Good day, ladies and gentlemen, and welcome to the Stoneridge second quarter 2012 earnings conference call. My name is Keith and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later on, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today’s conference is being recorded for replay purposes. And with that, I would now like to turn the conference over to your host for today, Mr. Ken Kure, Corporate Treasurer and Director of Finance. Please go ahead sir.

Good morning everyone, and thank you for joining us on today’s call. By now, you should have received our second quarter earnings release. The release and an accompanying presentation has or will shortly be filed with the SEC and has been posted to 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 may be made 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 risk and uncertainties and actual results may differ materially. Additional information about such factors and uncertainties that could cause actual results to differ maybe 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 reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. John will begin the call with an update on the current market conditions, operating performance in the second quarter, growth strategies and business development as it stands [ph] on future initiatives, including your updated 2012 guidance. George will discuss the financial and operational aspects of the quarter, thoughts on why our second half will be better than our first half and details of our 2012 guidance. As we share with you, a revised guidance on August 2, we have prepared and published an earnings presentation to provide more detailed schedules to help you understand the second quarter results and trends for the second half improvement a copy of which again can be found on our website. After John and George finish their formal remarks, we will then open up the call to questions. With that I will turn the call over to John.

Good morning. Last Thursday August 2, we provided a revised annual guidance for both sales and earnings. Second quarter results announced today are consistent with that guidance. Our change in full year guidance resulted from a significant change in selected markets and customer performance versus our first quarter and for the balance of the year. After the beginning the year with financial performance in the range of expectations in the first quarter, we experienced a particularly difficult second quarter. Principally, a slowing Brazilian economy impacted PST results and unfavorable movements in foreign exchange rates affected our earnings performance. Weakness in the European commercial vehicle markets as well as lower sales to a large North American truck OEM below our projections further affected our second quarter performance. Even with these market impacts our full year sales for the Stoneridge base business is expected to be greater than last year. Due to the continuing market and revenue softness we have and are taking actions to improve profitability and cash flow by restructuring our PST business, implementing pricing adjustments as a partial offset to higher commodity cost and continuing work to reduce material cost and improve manufacturing productivity. As you can see on Slide 9 of our deck, we expect our core gross margins for the year to be nearly unchanged on lower revenues due to these actions. Revenues in the second quarter were $234.3 million, an increase of $43.8 million or 23% over the second quarter of 2011. This increase includes $35.8 million for PST’s consolidated sales. Excluding the effects of PST sales of $38.5 million, Stoneridge’s core business sales increased by $5.4 million during the second quarter of 2012 or 2.8% compared to the second quarter of 2011. Slide 5 of our deck has a complete P&L breakout on the second…

Thank you, John. As John has shared with you his thoughts on the changes in the markets and the macro economic factors that affected our performance in the second quarter, I will focus my comments on near-term market conditions and how we will improve our profitability in the third and fourth quarters of this year. A key aspect of our return to profitability is recovery of PST sales and the restructuring efforts that were implemented in April and May of this year. PST sales are highly volatile as they sell products in multiple channels such as retail, consumers, dealers and mass merchandisers and OEMs. The purchasing patterns of each distribution channel has been different. As Brazil’s economy shows signs of significant weakness in the second quarter, the consumer demand declined which created excess inventory in the system. As a result of the economic uncertainties and the lack of confidence in consumer demand, distributors began to reduce their inventory levels from 5 months to 6 months on hand to 2 months to 3 months in anticipation of further slowdown. The dealers took these actions in response to demand levels that were not sustainable for future demand and to reduce their debt levels. The results of these factors led to a sales drop that went beyond their expectations and resulted in a BRL 20 million reduction in sales between the first and second quarters. We believe the sales for PST will recover through the balance of 2012, primarily because of the seasonal effective of Father's Day in August, which is normally the second highest electronics demand period. Christmas, which is the largest retail demand holiday for electronics, the summer season which falls in the fourth quarter which has been historically higher demand period. The fourth quarter is also positively affected as the…

[Operator Instructions] And the first question is from the line of Robert Kosowsky with Sidoti.

I was wondering if you could give a little bit more color, I kind of missed it I think, on the cadence of the operating margin in the legacy business, do you expect that to be up 4Q versus 3Q?

We do. It's going to be up in the third quarter, then slightly better in the fourth quarter. It's really the result of the pricing actions that I alluded to, Rob, plus we will get the full benefit of any of the restructuring cost we’ve handled in the second and the third quarter.

