Commercial Vehicle Group Inc (CVGI) 2004 Q4 法說會逐字稿

Good morning and welcome to the Commercial Vehicle Group year ending's conference call. All participants will be in listen only mode. There will be an opportunity for you to ask questions at the end of today's presentation. An operator will give instructions on how to ask your questions at that time.

This conference is being recorded.

I would like to turn the conference over to Scott Rued. Mr. Rued, you may begin, Sir.

Thank you very much. Welcome to the conference call where we are going to talk about the quarter and the year end; but we are also going to talk about the acquisition of Mayflower Vehicle Systems or MVS where we acquired certain assets and interests. Then we will finish up. Chad is going to finish up with the financials, the financing, and guidance for the year. Merv is going to go through the MVS acquisition, Chad will go through the quarter first.

But before we get into that I would just like to talk a little bit and give you some highlights of this MVS acquisition that Merv will clearly embellish on.

Clearly when you look at our core strategy it is to be the premier global supplier of cab-related products and systems and commercial vehicle sector which we have stated previously to you and to be No. 1 or No. 2 in each of the markets that we serve.

A major initiative towards that is to be the only supplier of cab-related systems worldwide that can offer a fully integrated system solution which includes seats, suspension seat systems, interior trim systems which is everything in the interior. Mirrors, wiper systems, controls, switches and one of the things that we were very interested in achieving so we could package it all together is the ability to have body and white truck cabs and sleeper boxes that we can combine.

MVS is the only non-captive producer in North America of complete truck cabs with full-service engineering and development capabilities. So it enables us to be the only supplier in North America to offer complete cab systems. So, strategically, it is a very important fit for us.

It also has the same customer base and buying group as we do, which will provide strategic cross selling opportunities for all of our product categories, really; and I think Merv will get into a little bit in terms of how the customers view this because they view it very very positively and he can give some anecdotal information.

From a summary of the transaction, some of you may know that Mayflower was owned by a UK parent and the commercial vehicle business that we bought is really just solely the North American commercial vehicle operations. It is an asset deal where we acquired the assets and, then, certain liabilities.

The revenues were $207 million last year. EBITDA was approximately 25 million. So representing a purchase price of 107.5 million that is 4.3 times EBITDA for the year.

There is a tax shield since we are acquiring assets. It is about $12 million and that's calculated using a 12 percent discount rate over 15 years. It is going to be -- it is going to generate midteens ROIC so it is going to add economic value Day 1 and it is going to be accretive to our earnings and --

Chad walks through the guidance it is going to be accretive this year from the time of acquisition to the tune of about 35 cents. For the full year, it will be closer to 37, 38 cents and he will walk you through that.

So right now I'd like to turn it over to Merv to give more than an overview and more of the details around the -- I'm sorry. Turn it over to Chad, first, to give the details of the quarter and then Merv will take you through the Mayflower acquisition in more detail.

Thanks Scott. Before we begin the formal portion of today's call, I need to first read through our Safe Harbor language. I'll then take you through our financial results for the quarter and pass the call over to Merv for further comments on Mayflower. After that I will take you through the combined outlook for the first quarter and full year of 2005 and then we will take time to answer your questions.

I'd like to remind you that this conference call contains forward-looking statements. Actual results may differ from anticipated results because of certain risks and uncertainties. These may include but are not limited to the economic conditions in the markets in which CVG operates. Fluctuations in the production volumes of vehicles for which CVG is a supplier. Risks associated with conducting business in foreign countries and currencies and other risks detailed in our SEC filings.

We are extremely excited about the progress we made during the 2004 and the fourth quarter. Our fourth quarter results were solid as revenues, operating profit, EBITDA and net income were all above our guidance for the quarter.

From a financial standpoint, EPS came in at 32 cents per diluted share, based on 18.3 million common share equivalents for the quarter. This is above both our guidance and the average mean expectation of 31 cents per share.

Revenue came in at 101.3 million, which is up 30 percent versus the 78.1 million recorded in the prior year period. This increase resulted primarily from a 47 percent increase in North American heavy truck production combined with the organic growth equating to approximate 19 million of increased revenues year over year. Higher OEM sales in the European and Asia seeding (ph) markets accounted for increased revenues of approximately 2 million and favorable foreign exchange fluctuations resulted in an additional 2 million of increased revenue over the prior year.

