanks again.. That makes more sense. Okay. Thanks, guys.

(OPERATOR INSTRUCTIONS) Our next question is from Charles knew Hauser from Reich & Tang. Please proceed with your question.

Hi. Good morning.

Good morning.

Could you go through the numbers on the convertible security again, what the conversion price is and how much of that thing is outstanding, please?

Right, -- right at the moment, Charles, we have $104.5 million outstanding. The conversion price on the security would be north of $18. I don't remember the exact price, so the requirement that we have in the convertible note is to retire the security August 1, 2008. There is no put, there is no call. When you go over to our revolving credit facility, we've agreed with our bank group that we will deal with the convertible note by May 1, which, the easiest way to probably deal with it, is to defease it by putting the $104.5 million in a segregated account, whatever, to fund that -- fund those notes when they come due on August 1.

So, basically you're going to tap your credit line for $104.5 million and pay off -- and retire the convertible with that?

That's correct.

And nobody in their right mind would convert -- ?

I think that's also correct.

So, there is no dilute -- I don't even understand why you have 36 million diluted shares outstanding under those circumstances, but I suppose we'll worry about that --

The accounting rules are the accounting rules, Charles. We're just following them.

Okay, and as far as you're concerned, last time you checked with your bank they're more than happy to lend you the money?

The last time we checked with the bank, and as I mentioned in the call, our currently liquidity position would give us north of $200 million of borrowing capacity based on the asset base we have and the cash balances that we had at the end of the year, so we feel comfortable between the position of the banks in our balance sheet, the capacity to follow through on the convertible note with the revolving credit.

Good. And with our friends with the Federal Reserve lowering short-term interest rates rather dramatically, what do you think you would have to pay on that revolving thing at the moment?

It's on a scale, and it's a 1.25, I believe, over LIBOR.

So, at the moment that's like 4.25% or 4.5% or something?

I'd have to check that to be precise. But you're probably in the right ballpark.

So it is pretty low. Okay. So that's really the entire long-term debt of the company at this point?

That's it.

And, okay. Good. And I presume since times are tough and business is extremely slow, your capital spending projections for '08 are pretty low?

Our normalized capital projections look to be all aimed at cost reduction type initiatives for the most part, and on the base, it's about $8 to $10 million.

And essentially what I think I hear you saying is the first quarter is looking bad, but you have reason to expect that business is going to improve over the course of the year, so therefore you're not going to go through some other round of people cutbacks or capacity shutdown?

Well, the way we're looking at it given where we are in terms of the backlog, given our visibility out into the course of the year, the first quarter looks to be the worst we have to face, and that there is an improvement in the second quarter. Obviously if we had the 100% of our goal in hand, that would be a much better situation. We have roughly 50% of our goal in hand which is not dissimilar to what we've had in back years, and that's what gives us the confidence moving forward.

Okay.

We feel very good about where we're positioned now absent the first quarter challenges. As Bob stated, the backlog with the verbal commitments that is we've recently received, look very promising. The quote activity is relatively strong and we have some good opportunities that are currently being pursued, so it gives us some confidence that we can be successful in picking up those share points that I referenced in my earlier comments. The work that's been done over the last couple of years with all of the initiatives to improve the foundation of the business that we're operating in, we're just anxious now to take advantage of those as the market continues to improve, so we're pretty excited actually about what the forward prospects are for the business.

Great. Thank you very much. (OPERATOR INSTRUCTIONS)

There are no questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you, Latonya. While we're pleased with the progress on our strategic and operational excellence initiatives, there is clearly more work to be done. Despite operating in a difficult macroeconomic environment, quote activity remains strong, and our backlog continues to improve. Our position in the market, strong customer relationships and operational excellence initiatives continue to position the company for long-term sustained growth. We are in an excellent position to take advantage as the market recovers. We look forward to providing additional detail on our long-term strategic plan during our March 26 analyst day at our Lafayette facility. Thank you for your participation today. That ends our call.

Operator. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.