Okay, but absent any of those restructuring -- extraordinary restructuring items, you still expect, you know, pretty comparable margins, but just a little bit higher in the fourth quarter, even though revenue should be pretty flat.

Yes, in our deck, we actually show a projection of our key cost components and there is 2 things really driving that. It is the productivity that we’re experiencing in our wiring business, but just as importantly, it’s the pricing initiatives and our raw material cost of sales. And I think in that slide deck it shows pretty clearly, there is a further improvement of raw material costs in the fourth quarter over the third quarter and that’s what’s driving some of the cadence of the margins improving in the fourth quarter, even higher than the third quarter.

Okay and presumably the raw materials in question are kind of precious metals that are going up, I would assume. And I know that you tried to raise prices earlier this year, and were those price increases just not enough? And is there any way you can kind of like index it? Or kind of any thoughts on that?

Well, we’re trying to, certain things we are moving aggressively to try to index copper better than we have. We do have copper escalation clause, but we think that clause is too long, so this year we are hedged out on copper. That’s why you are see in our assumptions we have got copper at 405 [ph] although the market rate is slower. So we will start to work on contracts that will shorten that window and index that. We have tried to index some of the other costs. We are having I would say limited opportunities for that mixed results, but we are getting some pricing increase for things like rare-earth magnets and other things that really impacted us as China has restricted those. And we are redesigning some of that product out too, so that will roll out over the second half of this year.

And if you look at the trend Rob, it really started in lot of those Control Devices in the fourth quarter of last year and what John mentioned with both the pricing and the redesign, that took 2 or 3 quarters to get fully in place and so they are being more recognized here in the third and the fourth quarter.

And then any commentary on just how the business was in July from just like the core business, but then also PST and if you did see -- I think you mentioned a sales rebound in PST. Do you think that was more sell through at your customers, or is it more kind of restocking as inventory has got low?

Well I think the distributors down there like to maintain a 2 to 3 month supply of inventories on their shelves and I think that they had reached that level at the end of June and so there is some restocking. We have not yet gone into in depth to understand how much restocking, but we still believe they are staying in that. The other thing was we introduced our new alarms. So that drove some additional business into the market at that point in time. And I think that in general they were feeling our alarm sales in the month were up versus the prior month. So we were feeling pretty comfortable about that. Now there is still some -- we still got to sort out some things down in that market space and monitor it very closely, but with the introduction of the new alarm, car alarm that should be positive for us. That also has and when we reduce the old inventory, we will have a cost reduction from the new chip that we have in that alarm. And then with the introduction of the cargo alarm and home security systems, while they won't be big hitters this year they will start to launch those programs in the second quarter and drive that forward the balance of this year and then primarily in 2013.

I guess just looking at both PST and Lexi business, did July look like it was a good month and that kind of gave you the confidence to issue the guidance that you did? Is that kind of where that ultimately came from?

Yes, I mean we saw that come out, we saw as George said earlier we looked at our top line revenues in the PST business and their early projection show that they were hitting those targets.

The July was right on our plan, Rob. I think that the question we have, has the market really stabilized or was this sort of a rebalancing they had in the inventory. John and I will be down there in the next 2 weeks and I think we will have a better feel of, is this sort of a readjustment from what they did in the second quarter in inventories or can this be sustainable. Right now our guys feel strong enough that it is sustainable at these levels we are looking at. You got to remember on the first quarter, we built about $54 million and that was a rate of about $179. In the second quarter we did $38.5 million. That was really pushing from 2 things, one a drop in the volume, there was about $10 million of that. The other drop $5 million [ph] is the currency, so we are looking for an uplift and as we looked at it, it's probably be in the range of around $48 million [ph] in the third quarter. So it's an uplift from where we are at, but the exchange is still sitting around BRL 2.02 to BRL 2.03. We don't know which way that direction is going, but I think the government has indicated they are going to try to manage the real in the range of about BRL 1.85 to BRL 1.90. That will help us and then I think the market looks like it's stabilizing at least on the dealer side and the mass merchandisers and then as we indicated, the strong selling months are really coming up here in August and the fourth quarter especially with the summer season and the Christmas holidays.

And just one quick question on PST. It looks like there was maybe like $0.20 or so of cost cuts that you are doing and how do we kind of -- where do the cost cuts come from and you know, is there any kind of the superficial concern as you might be starting to cut into bone because the market didn’t climb as fast as it did. And just kind of any kind of thoughts on that. How are you looking at the cost cuts down there?