Operating income was 12.5 million or 12.3 percent. This is an increase of 67 percent from the 7.5 million or 9.6 percent reported in the fourth quarter, 2003 and is still mitigated by the impact of increased steel costs during the quarter. The elevated steel and petroleum prices negatively impacted us by approximately $2.2 million for the quarter.

SG&A was 7.7 million or 7.6 percent of sales which is slightly higher than our guidance in dollars yet is consistent as a percentage of sales. Depreciation was 1.7 million and amortization was 22,000 for the quarter. Capital spending was approximately 5 million for the quarter but was primarily related to several key future developments in growth programs in the purchase of a Company aircraft.

Mark to market of our foreign exchange market was slightly higher than our guidance and resulted in a non-cash expense of $1.2 million during the quarter. While currency fluctuations can at any time impact our reportable income, we continue to monitor the currencies in which we conduct business to minimize the impact on shareholder value.

Interest expense was 1.3 million and was negatively impacted by increasing interest rates during the quarter but is still down over the prior year period due to the overall reduction in debt.

Our effective tax rate for the quarter was 39.8 percent after giving effect to certain year end true ups and taking into effect all related treatment of domestic and foreign tax positions. And as expected our cash position continues to improve through the generation from operations and working capital management. Our net debt position at the end of the fourth quarter, which includes 1.4 million of cash and excludes letters of credit, was about $53 million.

Therefore our net debt to EBITDA at the end of the quarter, excluding the non-cash option charges that we recorded during the year, is approximately 1.1 times; and our net debt to total book capitalization was approximately 32 percent.

EBITDA for the quarter was 14.2 million or 14 percent and is up 50 percent over 9.5 million for the same period in 2003. If you exclude the negative steel and petroleum impact that we had during the quarter of about 2.2 million, our EBITDA would have been 16.4 million or 16.2 percent.

And with that, I would like to turn the call over to to Merv for further comments on the Mayflower transaction.

We are very excited to demonstrate the continuation with the strategy that we explained on our road show for the IPO. We stated our strategy was to either be inside, outside or the cab itself and this allows us to bring the cab into the picture. We are ready on the outside and inside. It allows us the continuation of the strategy.

A little bit about MVS. The North American commercial vehicle sector is served by 3 MVS manufacturing locations, supplying three major product lines. Complete cab structures, sleeper boxes, and other structural and a surface components. MVS will source significant new business with international and Ford GT program during the commencement of production in 2004. Due to financial conditions at the UK parent MVS was put up for sale late in 2003.

The UK parent declared bankruptcy in Q1 of 2004 and that is what we started our process of purchase.

A little bit about MVS customers. MVS's top five customers in rank are International with 43 percent, Volvo Mack with 27 percent, Freightliner, Western Star and and Sterling Family 15 percent, PACCAR 1 percent and Caterpillar 1 percent. Current CVG's top five customers are Packar at 25 percent. Brakeliner at 16 percent, International at a percent, Caterpillar at 6 percent and Volvo Mack at 4 percent.

Combined, our top five customers are International at 20 percent, PACCAR at 17, Freightliner family of Western Star and Sterling and Freightliner at 15 percent, Volvo/Mack family of 12 percent and Caterpillar at 4.

The main thing that you should gather from this is we are sticking with the same customer base, the same top five flowthrough. It just levels the playing field a little bit more instead of being -- either company being very heavily concentrated in one particular company. We now have our top 4 customers are in the 20 to high teens in the 20 to low teens.

When we started our due diligence we spent a great deal of time upfront, dealing with the customers, making sure they were very supportive of Mayflower and supportive of CVG doing the purchase.

I will tell you a little bit about what -- how our customers reacted. International? They were a extremely well-regarded supplier. Very supportive of CVG as a buyer and Freightliner views Mayflower as a good long-term supplier. Extremely pleased with CVG as the acquirer. Will result in more opportunities for our Mayflower Vehicle Systems and we will go into that as the year continues.

Mack. Extremely good relationship. Awarded all recent new programs to MVS, again, very pleased CVG would be the acquirer.

PACCAR likes Mayflower management and capabilities, has substantial opportunities for structural fabrication, and views MVS as a key source particularly as part of CVG.

