Good day, ladies and gentlemen, and welcome to the Stoneridge Fourth Quarter 2011 Conference Call. My name is Jasmine, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, to Mr. Ken Kure, Corporate Treasurer and Director of Finance. Please proceed.

Good morning, everyone, and thank you for joining us on today's call. By now you should have received our fourth quarter earnings release. The release has been 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 forward-looking statements. Forward-looking statements include statements that are not historical in nature and include information concerning our future results or plans. Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainty, and actual amounts 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 may 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 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 fourth quarter, our growth strategies, business development and his thoughts on future initiatives. George will discuss the financial and operational details of the quarter and future outlook including 2012 guidance. After John and George have finished their formal remarks, we will then open up the call to questions. With that, I like to turn the call over to John.

Good morning. Stoneridge revenue for the fourth quarter was $186 million, an increase of $25.6 million, or 15.9% over the fourth quarter of 2010. These results continue the revenue growth we experienced in the first 3 quarters and were primarily driven by the North American commercial vehicle and Ag markets. 2011's annual sales guidance of -- 2011's annual sales were $765.4 million, right in the range of our annual guidance of $750 million to $775 million. This revenue was a sales record for Stoneridge. We reported earnings per share of $1.56 for the fourth quarter, which was $1.37 above the prior year’s fourth quarter. Fourth quarter earnings were positively affected by our acquisition of an additional 24% stake in our PST joint venture. Earnings were reduced by a non-cash goodwill charge for BCS, our 51% owned joint venture, PST closing costs, legacy and restructuring costs related to our 2008 restructuring program for our Sarasota, Florida, and our closed SPL U.K. operations, and other inventory valuation and warranty items. We also experienced higher material costs in areas other than copper, such as rare earth minerals used in our Control Device business, and material charges included in inventory related to the prior quarter’s operational difficulties. These costs are identified in the supplemental schedule filed with our fourth quarter earnings release. George will provide additional details in the financial review. Our fourth quarter sales performance continued to increase over the prior year, but was below our projections for the fourth quarter due to lower sales to large commercial vehicle manufacturers in both Europe and North America. While below our projected forecast, sales to our commercial vehicle customers in the fourth quarter increased by 20% to $97.2 million, and as a result of increased medium and heavy truck production in North America and Europe…

Thank you, John. John has reviewed with you our sales for the fourth quarter, the year forecast and the updated forecast for the European market. Our growth has been solid the last 2 years, and is forecast to continue to grow from both a market and our business wins. Focusing on the profitability for the 2011 fourth quarter and the fourth quarter items affecting net income and earnings per share, as presented in the attached schedule to the earnings, I want to provide detail of the adjustments in the fourth quarter and provide update on the unusual items we have been reporting on quarterly. After reviewing our progress, I will share the operational highlights for the quarter and provide the outlook, including guidance for 2012. We recorded net income of $38.6 million or $1.56 per share in the fourth quarter. Included in the fourth quarter profitability is a onetime gain from the PST transaction of $1.72 per share, which reflects the valuation increase for our investment in the PST joint venture. Offsetting the positive impacts in the quarter are 3 key areas which had negative impacts on net income of $11.8 million or earnings per share of $0.48 per share: Costs related to the PST transaction, for transaction costs and adjustment to our long-term incentive plan, which impacted net income by $2.7 million or $0.11 per share. Legacy or previous restructuring activity related to the liquidation of SPL in the U.K., sale of our Sarasota facility and the partial write-down of our ERP project in North America for our North America electronics project, which impacted net income by $4 million or $0.16 per share. Other items reflecting operational impacts were asset valuations and warranty claims, impacting net income by $5.1 million, or $0.21 per share, which also reduced our gross…

[Operator Instructions] And your first question comes from the line of Matthew Mishan with Citibank (sic) [KeyBanc].

That's KeyBanc. On PST, I just wanted to talk about that $9.3 million reversal. What would equity income have been if we would have reversed without that?

I think we said it would be 13% operating...

Yes, it would have been 13.7%, and essentially it would have been after-tax -- our tax rate, Matt, is about 20% in Brazil. Then at that point the equity earnings shift was 50%. So you would take the after-tax of the 20% and our 50% share of that would have been impacted in equity earnings.

Okay. And then the purchase accounting adjustments you're going to be making in 1H ’12 and 2H ’12, I'm assuming that's included in your EPS guidance.

They are.

Okay. All right. And the sales...

Matt, I do want to point out, we have up to a year, but we hope to finalize the inventory right here in the first quarter, second quarter, so that'll be in the first half of the results. And I think we'll finish that work before the end of June.