The largest cost came out of the manufacturing operations as we adjusted the headcounts to reflect the lower volume expectations going through. Also as we’ve introduced this new alarm system, one of the benefits of that is that there's fewer parts to assemble on that. So we have less direct labor on that. But we have adjusted other overhead centers to reflect that what we believe is the new reality of the Brazilian market. So that means, we've looked at -- we've put a lot of investments into engineering and getting ready to launch these new programs. So we want to now cash in on that investment. So we throttled back a little bit on our engineering and done a little thing in some of the few other overhead areas, but we have not harmed the business. And as the business improvement we can add back the direct labor, but I think our overhead structures have been adjusted to where we feel comfortable with them and so does the Brazilian management team.

Okay, so it's less like permanent cost cuts and more just kind of flexing to the market environment?

Well yes, I would say that in engineering, as we look at that, engineering and some of the other overhead structures like that, they may be permanent, just depending on what we have because we want to drive the launch of these new businesses. And so we don’t need as much new business development so to speak because we've got 3 new products coming out to the market right now of significance to the business.

Your next question is from the line of Richard Hilgert with Morningstar.

I was curious to get a little bit more color on the business model down there in Brazil and how the aftermarket works with these types of products. You know, the types of products coming out of PST are a bit more discretionary in nature. They’re not more repair aftermarket parts. They’re more parts that you’d buy to add to your vehicle. And I am wondering in the Brazilian market do you buy a new car and then buy these aftermarket, the stereo, the video, the alarm all of these things. Do you buy that on your own and have it installed or how does that dynamic work? In other words would new car sales help that business more or would it be detrimental to the business?

Well, you have actually summed it up pretty well. New cars business, when you buy a car in Brazil typically you will buy a car that’s stripped, I mean without options. And then, and because there is a tax on what you pay for the vehicle, so then as soon as you buy that vehicle you can then either through the OES channel meaning through the dealer channel which we sell to, have your alarm installed, have a upgraded radio installed and something else installed or more traditionally you’ll go to an independent distributor or retailer and have those products installed. If you look at the PST product portfolio, we have things like power window lifts and back-up alarms and security alarms. Those things are traditionally installed in the independent aftermarket. Now the one thing that disrupts that, is if you sell a fully loaded vehicle in that market and last year you know the government had modified various incentives so we saw a period of time where imports were coming in fully loaded and into the marketplace and they were restricting our business. The government’s rolled that back as local suppliers of that, local manufacturers of cars have been upset about that, so they rolled back that tax policy. So we believe that the aftermarket is -- we sell to the OES channel, we sell into the dealer network and we sell into the independent channel and where those alarms and products are installed.

So since the government has incentivized the industry and we've seen new car sales improve the last couple of months in Brazil versus the first 4 or 5 months of the year, in the back half if that kind of trend continues, that should help PST?

Yes, we believe it will help PST. The one wildcard there is we are looking at it is, you know consumer discretionary income. I mean that PST, a lot of PST sales are influenced by that. So as we look at that, that's going to be the key. Now what's happened down in Brazil is that last year, credit was probably fairly available. This year there has been some restriction on credit and so that's what we've got to monitor, is how much discretionary spending can the consumer afford when they are having to put more money into their vehicle to buy the original vehicle. In other words, last year you could buy it with 10% down and finance the rest. This year you may have to pay 40% down and then finance the rest. So that's the one thing that we don't have and good handle on yet, what does that mean for consumer discretionary income? The second aspect will be as Brazil improves, you know Brazil does a lot of exports to China as the China market improves and with just indications that China is stimulating their economy now, they will take a lot of those commodities from Brazil and that improves their economy and that puts more discretionary income out.

So then would it also be fair to say, given the economic environment that you just described that consumers might wind up in the second half here buying a new vehicle, but they might not purchase all the amenities and you might have less penetration, but higher volume new vehicle sales in Brazil?

It's a possibility but I think that, that’s perhaps a wildcard, but I think from what we saw, we don’t see that happening. The distributors don’t believe that’s happening. However, with any consumer product that could change pretty quickly as it did in the second quarter, but what we’re seeing now is from our conversation with the distributor, they are positive on the outlook for the environment. The other thing we’re doing and this is important, we’re not flooding the market with product. There are some products down there where they have unregulated supply of product into the marketplace from the manufacturers and that just leads to price wars. On our alarms system business, we have consciously taken a decision not to just flood the market with alarms, which will then lead to the distributors when they have a lot of inventory, they just cut the price and move it on through. So we’re trying to regulate that also to keep pricing support in place in the market.