Our facilities that we will add to the family are Norwalk Ohio. That's owned. It is a 303,000 square foot facility. It is predominantly International and Freightliner and Sterling production.

It also produces the Ford GT specialty vehicle products.

King's Mountain, NC. That's an owned facility also. 180,000 square feet, 100 percent dedicated to the Mack production. Shady Side, OH, 225,000 square feet. Outside customer is predominantly PACCAR productions and is also the supply plant for the other two. And Farmington Hills, Michigan, that is the lease facility and that is where the management is currently headquartered.

A little bit about the management team. The management team is well-regarded by the customer base. International, Mack, Freightliner, PACCAR, and Cat. Their management has been extremely impressive with all the things that they have gone through in the past two years. They were able to keep the customer and suppliers intact during the uncertainty surrounding the UK parent financial issues.

The management team will remain in place at postacquisition and be integrated into CVG's team, allowing us to continue to focus on our growth initiatives at my level and Chad's level.

Little bit about the rationale behind the strategic fit. MVS is the only noncaptive supplier of cab frames for the heavy-duty truck sector and it is consistent with our strategy like I started out with and that's to stay within the cab, outside the cab or the cab itself. Our other strategy -- portion of our strategy is to have tje a number 1 or number 2 market position in the markets that we serve. MVS enables us to be the only supplier worldwide that can offer a modular system combining the cab frames with the interiors including the seats and the exterior with the mirrors and wipers.

MVS broadens and equalizes our revenue base at the four North American OEMs, instead of being over 25 percent in any one, our highest number is 20 percent and our lowest number is 12 percent.

Our purchase price of 107.5 million cash represented 4.3 times the trailing 12 month. 2004 EBITDA. Our customer overlap is excellent. It is not redundant. MVS is a major player in Class 7 and 8 truck markets. CVG, currently, is a major player in Class 8 -- this is will allow us to expand our opportunities in Class 7.

Large complex structures. The capability to do those provides an additional market penetration. Opportunities within the lift truck, agriculture, construction and OE service sectors. MVS has a stable book of business and is well positioned to receive new business awards.

Post deal. We will be focusing on cost reduction and avoidance opportunities which include the following. Consolidated supplier relations to achieve lower cost and better terms. Mayflower has a higher concentration of steel purchases than CVG does. That will allow some consolidation savings for CVG. Combined -- implement the lean manufacturing which Jerry and the team here has done so well at doing. Jerry is our President of the Americas. He is sitting in the call today.

To improve the efficiencies product, quality, delivery and provide additional capacity.

MVS has flexible assembly lines which we believe can be adapted to product changes and limit future capital expenditures. Capacity within the MVS facility and freed up to the future lean initiatives allow volume expansion without adding brick and mortar.

At this point I would like to turn it back over to Chad, (indiscernible) CFO.

To recap the transaction I think both as Merv and Scott indicated, Mayflower's 2004 revenue and EBITDA were approximate 207 million and 025 million respectively. With capital spending of approximately 4.7 million. Combined with CVG our 2004 pro forma revenue and EBITDA were approximately 587 million and 74 million, respectively, with capital spending of approximately 13.6 million.

The source of funds for the transaction will come from a new credit facility, consisting of a $75 million revolver commitment, along with 145 (ph) million term loan. Our 2004 pro forma debt to EBITDA would be approximately 2.3 times and debt to total capitalization of approximately 60 percent.

Our expectation is that with free cash flow ,our debt will be paid down to approximately $135 to $140 million range by the end of 2005. Our debt to total capitalization will be under 50 percent and debt to EBITDA will be under 1.6 times which I believe is always what we have indicated there where we have a comfort level.

With that in mind I would now like to take you through our outlook for the first quarter and the full year of 2005. Our guidance is inclusive of Mayflower as of the date of the transaction and is based on 2005 North American Class 8 production volumes of approximately 280,000 units.

Given these assumptions and our expectations for steel and petroleum pricings remain at current levels. We believe that our revenues for the first quarter will be in the range of $147 million. EBITDA is expected to be in the range of 18 million and our EPS expectation is approximately 41 cents per share, assuming 18.3 million diluted shares.

Our expectation for the full year 2005 for revenues is in the range of 644 million. EBITDA is expected to be in the range of 90 million and our EPS expectation is approximately $2.15 per share assuming 18.3 million diluted shares.