And that's one time as far as first half goes, and then they would not be recurring going forward.

Yes, the inventory once we expense that, that will be done, and then we have the step-up basis of all the other assets. And I think in future quarter, at the end of the first quarter I think we'll give a little more clarity what those other items are, and then the years in which they're being amortized.

And then the sales, which came in about $10 million light you cited. North American and European commercial vehicle was a little bit lower than forecast?

Right.

And was that just production changes? Or was there something else going on there?

Well, in -- I think it was production changes. In Europe we saw a December shortfall as one of the customers reduced their production schedules, I guess to balance out their inventories. And in North America, we just saw some adjustments in one of the commercial vehicle schedules from our large customer.

And Matt, one of the key customers in Europe, they were anticipating they'd reduced their volume for Brazilian exports in the first quarter. They actually did that in the fourth quarter.

And as the first quarter has kind of progressed here, are you seeing any dramatic changes to production schedules in Europe or North America? Or is everything kind of set?

No, I think right now the question for us in Europe is we probably think it's more going to be on the 5% side, but as I said, our team has already factored that in, matter of fact they started taking action last November. And so with our launches and with the cost cuts they've taken, we feel pretty comfortable that we'll be able to manage that. In North America, this market continues to remain strong. As everybody knows, one of our largest customers had lost a few share points, but they're expecting to get that back, and so that should benefit us also. But we don’t see any -- right now don’t see any significant decline.

Okay, and then last question, and then I'll jump back in the queue. Do you guys typically update your new business backlog around this time of the year? Are you going [ph] to update that?

We do, and we'll be presenting at a conference on Wednesday, and that'll updated in that conference Matt, and it'll posted on our website.

Your next question comes from the line of Robert Kosowsky with Sidoti.

I was wondering on the reconciliation schedule of the fourth quarter 2011 items, do we assume that there were no -- none of these charges, specifically the gross margin charges, in the third quarter?

No, these do not have any of the issues that we've been reporting on quarterly, Rob. But these are recurring items due to valuation of assets and inventory we had some warranty clean-ups. And I think maybe one of the questions you're starting to reach for is, are these sort of the -- do they continue in nature? And most of these apply to the poor performance of the operations throughout the course of the year, other than the one line item that we put in there, which is the purchase price variance. And as you know, we've all been fighting raw material increases over the course of the year, and we've been addressing that through recoveries with our customers, redesign of products, launch of new products. So that's the one item that we continue to still -- to address, and it's been in our results all year.

Okay, and then just looking to 2012, how do we think about the pace of PST operating income excluding or independent of the purchase accounting? I mean, is it still going to be a very low-end first half of the year and then stepping up significantly to a big fourth quarter?

Fourth quarter is always the highest. The first quarter tends to drop slightly, and then it starts to smooth out a little bit in the second and third quarter. And I think that trend looks like it'll be there for 2012.

So do you have a idea of like what percent is first half versus second half?

I don't have that at the top, but I think that's something we can look at and project for you to help you out in that. That being a new segment, I think, we'll give a little more disclosure at the end of the first quarter in terms of their results and how they're performing from quarter-to-quarter. And you're going to start to see -- and one thing I might mention to everybody is that as PST comes on in the consolidation, there is no requirement other than we'll issue an 8-K with prior 3 years information. So as the results unfold, let's say, quarterly, we do not have to disclose prior quarters, other than the one disclosure you'll see in the 8-K. So we'll help you as we get through the first quarter and the end of that, because that'll be a separate segment by itself. We'll give you as much visibility as we can into some of their channels and their mix of their products, and sort of the cadence of their sales volume over the year.

Okay, then one other numbers question, what tax rate are you -- should we be looking for 2012?

Well, 2012's a bit, and I tried in our tax section to give you some insight into this, is that we should normally look up around that tax rate that you -- in fact, what you're currently forecasting in that 25% to 27%. A lot of this will depend on our operating improvements and how it benefits North America. We've used that in our assumption of guidance. But as profitability improves, then clearly -- we talked about the valuation allowance, and U.S. income could come through with really no tax offset.

Okay. So that's as margins improve in the back half of the year, you're going to have that greater share flowing through with no expense.

It could have a very -- it could have a positive effect on our performance, especially EPS, as the earnings do continue to improve in North America.

All right. And then finally with regards to Mexico, have you moved all the business that you wanted to move into Saltillo? Have you already executed on that, status on kind of the employment redundancy? And then thanks a lot for the productivity statistics on Chihuahua, but do you think that, that's going to -- I guess, what are the goals that you do have for that? And kind of when do those actually start to hit like normalized levels? Is this like a second half of the year type of thing?

