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Executives

Teresa Hess - Director of Investor Relations

Edwin L. Buker - Chairman and Chief Executive Officer

James S. Nicholson - Vice President and Chief Financial Officer

Analysts

Mike Schneider - Robert Baird

Charlie Rentschler - Wall Street Access

Tecumseh Products Company (TECUA) Q1 2008 Earnings Call May 8, 2008 11:00 AM ET

Operator

Good morning and welcome to Tecumseh Products Company’s First Quarter 2008 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session of the conference call. This call is being recorded at the request of Tecumseh Products.

I’d now like to introduce Ms. Teresa Hess, Director of Financial Reporting and Investor Relations at Tecumseh Products. Ms. Hess, you may proceed.

Teresa Hess - Director of Investor Relations

Thank you, Cecilia. Good morning and welcome to Tecumseh Products first quarter 2008 conference call. On the call today are Ed Buker, Chairman, President, and CEO and Jim Nicholson, Vice President, Treasurer, and Chief Financial Officer.

Yesterday afternoon, we announced the company’s first quarter 2008 results for the period ended March 31st, 2008. If you have not yet received a copy of the press release, please contact me at 517-423-8455 to have one sent to you. Please note that the release is also available on many news sites and it can be viewed on our corporate website at www.tecumseh.com.

Before I turn the call over to Ed and Jim to comment on our results, I would like to remind you that this conference call contains certain statements regarding the company’s plans and expectations which are forward-looking statements and are made pursuant to the Safe Harbor provision of the Securities and Litigation Reform Act of 1995. These forward-looking statements reflect the company’s views at the time such statements are made with respect to the company’s future plans, objectives, events and financial results such as revenues, expenses, income, earnings per share, operating margins, financial position, expected results of operation, and other financial items as well as industry trends and observations.

In addition, words such as estimate, expect, intend, should, could, will, and variations of such words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. There are a number of factors, many of which are beyond the company’s control, which could cause actual results and outcomes to differ materially from those described in the forward-looking statements.

Risk factors exist and new risk factors emerge from time-to-time that may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Furthermore, the company expressly disclaims any obligation to update, amend, or clarify forward-looking statements.

In addition to the foregoing, several risk factors are discussed in the company’s most recently filed annual report on Form 10-K and other SEC filings under the titles ‘Risk Factors’ or forward-looking statements or similar captions and those discussions regarding risk factors as well as the discussion of forward-looking statements in such sections are incorporated by reference in this call.

With that said, I’d now like to turn the call over to Ed Buker, Chairman, President, and CEO of Tecumseh Products.

Edwin L. Buker - Chairman and Chief Executive Officer

Thank you, Teresa. Good morning and welcome to our first quarter 2008 conference call. This call is being simultaneously broadcast on the Internet and will also be archived for replay starting this afternoon. The replay can be accessed at our website, www.tecumseh.com.

This morning, I will begin our discussion with some introductory remarks regarding the status of our business and our ongoing plans for improvement. Next, I will provide some commentary regarding the first quarter operating achievements followed by some commentary from Jim Nicholson, our CFO, regarding our financial results for the period. Lastly, we will share our perspectives and expectations for the future. Following these opening remarks, we’ll open the call for your questions.

The last time we spoke, I described the company’s ongoing transformation process in three phases. For the purposes of today’s call and the discussions, which pertains the ongoing reengineering of the company, I intend to use these three phases to help frame our dialogues.

As I mentioned in our fourth quarter and year-end call this past March, the first phase, which is substantially complete, related to the disposition of certain non-core businesses, the intent of which was to help clean-up our balance sheet, improve our liquidity, and help us to focus our attention on the core compressor business, a market where we continue to maintain a number of strategic and competitive advantages.