In addition, our capital spending expectations are approximately 16 million for the full year; and we have assumed an effective interest rate on funded debt of 7 percent and effective tax rate of approximately 39 percent for the year.

As Merv said, we are extremely excited about the progress we made during 2004 and we are extremely excited about the positive impacts in which we feel Mayflower and its management team will have in continuing to pursue our strategic goals of enhancing our competitive position, growing sales and earnings, and increasing our shareholder value.

With that, I think we would like to open up the call for any questions.

(OPERATOR INSTRUCTIONS) John McGinty of Credit Suisse First Boston.

Congratulations. Just a couple of clarifications. Chad, you gave a lot of numbers and it was great but I got a little bit lost there. On the revenues, would you just run through the revenues? I got 19 million organic, 2.4 million from the overseas and 2 million of currency and was there something I missed or I'm sorry I just lost --?

No it was 19 million of North American truck production and organic growth in North America.

19 million truck reduction and organic. Okay.

Correct. And 2 million European and Asian in growth and 2 million currency.

You said the steel costs were 2.2 million steel and petroleum costs were 2.2 million negative for the quarter. What was the year or do you have a number for that?

Yes the year was around 6 between 6.5 and 7, about 6.7 million roughly.

Also again I lost the currency. The currency was negative or a positive 1.2 million in the fourth quarter?

On sales?

No. On earnings. This was over on earnings I thought.

(MULTIPLE SPEAKERS)

Mark to market -- I am sorry; it was an expanse.

An expanse of 1.2 million?

Yes non-cash expense for the mark to market of (MULTIPLE SPEAKERS)

Showing up in the other expense or income?

That's correct.

Where the guidance had been essentially nothing?

No. I think when we talked in the third quarter call we had said it was upwards of maybe $1 million.

So essentially in line.

Correct, yes, it was a couple hundred thousand dollars.

So hey, who cares? The other thing was, I went back over the transcript on the third quarter and you had said you thought the third quarter -- I'm sorry -- the fourth quarter tax rate was going to be I think 30, 31 percent. And it ends up being almost essentially 40 percent. Why?

The 30, 31 should have been for the full year. I think when we talked for the quarter it would've been -- and I think the effective rate for the year is around 27, 28. One thing that you'll see for 2005 as well while we are on the topic is I think our initial guidance we had NOL carryforward in the 2005 but we've essentially taken that impact in '04.

That was another question. In other words, that's why the tax rate is now 39 percent instead of the previous -- I had 36, 37 percent?

36. That's correct.

So your guidance not only has the 35 percent increase from the year to date of the acquisition, plus where you were, but it is also being done at a higher tax rate.

That's correct. As well -- not only you have to take into account a higher interest rate as well. I think Scott mentioned (MULTIPLE SPEAKERS)

The interest rate essentially reflects the acquisition, right?

(MULTIPLE SPEAKERS) borrowings.

All borrowings?

Yes.

So it's on all borrowings. Okay, fine. I'm sorry. Those were just nitty-gritty questions. Can I ask you a couple questions about the acquisition? Primarily, this. What, when, how should I look at MVS in terms of they do some portion of International's and some portion of Mack Volvo. Do they just do the steel cabs and the other guys do the fiberglass cabs or aluminum cabs or what are they specializing in? In other words how does International decide what they buy from MVS versus what they make? How does Volvo Mack do that?

First of all, they are the largest supplier of aluminum cabs to. Aluminum cabs is a high percentage of their market and that is primarily with International. It is basically 50-50 between steel and aluminum.

Theirs is 50-50?

Yes. Mayflowers is. With Mack, there's is all steel and and it's 100 percent coming out of King's Mountain and then the International's coming out of Norwalk, Ohio.

And the Freightliner?

The Freightliner ships to Canada and that's actually the Sterling program and that is steel and that comes out of Norwalk, Ohio.

So in other words basically they supply all of Sterling?

Yes.

And they supply -- do you know what percent of Mack they supply?

No, hang on just a second and let me pull my notes appear. Mack. They have the RD program, the granite program, the vision cab And the MRO cab overengine.

And then similarly what do they have of International?

International they have the heavy-duty 9000 series. That's all aluminum.

Do they do all of the International cabs?

All the 9000 all aluminum ones.

And then the steel they do for Garland?