And George, I was wondering if you could talk a little bit about your expectations for debt reduction going forward. You know, with cash flow not quite being what you had thought it might be and the economy is being not quite as robust as we had thought maybe 6 to 8 months ago. Has that changed your cash flow usage? Are you looking to maybe put a bit more back into the cash balance as opposed to paying down debt or where are you at on the debt reduction schedule?

Well I think and I shared today that we are going to pay down on the normal -- our cash balance is sitting right around $39 million. It will actually go up probably in the range of about $10 million through the year end with our current forecast and even with that, that will permit us to pay down all the ABL debt that we have in our North American market at $25 million. And the real active plan we have is part of this balance of the questions you have asked in Brazil, we were doing an audio launch and there is a lot of components that came in for both that and the alarm systems, we believe there is an opportunity to reduce inventory in the range of about $9 million in Brazil, so between their improved profitability in the second half and then inventory reduction we will pay down about $8 million in Brazilian debt. So we feel comfortable that we will reduce debt about $33 million in the second half, it will build our cash balance slightly by probably $5 million to $10 million and then I think the one issue we are looking at is we had accomplished tax restructuring in Europe and we were working on that, of really pulling back some cash out of our European operations and balanced that with some local debt they can balance our exposures in Europe. So I think everything that we see between profitability, our inventory program and we still have some because as some of these, and we alluded that reduction in some of the customer programs that we will be able to pull some of our capital in. So I think we will generate sufficient cash flow that we will pay down debt fairly significantly right now our forecast is about $33 million. And then our debt to EBITDA as I mentioned it will drop to about 2.2 times by December 31 of this year with that kind of a reduction, so we feel pretty good about where our balance sheet strength is at.

That's being kind of the historic range for that metric and I am curious, are you anticipating that you are going to kind of -- after this year you are going to more or less hang out of that kind of range and let the EBITDA give you the room in that range bringing it down? Or do you think after this year after the debt reduction that we already talked about that there will be further cash use on the debt?

The one key thing Richard, even though we get the debt down I think the one that we do want to focus is on is still reducing debt in Brazil and as you know they have been a significant cash generator over the years and we see that returning in the second half of next year. And so even with the reduction they are going to be sitting on substantial debt in dollars roughly about $15 million to $18 million and then we will have working capital loans in local currency and their multiple rates are about 14% and then even though the dollar rates are 4.5 you are always exposed to an exchange swings like we recognize in the second quarter. So we have ways to go and paying down Brazilian debt which we didn’t really have Brazil debt over the last couple of years. So that will be a focus next year as to really get the Brazilian debt and that is sitting in the range of probably $25 million and that will be a primary objective we have to reduce interest cost and reduce the exposure risk we have in Brazil. Beyond that I think we still have growth plans and there are voids and so we have around our markets, especially in the emerging markets in Europe and Asia as we develop our synergy with some of our programs like EGT in Europe and what we are doing in the China development and India and Brazil. We have what we call some golden acquisitions which fit in the longer term strategy where we have our businesses. So that will be our primary focus, is really getting debt paid down in Brazil for next year in addition to the second half of this year and then look at investments we need to make to support our business growth in the emerging markets and in Europe, especially in our Control Devices EGT business.

So the rest of this year the focus is getting the ABL down and then next year it will be more focused on the Brazilian debt reduction?

Yes, I think this year the second half Brazil, is going to generate positive cash flow but it won't be enough to pay off all the debt we have there and its high interest costs, and it’s got an exposure risk to it. So we will really focus on paying down Brazilian debt next year.

The final area that I just, I wanted to get a little bit better feel for was what all is going on with the volume expectations coming out of Navistar. You mentioned in your prepared remarks that this is what we are looking at for commercial vehicle sales here in North America with the adjustment for your customer, I was assuming that was probably Navistar but I'm curious to know with their recent announcement with Cummins and utilizing the Cummins technology. Once they got that deal in place was there any kind of a pick-up in their orders for the second half of the year, or are they still kind of about the same? They are still guiding you about the same kind of production rates for the full year or how did all of that work out?