The second phase of our action plan consists of multiple near-term tactical objectives, which were intended to improve our efficiency, profitability, and ability to compete successfully in the marketplace. The initiatives include rationalization of our production facilities and manufacturing lines, new sourcing and procurement strategies, and implementation of Lean manufacturing techniques throughout the business. At present, we anticipate these operational initiatives will begin to show initial benefits beginning in 2008 and 2009.

The third phase of our action plan is expected to set the foundation for achieving sustained levels of revenue growth and profitability. In recent months, our team has been working closely with a strategy consultant to more accurately define the markets upon which we should focus and the steps necessary to capture profitable growth in those areas. Although many of these plans remained in development, one of the key areas of focus included in the space is the formulation of product and service dilutions that address those markets and customers that best get our strengths. More specifically, the focus involved introducing revised product offerings that had been engineered for reduced material cost, or produced utilizing a more effective supply chain and delivered superior performance and quality characteristics. As I have indicated on prior calls, our expectation of these initial – or these operating initiatives will restore profitability to between 3 and 5% EBIT over the next two to three years.

Since we spoke last, our senior leadership team has been looking diligently at the alternatives to achieve this end without the distraction of the past years. So far, the outcomes of these efforts are twofold. First, the opportunity to achieve and exceed our stated financial targets is encouraging as there is now a clear and distinct plan in place to help us achieve our objectives. And second, we continue to refine the scope of those alternatives under consideration resulting in a further narrowing of our focus on several attractive options.

While it’s premature to share the plans that are currently in development, the reason I want to remind you of our overall three-stage approach is because I don’t intend to reference it again for the time being. This in future calls our primary discussion will focus on reporting our progress toward those stated plans. Along these lines, we’ve not wasted any time in identifying, planning, and initiating profit improvement activity. Hopefully, you will agree that we are already seeing the benefits of these actions as evidenced by our reported financial results for the quarter, which include a return to profitability and a greatly improved liquidity.

Previously, we had shared with you some of the ongoing organizational restructuring which have been on top of the mind for us, including the further restructuring of our North American operations, which included the consolidation of Tecumseh and Dundee, Michigan facilities into other facilities; the consolidation of the manufacturing activities in La Verpillière of France into Cessieu and head count reductions within our Brazilian operations.

Today, I had the opportunity to report to you that we have made substantial progress in successfully executing each of these initiatives. As planned, all manufacturing activities in our Tecumseh facility have now been successfully relocated and we continue to remain on track to consolidate the Dundee facility by the end of the third quarter. Our plans in France also remain on track for a cessation of manufacturing activities in La Verpillière by the end of the second quarter.

In Brazil, we completed a head count reduction action that reduced employment by 200 people during the first quarter at a cost of $1.2 million. This cost is reflected in our restructuring charge line item. In addition, we continue to monitor any softness in global market volumes and will consider taking further quick action to adjust headcounts if volumes weaken from current expectations.

Our Lean manufacturing efforts are also off to a good start. During the first quarter, we completed Kaizen events across all global regions with impressive results. A few examples, in Tupelo, Mississippi, review of our condensing unit line focused on changeover time improvements, it resulted in a 30% improvement in productivity, a 50% reduction in space, and a 50% reduction in work in process inventory levels.

In France, a study of a similar condensing unit line yielded similar improvements. In Brazil, a review of our line changeover procedures in one area resulted in a 76% reduction in downtime related to change over. This reduction adds additional units of production to a sold out product line. India has kicked off a similar event this week. These examples demonstrate that our new leadership team is fully engaged in the task at hand and we are rapidly producing the kinds of results that we expect. Moreover, the consistency of our efforts to execute on our stated objectives provides me with a growing confidence that the operating and financial goals we’ve established are within reach.

In summary, I am pleased by the initial progress our team has made, a team comprised of capable, experienced leaders onboard with our efforts to position the company as a world-class industry leader.