The steel they do is not on International.

I see -- in other words -- I'm sorry. The aluminums they do for International, the steel they do for the other guys. I'm sorry. I missed that.

Except for PACCAR sleeper box and that's all aluminum.

I just want to follow up one thing you did say, John, was fiberglass. Fiberglass isn't used for the cab itself. It is obviously used for the hood.

Okay.

So we are talking about the cab which is the internal structure, internal frame that everything goes on.

So they don't make the -- okay.

Don't make the hoods.

Don't make the hoods.

Joel Tiss of Lehman Brothers.

Can you give us a little bit of a sense, two areas I want to probe into a little bit. On the accretion assumption, does that include any new business that you are expected to get or cost-cutting? Or is it really what comes out when you put all the numbers together? You know what I mean? Just combining the two companies?

It's really what comes out of combining the two companies on a conservative basis. We haven't -- this is a very well run lean organization so as far as cost-cutting, we don't see a whole lot of cost-cutting. But we do see our ability to help initiate some change within the facility with lean manufacturing and so forth and it does not include anything for that. That is going to take some time to integrate and to do and, hopefully, we will see the benefits of that next year.

Can those guys teach your Company anything about how to be lean or do you think they'll have an edge over you guys?

No I do not. I think that if you see the trend that our Company has shown and demonstrated, and the expansion that we are able to do with our bricks and mortar within sight of our Company, with a lot of you guys that came around to our Company, I think our Company is definitely the leader in lean manufacturing. And I think that Gordon's team fully supports that and we will be starting to do the same training that we do in all the CVG companies worldwide. That will be starting in Mayflower within, probably, the next 90 days.

Also can you give us a sense about industrywide how -- what your current monthly run rate is on the truck build? Because I have been hearing that it is more on sort of a 300,000 unit annualized basis. And can you talk about capacity constraints as well?

For us capacity constraints, our Company is set up without any brick and mortar to be able to achieve somewhere in the 325, 330,000 range. As long as it runs in the same makeup as a percentage of customer marketshares.

And as far as run rate we show that the fourth quarter rented up around 73,000 units I think, something like that in our first quarter '05. We had running around 71, 71.5. So, annualized, that is around the 280, 285 run rate that we have for -- I guess if you blended fourth quarter and the first quarter of 2005.

Based on what you guys are hearing from your customers and seeing in terms of orders etc. do you think that the people who are looking for 300 to 310,000 are a little bit aggressive?

We intend to stick by our forecast which is 280. We feel it's a very solid number, we've done in the past very well with our forecast. It's easy to get excited and start bumping your numbers up. But we don't do that because we also could get deflated when those numbers drop at any moment.

David Leiker of Robert W. Baird.

Chad did I hear -- you are using 280,000 for your guidance of 215 correct?

Correct.

Where do you think that full year interest expense is going to end up for you?

We are using a 7 percent effective rate for unfunded debt.

In total in terms of debt interest expense in dollars and doesn't that number go to 15 million or something?

No. It's 11, 12 something like that.

Okay do you have a cash room operations number off the cash flow?

For 2004 it was around 24, 25 million excluding obviously the IPO and the (indiscernible).

And do you happen to have a fourth quarter one or not?

No. It was I think in the third quarter we talked it would probably be a couple million working capital ended up a little bit better so it was maybe 3 or 4 million from the fourth quarter.

Then on working capital. Is this I mean your (indiscernible) came down dramatically. Is this a sustainable level or is there something unusual there at the end of the quarter.

No it's a lot of that happens at the end of every year. If you look at it. We just had some -- it's timing more than anything I could change by a couple of million dollars in a couple of days' time. (MULTIPLE SPEAKERS)

MVS, you walked through the customer mix. What about end market between heavy and medium and off-highway. What is that look like?

They are about -- if you look at the 2004 revenues I think Merv went through and you're talking International 43 and Freightliner at 14 percent, Volvo Mack around 27 so there's -- you got roughly call it 85, 87 percent of their sales mix is probably OE truck related. You got another 13 percent related to special projects or service or engineering technical services that they may provide.

Programs like, they support the Ford GT and the SSR program on certain products so is probably 10 to 15 percent of their total sales basis. None OE-related.

And of that truck number is that mix pretty comfortable what the market is between medium and heavy?