So for the Saltillo, we still have -- we'll continue through the first quarter transferring business down there. The redundancy is a result of the delay in the customers of transferring business. So we had a -- before we transfer business, we had to staff up, train the people, and then as the customer delayed, we had people both at the existing facility and the new facility. But that's been normalized now at the year end, and then we have a plan to continue, I think, it ends in April when we finish transferring all the production down there. Regarding the Mexican Wiring operations, in total, the statistics we were giving were not just for Chihuahua, they were for all our businesses, and we expect to continue to see that improvement go forward. As we're monitoring that we expect to see the continued efficiencies come up. And as we track this, we're going through a couple of different projects which are examining our operational practices and reducing manpower as resulting to that. So I think we've seen those benefits in the fourth quarter. We'll continue to see those benefits in the first quarter.

Rob, I might mention, you made the comment, thanks for the statistics on Chihuahua, but it's really the whole Wiring business that those statistics were based on.

Your next question comes from the line of Stefan Mykytiuk with Pike Place Capital.

A couple of things. First off, I just want to clarify, so the $13 million or so of the purchase accounting adjustments for PST, the $6 million or so that's the non-inventory write-up is that like amortization of an intangible that's going to carry on in future years?

It's fixed assets. It could be intangibles, customer list, and those kind of things, Stefan. So yes, those -- so like in the second half I mentioned it would be $3.8 million. That will be pretty well a fixed item, then, as it moves forward in ’13, ’14. And we will, once we firm that up, we'll give you a schedule that gives you the basis, the amortization of the years and those kind of things so you can get some insight into that.

Okay. So that'll go on for a few years and then burn off over time?

Yes, exactly.

Okay, and we take the -- you're saying we take the entire $13 million and if we tax effect it at 34% we can basically add that back if we want to get to like a cash earnings number or something like that go forward?

Yes, 34% tax plus the 26% minority ownership position. That will get you to the Stoneridge impact.

When you say plus, you mean net out the 26%?

Yes, exactly, net out.

Okay. All right. Wait, I'm sorry, I had one other question. If we take out the SG&A, the -- or some of the unusual items in this table out of SG&A, it was actually down quite a bit sequentially. Was there some other reason for that or...

Well, I think, it's a reflection and you saw in the third quarter that the overall -- and part of this was done at the management level, that we did not pay out any incentive pay this year, so that was a driver. And then quite frankly, the operations did a great job when we were struggling with the operating performance of our plants, then we really stepped our effort to cut down on SG&A, and also impacted the D&D expense. So that was an area that we managed very well this year and reduced. Some of it will come back in, but we'll try to hold the line on SG&A for next year. It will go up though now because of the incentive pay, and that's roughly -- on average it's about $4 million a year. That was excluded this year. That should come back in if we hit our targeted levels this year.

Your next question comes from the line of Brian Sponheimer with Gabelli & Company.

Just want to talk about the North American truck market in this first quarter here. There's obviously been a highly publicized supply chain issue regarding brakes that -- and I'm curious as to whether that's affected production schedules in your opinion, and whether we're looking more towards the second and third quarter time period as when you'd make up some volume?

We have not seen that in our customers' forward projections. What we did see was a planned reduction from one customer from fourth quarter to first quarter, but that was really based on some export orders that they were shipping in the fourth quarter, which weren't going to repeat necessarily in the first quarter. We looked at the January sales results coming out. They looked pretty good for -- they were up year-over-year versus last January, so that's another good indication. We haven't seen that impact yet. So I mean, I think the OEs are managing around that as they have in the past. They've probably got trucks off-line, but they're still building those until they can -- once they get the final product and then they bolt it on so it's...

Okay. All right. And then as we look in 2012 into 2013, production in the off-highway markets has been outstanding for the last couple of years. How concerned are you as to whether the equipment that's been placed in the field and the age of it will turn in such a way where it's young, and you may see some sort of a flattening schedule as you look into 2013?

Yes. The off-highway segment we have some share in there. I think our bigger segment is the Ag segment. And looking at the forward forecast that we've seen from our customers, that continues to remain strong throughout that period of time. So I don't think we're going to be as impacted by the off-highway segment. As a matter of fact, we might pick up some share there if we win some program awards, but we haven't certainly isolated that as a significant risk for us.

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

Let's see, so I back the $1.24 out of the $2 in diluted earnings per share. As reported basis come up with $0.76 a share for the full year. Of that $0.76, what would be PST's portion?

See, their equity earnings were roughly -- I don't have that off the top of my head. The -- their equity earnings were roughly around $10 million, so I would guess somewhere right to that level.

The $10 million incremental revenue that you got from the acquisition.