Now, let’s turn our attention to the results for the first quarter of 2008. As Jim will discuss shortly, we continued to improve on a number of operational and financial metrics in the first quarter of 2008 when compared to the year-ago period. Although we started the year knowing that higher commodity cost and unfavorable movement in currency values could negatively impact earnings for the year, we have instituted favorable pricing arrangements, made changes to our targeted sales mix, introduced sourcing initiatives which in some helped us offset the impact of the commodity and foreign exchange related factors, thereby contributing to the positive results for the quarter.

Jim, will you elaborate on the financial results?

James S. Nicholson - Vice President and Chief Financial Officer

Yes. Thank you, Ed. Income from continuing operations for the first quarter 2008 amounted to $7.8 million or $0.42 per basic share and $0.39 per fully diluted share compared to a net loss from continuing operations of $2 million or $0.11 per fully diluted share a year ago.

First quarter results were bolstered by gains totaling $4.2 million from the sale of aviation assets, which is reflected in the cost of sales and operating expense line item and offset by a net $0.5 million in restructuring charges.

Generally, the $9.8 million improvement in net operating results from continuing operations can be broken down between a $13 million improvement in operating income, of which 3.7 was attributable to the net one-time gain that I just mentioned, offset by higher net interest costs of $1.5 million and a $1.8 million unfavorable change in the tax provision. If we focus on the improvement in operating income excluding the $3.7 million of one-time items, results on a pro forma basis improved by $9.3 million. Pricing improvements of $8.1 million and cost reduction actions of $7.5 million helped to more than offset unfavorable currency effects of $5.4 million and higher commodity costs of $2.5 million.

While the change in commodity costs was unfavorable, it was better than our previous expectation for the quarter due to the successful efforts of our purchasing group, which was able to defer some of our expected increases to later in the year. That said, we believe that with the possibility of further inflationary pressures on steel and copper, we could be more negatively affected in the back half of the year than originally expected. We have previously indicated that we expected our material costs for the full year of 2008 to be $23 million higher than 2007. We now believe based upon current cost pressures that we are at risk for seeing these costs rise by an additional $12 million.

Operating income also improved by $1.6 million as a result of a more favorable sales mix despite overall volume declines. During the first quarter, we had several notable swings on the sales front. First, our sales of compressors used in commercial applications were up by $15.1 million or 12.2% while our sales of compressors used in residential refrigerator and freezer applications were down by $21.2 million or 19.4%. Within sales for R&F, we also saw a shift from sales into the Northern Hemisphere to sales into the Southern Hemisphere. This is a positive trend because we are less affected by unfavorable exchange rates with this sales mix.

The net volume decline in sales of compressors for R&F applications was mostly attributable to lower market sales levels in North America and Europe as well as planned losses of share where profitability was unacceptable due to the current value of the Brazilian Real.

And now, for a few words on foreign exchange and its impact on our business in the first quarter. Including the effects of our hedging activities, our average realized rate for the Real was 1.92 Real to the dollar in the first quarter of 2008 versus 2.23 for the same period in 2007. Our current expectation is that our average realized rate will be 1.85 for the full year 2008 versus 2.1 for 2007. However, our changing mix of product deliveries from North America to South America is serving to lessen the negative effects of the changes in the value of the Real. We have previously indicated that we expected the impact of currency on the full year to be negative by $35 million; however, due to our re-direction of Brazilian production, better-than-expected rates for the Indian rupee, and additional hedging opportunities taken, we now estimate the full-year effect to be approximately $19 million unfavorable.

It’s probably worth spending a couple of minutes on interest and taxes as well. As we have indicated, the elimination of our US debt has resulted in an approximate $20 million reduction in annual interest expense, although that isn’t readily apparent in our financial statements, where the interest expense line item for the quarter shows an increase of $1.5 million from 5.8 million to $7.3 million.

First, due to accounting rules, most of the domestic interest expense in the prior period has been allocated to discontinued operations. Accordingly, the interest expense lines in both 2007 and 2008 period are primarily indicative of interest costs we incur outside of the United States. The increase for the first quarter represents the write-off of debt origination cost due to the termination of our old US credit facility as we have entered into a new $50 million facility which we expect to remain undrawn given our substantial cash balances.