Yes I think they have some for Sterling and depending on which report you read I guess you could collect seven or eight but it's probably -- I don't know I don't want to shoot from the hip here but it's probably 75/25 heavy vs. basic (MULTIPLE SPEAKERS)

Falls into class 7 because of that business class and they've got (indiscernible) the only thing that is really class 8, true class 8 is a Sentry class.

The 75 percent is a pretty good estimate. I mean, it's give or take 5 percent.

This non truck business, what are your plans with that? How does that sit with the whole strategy?

The non truck business primarily it is like our Company CVG has done in the past. When it is non truck, we get the technology out of it. The Ford GT programs. A lot of superplastic forming of alloys. And we can take that same technology and bring it over. So our automotive or specialty programs is not our core business, it also -- it does allow us to stay involved in new technologies that are coming out and helps us lead the truck industry with it.

Shareen (technical difficulty) Pilot Advisers.

Congratulations on the quarter and on the acquisition. Just a few quick questions. First, could you on a full year basis tell me what the incremental interest expense in D&A should be? I don't want to confuse (indiscernible) numbers.

You might have said this already but the date that the acquisition is estimated to actually close?

The D&A -- we won't have that broken out until we get all the assets.

Yes the D&A, it's maybe $7 or $8 million. We have got a revaluation of the assets due to the asset purchase so it is hard to put a stake in the ground on that one but a rough estimate? That may be where that ends up. As far as the actual date of the acquisition it pretty much went through. We are using yesterday as the official date.

I see okay.

It closed yesterday.

It closed, okay, gotcha. (MULTIPLE SPEAKERS) and the interest expense, were you saying 7 percent is what roughly on the incremental 107 million or 100 million or so?

Yes we are using 7 percent on funded debt across the board on incremental and current.

And then the -- doesn't sound like there is much (indiscernible) savings by virtue of shut -- there is not too much capacity there shutting down a plant or consolidating a plant. It sounds like you just literally have taken those three operations, all their people and that's it. And the cost savings are just going to come from over time, manufacturing savings and to some extent steel, buying your commodity costs better?

When you look at the facilities all of our products are very different. We -- CVG is predominantly interior soft trim, Mayflower is predominantly large stamping presses and welding assembly. So there is really no combination that you can do on the work plants. When you look at the management teams, to be very candid and honest, anyone that survived this downturn ran with a very lean crew. You don't pick up a lot of synergies from getting rid of two people, especially if they're two key people.

And we look at the group we got with Mayflower. It is very key to continue to run that business. To take on more responsibilities and to be able to allow the rest of us to focus on the overseeing of these companies and the continued elation of looking for good well-suited acquisitions for our strategy.

Could you also just give an update or just let us know how new business opportunities are going? Or what's going on with that? Now that you have basically a whole other product area to package, how that might change the opportunities in the future?

On new business right now, there's a significant amount of new business being looked at for 2007 because that is when the new programs are basically coming on board. So right now, I don't think it would be prudent for us to get into new business potentials when they have not been awarded.

Well I don't so much mean what has been awarded, I must mean, what are you going after? And now with this acquisition does that change what you are going after -- that is really more what I mean.

We will be going after -- finalized, we will be going after cab assemblies which is their main focus. We will be going after interior components and we will start in exterior components and we will start laying the stage for doing assembly of -- for example maybe the first one is assembly of sleeper boxes. Be able to put the complete interior in it, ship to the customer a completely assembled sleeper box that they would bolt onto the cab.

Along with that, we will continue our path in terms of I think we've always stated to you guys, our internal goal is a 4 or 5 percent organic growth year over year and we will continue our diversification path in terms of marine and non truck business, which is sort of what we've done this past year and will continue to do that as well.

Any changes in the European and Asian markets? Just give a little color, again, I guess not changes but just color as to how you'd characterize those markets?

Currently our predominance in the market is in Europe and Asia,0 is with construction seats. And we still see a very strong market for that. It's continuing to, I guess, be stabilized at a high level.

John McGinty of Credit Suisse.

Just a couple of clarifications. The 280 you are using for build in '05, what is the vs. in '04 because the problem is there is a ton of different numbers out there and it's all are we talking Class A, Class eight heavy, are we talking North America, are we talking with or without Mexico? One thing we always need to do is look at what the 280 is versus.

We are comparing that to 261, John.