Yes, I think that we have to go back. They’ll revise their schedules every month. So we really, as they just inked that new deal with Cummins they have to see the reaction from the fleets to that deal. And they will adjust their forecast but right now we haven't seen any further decline in their forecast. And I would say based on where they are, we don’t expect to see a further decline. I think this was a very positive move for them because there was a lot of uncertainty in the marketplace about would they ever have a certified engine. Now, they have gone and said okay, we will have certified engines. In addition, the deal to sell 15 liter Cummins engine kind of build the gap that they had so they can focus first on getting the 13 liter certified then going to 11 liter and 15 liter and getting those certified. So I think it is a positive move but I think -- we will watch it closely, but I think that will eliminate a lot of the concerns some of the fleets have.

I think as a follow-up to your question, we take a sort of conservative approach in terms of demand with all our customers specifically Navistar, because it leads to excess headcount and inventory planning. So we’ve been very prudent in how we sort of schedule our operations now. We added VP of Ops last year and I think he has been adjusting his production schedules to demand plans and we’re really seeing the improvement in that area. And premium freight’s gone, excess inventory is really coming down and productivity is jumping. So we’ve been sort of on the fence measuring that Navistar progress and I think they’ve taken a positive steps but our approach is being conservative in terms of a planning basis for Stoneridge.

Your next question is from the line of Marcelo Choi [ph] with B. Riley & Company.

There seems to be considerable uncertainty as to what 2013 holds for CV production both in North America and Europe. Can you share your expectations for 2013 relative to 2012 and can you speak to what levels of variances you can handle from those expectations before you see significant margin compressions?

That’s a good question we are just about ready to go into our planning sessions for next year and so we haven’t finalized our volume projections for the year. One of the things we are going to do as we look at industry projections everybody has access to those. But we are going to try to adjust those as we saw this year the industry projections for North America. While specific customer movements impacted us a little bit differently than the overall growth rate in the market. So I do not have a good answer to give you today on what our projections will be for next year. I will say just what George just said is that as we have looked at our operations, we have adjusted our cost structures in those operations to be more reflective of a lower volume. I think that just in general in the North American market, I think there still is demand for new vehicle sales because we haven’t fully recovered from the last 4 years. I would say from the ‘06 surge and fleets will eventually replace those vehicles, the age of the fleet is going up. In the European markets I think as the export markets start to improve again I think they will move those up. We are not forecasting for next year I don’t believe we are seeing any significant upturn, so we are trying to adjust, we are adjusting our cost structure for that. But we don’t see any significant down turn either, but again it’s right at the time when we start looking earnestly at what we think the outlook will be for the balance of 2013.

And just shifting over to sort of new business cadence, I believe that you said for Q2 you saw about $89 million in new business and I guess most of that was replacement.

Yes about $67 million replacement, $27 million in new.

Okay, so how does that relate to the $195 million forecast that you put out there through 2015 and I guess what part of that have you recognized, have come online in the first half of 2012?

For this year you know and in our investor presentations, which is posted, we said that our new business of that $195 million will be in the range of about 10% to 14% for this year. The one impact has been is that we had a major platform for a large European commercial account that got pushed from the fourth quarter into the second quarter of next year. So other than that, one, I think everybody is pretty well on track but that one had a significant impact and will lower sales in the fourth quarter. But there was a trade off because of the engineering expense and the things we are doing to develop that just about matched the profitability drop. So it will show in that cadence in terms of our net new business that it will look like it will be down. But it really just moves into the second quarter of next year. And it's really, even the specification issue on our customer and 2 specific suppliers related to that program launch, so other than that we are still in cadence with that launch this year in 2012 and that was the only major one that moved on us. Yes and China is and I forgot that one is, as we have stated, the EGT legislation got pushed. And a lot has to do with their gas distribution in China. It matches up with the engines and that was originally supposed to go into effect in 1/1/2012, that's now been pushed back to 1/1/2013. And I think John and I were just in China and we get the inkling that, that's probably going to be delayed even a little bit more. But the key accounts that we signed with Tenneco, Cummins, Dongfeng [ph], they are gearing up that they would start here late fourth quarter. In fact we are moving a line into China right now that we are getting up here in August and September to really for their development. So we are probably 6 months behind the EGT development in China and it was really pushed out because of the Chinese legislative on the emission standards.

You have follow up from the line of Robert Kosowsky with Sidoti.

Yes, just one more question, George. What do you use for tax rate for the year?

Well that's a good question because Rob, it was originally -- we started the year out around 26%, but as our income improves in North America and as we have discussed in the past for the valuation allowance, that will tend to drive the effective rate down. Brazil tax rate is 19% on average. So what's happening right now is the Brazil income dropped. You will see that the effective tax rate starts to go down just because of the U.S. income is a bigger percentage of that. So we will see some variability to that, but I would continue to assume that Brazil's tax will be right around 19%. The U.S. income is starting to come through with no taxes. So that will start to drive our effective tax rate down.