With respect to taxes, you’ve heard me lament in the past about the inability to accurately predict the provision due to the accounting rules in our unique tax position. Fortunately, this quarter represents a fairly straightforward tax accrual, the provision represents the taxes that would – that we would expect to pay in foreign jurisdictions where we do not currently have NOLs to offset taxable income. Otherwise, tax liabilities generated on results in the US, Brazil, and India, including taxable income generated from our salary pension plan reversion, were all offset by NOLs, which had valuation allowances against them previously.

Accordingly, there is no associated net income tax expense reflected in the income statement for these tax jurisdictions. As we have noted, however, we have accrued 20 million in exercise taxes related to the reversion of our salary retirement plan, an expense which is included in the restructuring charge line and has resulted in a cash outlay in the second quarter.

Now, I would like to turn the call over to Ed for some closing remarks.

Edwin L. Buker - Chairman and Chief Executive Officer

Thanks, Jim. We are off to as good a start of the year as could be expected, notably our cost reduction efforts continue to gain traction in the period, while our deliberate management of sales mix and sourcing activities helped to more than offset the commodity and currency-related headwinds prevalent in the market. Should we continue to face elevated commodity and currency-related costs throughout the remainder of 2008 which we believe we will, rest assured that our team will continue to make all actions necessary to mitigate the impact of such costs, while continuing down the path towards renewed growth.

While currency will have a negative effect on our 2008 operating results, we believe existing efforts to hedge against foreign exchange volatility does protect us in part. However, more apparent challenge lies in the cost of purchased materials including commodities such as steel and copper, which continue to trade at elevated levels. With respect to copper, we have a great deal of forward cover to help reduce our exposure. We have less coverage in the second half of the year versus the first half and our spend could ultimately be higher than expected if copper remains at current or higher levels.

Steel and other purchased materials represent an even greater variable, as they cannot effectively be hedged at this point in time given the lack of a developed forward market. While we have budgeted a 6% increase in fuel cost and we performed better the net level in the first quarter, recent news suggest that significant cost pressures in steel, the magnitude of which have a substantial impact on our expected results in the absence of pricing relief.

With respect to sales, the first quarter was consistent with our expectations in the aggregate, but we had originally anticipated full-year volumes to be down by 7 to 8%. We are now expecting volumes to be down 13 to 14% as we are starting to see a slowdown in orders and some customers had indicated they expect in-customer demand to be down 15 to 20% in 2008 versus 2007. The greater-than-expected decline occurs in our key markets. This could adversely affect our current outlook.

That concludes our prepared comments for this morning. Cecilia, we are now ready to take questions.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions]. And we will go first to Mike Schneider with Robert Baird.

Michael Schneider

Good morning, everyone.

Edwin Buker

Good morning, Mike.

James Nicholson

Good morning, Mike.

Michael Schneider

Maybe first, we can just start with the idea of pricing. Can you give us a sense of when the price increases were instituted, how much has been realized to date, and then compare that magnitude to what you think you need to go out with for the balance of the year to recover this $35 million hit from materials?

Edwin Buker

Okay. I think if you – if you – I think we disclosed that $8.1 million is the affect from pricing in the first quarter, that impact is between 2 and 3% when you compare it to the revenue line. Our average price increases that we have realized are in the 4 to 5% range and they are getting instituted over the first quarter and should all be in place by the end of May. So there is future pricing impact to be reflected in the financial statements. I would imagine, to do the math, that that’s fairly close to the expectation of where commodity increases could be.

Michael Schneider

So the 4 to 5% if you realize that and it fully rolls in by May, you think then you’re hold as far as your commodity forecast go, you don’t need to go out with another round of pricing?

Edwin Buker

I think if you do – well, if you do the math, they are pretty close. That’s based upon our current expectation of where commodity cost could be, but they could be greater.