261. Okay so that is a very modest gain crease relative to whatever. Because the OEM build is 79,000. Again if you look at the ACT data but that's for everything including Mexico so that's a bit tricky. The second question -- the 644 revenue. How much of that is MVS just so we can get a flavor for what the core CVG business is doing?

I don't think at this point we want to get into segmenting anything.

It is only the kind of once on an apples to apple spices I guess is what we're trying to understand. Otherwise, there was a revenue guidance before and I am just trying to figure out if the basic CVG revenue guidance was more or less than -- in other words are you upping what CVG's revenues were, other than just the acquisition? I guess that's what I'm really trying to understand.

Yes we are. We are around 420 John. I think you are looking at the 405 (MULTIPLE SPEAKERS)

405, yes, okay, fine, exactly. Within that are you able to get price -- in other words what kind of price as we look at the impact of the negative impact of steel and other materials, are we assuming you get some price relief, modest though it would be, to offset that? Are we assuming that continues to be a negative at the same rate I guess that's what I'm trying to understand what's built into your thinking there?

Yes for 2004, like I mentioned, our impact is around 6.7 million somewhere around there for steel and petroleum. Our assumption is that that run rate continues, it is offset slightly by some increased assistance from the customer and supplier base.

So it zeros out or is it still a slight negative?

That is definitely going to be a negative. Maybe by the time you have an annualized affect it's probably $7.50, $8 million impact still in '05 for -- on an apples to apples comparison for CVG.

Negative.

Correct.

Vs. '04?

Of 6.7.

I'm sorry. Does that mean incrementally it's 1 or, incrementally, it is 7?

Incrementally it is one. It's basically the full year effect if you want to look at it that way because we didn't have any impact until, really, starting the second quarter.

With regard to wins and so on, the one big major program that's out there which is obviously a major program for both potentially for CVG but probably much more important for the acquisition is that Navistar LH program. Had they been awarded that or is that still up in the air?

That is a tough question to answer, John. Not because we don't have the answers just at this time we would be blocked from any type of answer on that program.

All right -- but I mean -- fine.

We are in the bidding. We are very competitive with it and we look forward to hopefully being awarded that program. Officially.

Both -- both and that was actually a big opportunity -- a bigger opportunity, incrementally, for CVG. In other words if they already had the 9000 series then all success for them would have just been simply maintaining what they had. Whereas for you, it's a bigger deal. I mean, on the CVG side. Potentially.

It's an opportunity for us on the CVG side but that opportunity on the interior comes at a later date. Obviously the cabs are one of the things that they select upon (MULTIPLE SPEAKERS)

Oh, earlier, they select the cab earlier and if there is a selection on the interior that would that that not done at the same time is the -- ?

Exactly.

But on the other hand and then with regard to be -- and this includes the Asia and Europe -- well two questions. One built into your 420, the number that we have it -- do we have a higher level of new wins or incremental business or is that simply that you are assuming that the volume industry volume is a little higher than was previously the case? How should we look at the fact that the bottom is a little bit higher?

Volume is a little bit higher, some of that compared to '04 compared to what you had before. Some of that is pass-through pricing on steel so you may have a $5 or $6 million inflation for that. Some of it is content and some of it will be currency.

So not a lot of new wins really?

What we've said before I think for '04 is $14 million -- $13, $14 million of organic growth. We were able to achieve that in '04 and what we have in '05 for the CVG is like what we've always talked about, 15, 16 million of organic. But that was in the previous 405 million you had anyway.

John, another thing too. A person like yourself who follows this industry so closely I am sure is well aware of. When you are in a major ramp up like these guys have been, there is not a lot of chances taken on moving supply base unless it is just absolutely critical. Because nobody wants to be left without any parts due to moving for a nickel type of deal.

When we talked, initially, and you talked longer-term we moved into Europe and we moved into Asia as being growth opportunities for CVG but, frankly, they were kind of the third and fourth. But they certainly weren't the first and second kinds of things. Do they kind of get pushed back in terms of your thought process because you have been focused on the ramp in the business and focused on the acquisitions and focused on some of these new programs out there? Or where are in terms of moving basically into Europe with the core CVG product? In other words I think Volvo at one point had invited you to begin to go over there. What is going on in that situation?