Okay so lower than 19%? Like 15% or something like that?

Yes it will as more income. And I would think it will be in the range of 14% to 18%, somewhere in that for the year. And it's really -- it's because of the mix in earnings, Rob. And that's what you got to remember because it can vary. Brazil's profitability really starts coming back, it will start to drive it because they are at 19%. Europe certainly has been impacted, they have got a higher tax rate than in the U.S. So you will get some variability there based on what the income is doing.

And just one other thing. You that third-quarter PST U.S. dollar revenue will be somewhere in like the $48 million or so, give or take?

Yes, I think that’s the range we are currently looking at.

And do you see as much gross margin difference in the third quarter and fourth quarter?

Well it really depends on the mix and I think John shared that with you is it gets back to normal mix and we experienced lower alarm sales in the second quarter. And it’s not so much because we are maintaining margins by segment, by product segment. If alarm system goes back to its more normal level, then yes, we will see the ranges. But our first -- as you know our margins in PST were -- they were like 41.6 and 40 in the second quarter. So we are maintaining those margins, just a mix to have those products come up and we did start to see alarm systems improve in July with the launch of our new alarm system.

[Operator Instructions] And your next question is from the line of Irina Hodakovsky with KeyBanc.

I just have a piggyback question on your North American assumption. I know you have made some adjustments for specific OEMs. Can you share your base line assumptions for North American heavy duty?

What we have done Irina, is that we essentially as you know we come off the J.D. Powers and ag [ph]. We also get EDI [ph] releases from our customers. So what we have really done and you probably saw it in our slide deck, that we have made that comment that we have adjusted and reflected what the current EDI forecasts are and I alluded in my comments earlier that we have been somewhat, I would call it cautionary because when we rely totally on those forecasts then it leads to headcount and raw materials and that. So we've probably taken a more balanced position but a conservative position to make sure that we don’t fill and get ahead of ourselves in terms of materials. But we feel much more comfortable with our manufacturing capabilities today that we can flex up and down with schedules. But we are going to be more prudent on the side of being conservative so that we are not building inventories or having excess people in the process.

Yes, if you look at J.D. Power, they are still forecasting around 300,000 units in class 8 and we are more down as I said in the talk -- we look at the 270,000 to 280,000 range for us and as George said, the reason for doing that is because it becomes difficult when volumes don't materialize. You have to flex your plant down and that's one of the things we experienced in the second quarter. We are trying to get headcount out and we have to be a little more aggressive on that. The other side to that is there are some long lead items in inventory. And so if you are over forecasted on volume, you end up building up inventory. And so we are trying to be a little more conservative on those fronts as we think that as this market continues, we are -- it looks like it's getting a little -- still growing, but little bit softer than what everybody expects.

So just regarding your baseline as long as your OEM assumptions are both conservative going into the second half?

I would say yes, that's what we have now.

And we have no other questions now at this time. So I would like to turn it back over to management for closing remarks.

Good. Well, I would like to say that the second quarter volatility in the global markets, especially as we saw in Brazil and some of the currency movements, really added up to at this point in the quarter. However there are some positives in this business that were probably matched by that quarter and that is that the agricultural markets and the car markets in North America remain in good shape and we are expecting a gradual improvement in the global commercial vehicle markets and more importantly an improvement in the Brazilian markets after their significant decline in the second quarter. As we looked at this, we have taken and are taking corrective actions to adjust the cost structure, from recovery of material costs with pricing actions and redesign to the operational realignment that we have undertaken. And you know if you look at our operations as George had indicated, we see some significant improvements in our operations and more importantly a demonstration that we can continue to move forward with those improvements and be prepared as volume comes back up to handle that volume increases. Finally I would like to just say with the realignment of the management team that we recently announced we have added focus to each business unit and as we have seen under the head of the operations, when we add that focus, we can expect additional benefits from that. So we are looking forward to the balance of the year. We think we have tailored our plans to reflect what the market conditions are and then the rest is up to execute on our plans and continue the improvements in our business and take the cost out as we have indicated on today's call. So I would like to thank you all for joining us on today's call.

Ladies and gentlemen, that will conclude today's conference. Thank you very much for joining us and you may now disconnect. Everyone, have a great day.