Michael Schneider

Okay. And then, can you assess maybe qualitatively, but certainly quantitatively if you can, what impact this has had on the sales forecast that you’ve reduced from this minus 7 to minus 8 now to minus 13, 14, is that a function primarily of the softer markets or is that the price elasticity beginning to show through on the revenue line?

Edwin Buker

Well, if you look at the – our change in view, the 7 to 8% to the 14%, that’s market, that’s strictly market. We had baked in a view of elasticity in the original 7 to 8% when we started the year. We clearly priced in some markets to either make the business profitable or to intentionally lose the business to allow us to change the mix to more favorable markets. So that plan went according to Hoyle, if you will.

Michael Schneider

Okay. And which specific markets have you reduced your forecast now, is the commercial, residential, R&F, or maybe by geography?

Edwin Buker

I think we said, it’s mainly the mature markets of the United States and in Europe, and I would say it’s disproportionately in R&F.

Michael Schneider

Disproportionately in R&F. And have you reconsidered your commercial forecast for the year given what we’ve heard out of almost every commercial HVAC player coming through this earnings season with lower expectations?

Edwin Buker

We do have – overall, in the aggregate, that 13 to 14% does reflect decreases in commercial as well. We just think that disproportionately, it’s a deeper reduction in R&F.

Michael Schneider

Okay. And then speak to the change you’ve called out pruning or just the change in mix towards higher-margin products. Is that primarily a function of – well, I guess the question is, is that a result of your pricing actions or has there been some change in underlying demand from the Southern Hemisphere to the Northern Hemisphere or again, is that just an effect of what you’ve done on the pricing side?

Edwin Buker

The answer is, yes, it’s both in reality. There is certainly some specific customers and some specific business where we took deliberate action to – with the understanding that the likely outcome would be that we would lose the business. But we are also seeing the fact that Latin American countries are growing and Asian countries are growing faster than north of the hemisphere and the pricing in those markets is more favorable. So we are glad to redirect that production south of the equator.

Michael Schneider

Okay. And then specific for this quarter, what was the FX impact on revenue in the quarter?

Edwin Buker

It was $32.5 million.

Michael Schneider

Okay. I will get back in line and see there is any other questions, otherwise I will be back, thank you.

Operator

[Operator Instructions]. And we will go next to Charlie Rentschler with Wall Street Access.

Charlie Rentschler

Hi, good morning, everybody.

Edwin Buker

Good morning, Charlie.

James Nicholson

Good morning, Charlie.

Charlie Rentschler

Given your new forecast that sales might be down 13 to 14% for the year, do we have a chance to break even or make a little profit or can you speak to that?

James Nicholson

Yes, Charlie, we do believe we’ve taken actions and mix changes that will still give us that opportunity to break even or make some profit even with the decline in sales.

Charlie Rentschler

Okay. And then, I was a bit puzzled by your – I guess Ed’s comment that your goal is 3 to 5% EBIT over the next two to three years. Is that what I heard you to say?

James Nicholson

That’s correct.

Charlie Rentschler

But, if I look at your first quarter of 14.5 operating profit and I take out the 3.7 net non-recurring items, that’s 10.8, which is 3.9%, isn’t that an EBIT number to what I just got?

James Nicholson

Yes.

Charlie Rentschler

So you are at 3.9%, so aren’t you -- I mean why aren’t you more ambitious with your goal?

James Nicholson

I think Charlie, we are clearly trying to figure out about the business itself, some consistency and predictability in the markets we are serving. To be more aggressive with you at the moment, I think is ingenuous for us. We need to continue to look at the performance and keep them together solid quarters and with that we can then talk about more known improvements going forward.

Edwin Buker

Charlie, I think it also speaks to how we are viewing seasonality this year versus seasonality last year. I think you will see a similar pattern in sales in that our sales volumes are typically greater in the first half of the year than the second half of the year. So the first quarter isn’t necessarily in magnitude of return indicative of what we expect in the back half of the year, particularly since we said, a lot of the commodity cost impacts are more heavily weighted in the back half of the year.