Well, there was no revenue in [indiscernible].

No, yes, there was no revenue, Richard. It was only -- I think what you're asking, in the normalized $0.76 for this year, what would PST's impact be?

Correct, yes, the incremental EPS that you picked up by acquiring the additional amount.

We did...

He's talking about the 24% [ph].

Yes, Richard, right now if you look at the line called equity earnings, it's $10 million year-to-date, and Minda is in there for roughly about $1 million. So that would leave Brazil at $9,034,000.

But you remember, under equity accounting, we have to tax effect that on Stoneridge's statutory rate of 35%. So 35%, that'd take it down to $5.9 million. That means the earnings are about $0.23 for PST, under the equity earnings basis for 2011.

Okay, and I'm trying to -- what I'm trying to do is figure out what the difference is between what that earnings for 2011 would've been if the ownership would have stayed the same versus with the new ownership what was the incremental amount for 2011. See what I mean?

Yes, and I think that's something a lot of you will be doing your models, and we've provided enough detail that you can frame around that to get to that result. We gave you guidance on both the sales and the margins. And the biggest change in PST now is we no longer tax effect their earnings. Their effective tax rate in Brazil's about 20%, so we no longer accrue a 35% statutory rate of Stoneridge, and then less the purchase price accounting, which are $13.1 million. The tax rate's 20%, and then add net of the 26% minority. I think with those factors you can get pretty close to what the net results are for PST.

Okay. All right, and then in some of your earlier comments, you talked about the revenue from North American light vehicle being up. I think it was 1.6%, is that right?

It was -- I think it was -- yes, up 1.7% our revenue was. The market growth was greater than that. And as we explained we have -- we're decontenting some of our products up out of customer platforms, because they're not profitable. They're commodity-type products, and they don't focus on the technology direction that we're heading in that business. An example of that technology direction is of course the EGT, and we've reported this time that we won a couple of significant awards in China for that product. And in the past, we've reported on other significant awards we've won in Europe on that product. So the whole shift in that Control Device business, which is primarily automotive, is away from nontechnology kind of commodity-type products to more products where we think we can bring some value to the customer through technology or applications.

Okay, so would it be fair to say then that moving forward you're looking for a more favorable product mix on the light vehicle side of the business?

Yes, I think that would be a fair assessment.

And also it's coming from a geographic growth because our EGT is moving into Europe, and we -- and as we disclosed before we've won contracts with a major automotive supplier and a truck supplier, and we've just -- we announced we have 2 awards on the SCR application in China, plus Dongfeng last year. It was the largest engine manufacturer in China. So that business is really going -- moving and growing internationally.

And it is moving somewhat out of the car segment because a lot of that EGT is application for truck, commercial vehicle.

Your next question is a follow-up from Robert Kosowsky with Sidoti.

I was just wondering if you guys could give us a idea of what your free cash flow is looking like this year, and just kind of in particular what the general free cash flow characteristics of PST were that you're not going to be consolidating? Maybe also the CapEx number too as well.

[indiscernible] you're talking about 2012?

Yes.

Well, Rob, I think, we gave you a pretty good insight into the margins and the profitability because that'll be the primary driver. We do believe that we can hold working capital increases to about $0.12 per $1 of sale, and we were somewhat over in our inventory. We still think we have improvement there of $5 million to $10 million. We'll hold capital in the range of $25 million to $30 million. So with those factors we should see a pretty significant cash flow for 2012. And then historically Brazil is not what I call a capital-intensive business. Other than if when you see their first quarter disclosure, they show capital, but about 1/2 of that is what we have -- we actually buy the tracking devices down there, and then we lease them out or rent them out through the customer base, because it's an expensive front-end investment for the consumer. So their capital is really geared around that, but historically they generate a significant amount of cash flow with their margins. And then we've been paying a dividend, anywhere from 45% to 60% historically in those earnings, and we see no reason why that would change.

And there are no further questions at this time. I would like to turn the call to Mr. John Corey for closing remarks.

Yes. Well, I'd like to thank you for joining us on the call. Needless to say, 2011 was a difficult year, but it really was in many respects a good year for our operations of Control Devices in our European businesses, and our North American Electronics business. Our big issue, as we've discussed during the year, was the performance of our Wiring business. That was driven by poor operational performance, copper escalation and currency escalation. As we look at the -- we've got 1 month under our belt here in 2012. As we've looked at the performance in January of all our businesses, it's tracking right in the range that would meet our projections that George has given you for the full year. So we're feeling very good that we've gotten a lot of these issues under control, and we'll continue to work the business and work the issues and continue to drive their performance improvements, so we can have a much better 2012.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.