We are still holding meetings; and we have groups at Volvo this week, still working with it. We are probably in the early stages of design for future programs with them. Working very closely on it. There is no doubt that we will be there with two of our customers. It basically is now sorting down to what products we can do and how we can support and invest in those locations.

(OPERATOR INSTRUCTIONS) David Leiker of Robert W. Beard.

It looks like -- if you look at the EBITDA numbers, the margin at MVS is less than CVG. Is that the nature of the products, is that an opportunity for you? Where do you think that goes over time?

I think it is the nature of the product. Primarily because you are fabricating an awful big chunk of steel or aluminum. We think it is well run. We would like to say that over time we can expand the margin slightly, but we are not going to know that until we really get in and work with Gordon Boyd and his team in terms of productivity in the manufacturing part.

And then as we try to model this through can you give us some insight in terms of gross profit margins and SG&A for MVS? (MULTIPLE SPEAKERS) For '04. Yes.

'04. You already have obviously the sales is 207, EBITDA is 25. EBIT is probably around 19.5.

What about gross profit?

I don't have it in front of me, David.

That's probably a couple of 100 basis points lower than (indiscernible)?

Yes, I would guess if I recall the SG&A was around 6 percent, 7 percent. Something like that. Sales.

The tax rate for '05, Chad, you talked about 39 percent. Is that something that still is going to be volatile quarterly or are we' settled into where that is going to be a pretty normal rate for the year? For the (MULTIPLE SPEAKERS)

If taxes are ever normal anyway. It should be a pretty normal run rate, I think. We have some foreign tax positions in terms of what we're doing in China and the profitability out of there and tax holidays and so on. So it is still going to fluctuate a little bit but I'm pretty comfortable and I think 39 is give or take maybe a half or a percent. It is going to be pretty even.

Then your Q1 EPS guidance is 41 cents. Is that correct?

Yes.

As you flow the quarters through then to get the 215, it is a pretty substantial job step up in Q2 3 and 4 and the build rate is probably not going to -- at least from your guidance doesn't like it is going to step up that much. What is behind the growth season? (indiscernible)

(inaudible) MVS is out for, essentially, one month. I think the way that we have always looked at how we are going to perform in the upcoming year is you're not going to have efficiencies come Day 1. Those come over time and you're not going to have that incremental business and that contribution margin on the incremental business come Day 1. Those things come over time and we are also in negotiations with some of our customers on the steel for further reductions that we're pretty confident that we will get that won't come January 1 as well.

In this business as you know, David, the first quarter is always probably your worst quarter and it builds because you come out of the December shutdown. And we probably -- the first 15 days are not only inefficient but the production rates while they may be at the end of month ramping up to the 79,000 units, probably, we are not at the beginning of the month this year.

We always see a higher sleeper rate built to towards the into the year. Which affects both of these companies.

Then can you talk a little bit about valuation, very attractive purchase price for you, kind of the process a little bit. Was this an auction? Was it competitive?

I'll take that. Yes, it was a company that came on the market -- actually, we started looking at probably a year ago last fall. They were going to sell the North American operations and then what happened is the UK parent went bankrupt during the middle of that process and then the trustee, which was Deloitte & Touche, took over the process and actually Robert Baird was the investment banker on it. And they came back to market kind of in the late spring, the April timeframe. They actually ended up their whole -- at that point in time they were working for the lenders and they want to get a deal done fairly rapidly and they signed up with another party. We did not participate at that point in time because we were in the middle of taking the Company public. They signed an exclusivity with the party and work with them and that party's exclusivity lapsed and they came back to us at that time, because we were then clearly financially capable of doing it. They were dealing with another private equity fund and we told them we could get it done on a timely basis and the price we would be willing to pay. And they thought we were more certain and could get the deal done. We actually expected to close the deal probably a couple of months earlier but they had to also close another transaction for tax reasons before us, which kind of dragged on. So that's the long and short of the whole process.

It was kind of an expedited process which really, obviously, helped in terms of our ability to get this at the value we are talking about here. And they were looking for somebody with an awful lot of certainty which we clearly brought. In the end, the customers also played a fairly big role because there were much more happy with the business going to CVG than they would to a financial buyer in this circumstance.

(OPERATOR INSTRUCTIONS) Gentlemen, we have no further questions at this time.

Thank you everybody.

Thank you very much.