Charlie Rentschler

And looking at your major products and markets, are you – what about your share? Are you holding your share or even gaining some share where you want or any comment about that?

Edwin Buker

I think Charlie, as we look at ‘07, there are segments where we are dropping some share and it’s intentional, in the R&F in North America and we are still gaining ground in the commercial distribution area. So we are very comfortable in the segments we are in, but there are not significant shifts in share, there are pruning – there are surgical removals and specific ads as we go forward more than giant shifts one way or the other.

Charlie Rentschler

But I mean, you are pleased with the performance here?

Edwin Buker

Yes.

Charlie Rentschler

Yes, good. And then last question, on the year-end call, we talked about liquidity and looking forward somewhat talked about liquidating the over-funded hourly plan and getting the tax money back from the Brazilian government and some other items, but are those things still viable or still in the place? Can we look forward to that?

James Nicholson

Yes.

Charlie Rentschler

Okay.

James Nicholson

If you want, I can kind of really go over that outlook on cash.

Charlie Rentschler

Please.

James Nicholson

Okay. So the balance sheet at the end of the quarter shows 197 million in cash. Recognize that it was post March 31st that we made the $20 million payment for the excise tax related to the reversion. We have $118 million of those refundable taxes in Brazil. We are still looking to recover 60 to 65 million of those in the second half. There is an IRS refund of $14 million that is somewhat off into the future as we work that process. We have another over-funded pension plan, an hourly plan, that we have terminated at this point and are going through the process of reverting that overfunding. The expectation is that that number is somewhere in the 45 to $60 million range and should be realized sometime in the first half of ‘09. And we are also working to reduce the inventory levels. We still have a target for the end of the year that would reduce the inventories by 25 to 30 million and when I say that, I mean that on a constant currency rate basis. So if you reflected our inventory balances and use the beginning of the year rate and kind of held that constant, that’s the number that we are kind of looking for. Recognize however that as the dollar continues to weaken that that will have an inflationary effect on the balances. I can’t necessarily predict what the net effect is there, but real inventory reduction, fewer quantities on a constant dollar basis, we’re trying to take out 25 to 30 million before the end of the year.

Charlie Rentschler

Okay. Thank you for the recap.

Operator

And we’ll go next to Mike Schneider with Robert Baird, with a follow-up.

Michael Schneider

Yes. Maybe we can just spend ten minute on taxes and interest, your favorite topics, Jim.

James Nicholson

My favorite topics.

Michael Schneider

So tax rates going forward, you booked, I believe 1.2 million in taxes in the quarter which are related to jurisdictions outside the three main ones you mentioned.

James Nicholson

Correct.

Michael Schneider

What’s your expectations for the balance of the year then? Were there some unusual sales in those jurisdictions or is that the type of at least effective tax rate we should anticipate going forward?

James Nicholson

I think if you want to use that effective tax rate going forward, that’s going to be a pretty good proxy for the rest of the year.

Michael Schneider

And should I infer from the income statement that basically all of the profit was made then outside of those three regions because the effective tax rate at least ex the restructuring and the aviation sales was about 19, 20% or is it not that direct of a relationship?

James Nicholson

Yeah, I don’t think that’s correct.

Michael Schneider

Well, let me ask you differently, so the 1.2 million was an effective tax rate on that income of what?

James Nicholson

Yeah, I don’t know that number, we don’t usually break down our profitability by country publicly. I have to go back and double-check that. My recollection is that, no, the profits are not disproportionately being generated at locations where we do not have NOLs.

Michael Schneider

Okay. And on interest expense, it was surprisingly high in the quarter, can you -- and even scrubbing the extinguishment charge of 1.4 million, it was still up sequentially, I think by a bit. Did all the cash come in from the pension plan on the last day of the quarter or were there some usual intra-quarter dynamics and what’s your expectation, I guess looking into Q2 based on the cash receipt?

James Nicholson

Yeah, there is a couple of things going on. So there is really no – that cash came in very late in the quarter. So you wouldn’t see any of the benefit -- we are talking about net expense?

Michael Schneider

Yeah.

James Nicholson

You wouldn’t have seen any benefit of interest income or whatever the return is. In the – what’s left after you strip out the foreign – or I am sorry, after you strip out the amortization cost, the write-off cost, what you are left is with the foreign interest expense. And there is a slight change in our borrowing mix, but I think that you will find is that number is relatively consistent year-to-year.

Michael Schneider

And again that debt balance will not be paid off going forward, do you intend to carry the foreign debt?

James Nicholson

Our objective would be to not carry larger cash balances in the US and unnecessary foreign debt. We would like to rationalize that, but you have to recognize that we do operate under certain constraints because particularly India and Brazil have more exchange controls than in the Northern Hemisphere.

Michael Schneider

Okay. But we should then see the interest income line benefit from this cash flow in Q2 and beyond, correct?

James Nicholson

That’s correct.

Michael Schneider

Okay.

James Nicholson

That is correct.

Michael Schneider

And moving to the share count, when do you expect the Tricap warrants to be exercised? And am I right that roughly speaking, the exercise price was about $6 a share?

James Nicholson

You are right on the price. We have no information to speculate as to when they would exercise, that’s their decision. As you can see from our filings, at their request, we have registered those shares.

Michael Schneider

Right. So there is another cash inflow of about 13 million coming when those are exercised, correct?

James Nicholson

It could be more like...

Teresa Hess

4 million times $6 a share.

James Nicholson

I think your number is a little high.

Michael Schneider

Okay. I will go back and look at that.

James Nicholson

Remember, they have – they hold both warrants and options directly on Herrick entity shares.

Michael Schneider

Right.

James Nicholson

So we won’t realize any cash from the exercising of those options.

Michael Schneider

Okay. And then just a final point on the top line, the FX hit to revenue was 32 million, what do you estimate that volumes were down?

James Nicholson

Well, that was a -.

Michael Schneider

[inaudible].

James Nicholson

In the first quarter, it’s a double-digit percentage decrease in volumes.

Michael Schneider

Okay. Okay. That’s all I got, guys. Thank you.

James Nicholson

Yeah, thanks, Mike.

Operator

We’ll take a follow-up from Charlie Rentschler with Wall Street Access.

Charlie Rentschler

Just to be clear, this spring and summer, you should probably be winding down the work with the strategic consultant and at the same time, kind of putting the finishing touches on your own manufacturing and purchasing and marketing directions, is that kind of a summary of how to think about it?

Edwin Buker

That’s correct, Charlie. We’ve taken a good strong first run – had some strong conversations with the Board and we will be looking at the inputs and impacts of that going forward. But we are marching pretty rapidly and pretty successfully on redefining the direction of what we have in mind. So yeah, it’s not too far away.

Charlie Rentschler

And in terms of key management positions, are you about where you want to be or you still have work to go?

Edwin Buker

That’s a great question. If we keep performing well and about where I want to be, if we don’t perform well, I will probably have the ways to go, right.

Charlie Rentschler

Okay. Alright. That’s all I have. Thank you.

Operator

(Operator Instructions). And with no further questions in queue, I’d like to turn the conference back to Mr. Buker for any additional or concluding remarks.

Edwin L. Buker – Chairman and Chief Executive Officer

Thank you, Cecilia. I appreciate that. I am very pleased with the performance in the quarter and the efforts going forward. I do appreciate your calls and your involvement with our company. So with that, I will conclude the conference call today and look forward to talking to all of you on our next quarterly call going forward. Thank you very much. Good day.

Operator

This does conclude today’s conference, ladies and gentlemen. Again, thank you for your participation today and you may disconnect at any time.

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