Commercial Vehicle Group Inc (CVGI) 2005 Q3 法說會逐字稿

At this time I would like to welcome everyone to the Commercial Vehicle Group third quarter earnings conference call. (OPERATOR INSTRUCTIONS). Mr. Utrup, you may begin your conference.

Thank you, and welcome everybody to the Commercial Vehicle Group third quarter 2005 conference call. Joining me on the call today are Merv Dunn, our President and CEO, and Scott Rued, our Chairman of the Board. Before we begin the formal portion of today's call, I need to first read through our Safe Harbor language. I will then pass the call over to Merv to take you through a Companywide overview. And then I will take you through our financial results for the third quarter of 2005, and our outlook for the fourth quarter and full year of 2005. We will then take time to answer your questions.

I would now 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 better not limited to the economic conditions in the markets in which CVG operates, fluctuations in the production volumes in 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. I would now like to turn the call over to Merv.

Thank you very much. And thank all of you for joining us today afternoon. This past August CVG celebrated its one year anniversary as a public Company. And we're incredibly pleased with our Company's performance in its first year. Since the third quarter of 2004 our revenues have nearly doubled, growing from approximately 357 million for 12 months ended September 30, '04 to approximately 656 million for the 12 months ended September 30, '05. We have expanded globally, adding 10 manufacturing locations, including facilities in Mexico, China. And we have achieved this growth while maintaining a conservative capital structure with less than 1.5 leverage on a pro forma basis today.

We credit our success to the commitment of the CVG team and our ability to execute the strategy defined at our Company's inception. We remain dedicated to our strategy, and we're committed to generating meaningful returns for our stakeholders by providing our customers with an exceptional value on products and services, while at the same time seeking out and refining innovative solutions worldwide.

We continue to experience high demand from our customers in the Class 8 truck market. North America, truck OEMs recorded production volumes of approximately 88,000 units in the third quarter of this year. Despite continuing price pressures on raw materials, petroleum-based product and services industrywide, this was accomplished. As always, we continue to diligently work with our customers and suppliers to find mutually beneficial means of managing these costs, while constantly striving to improve our safety, productivity, quality and delivery to reduce our own costs.

As we look into the future, we will continue to focus on growth opportunities within our core business. We will achieve this through the continued identification of cross-selling opportunities and new product innovations. In addition, we will remain open to growth potential through the execution of potential acquisitions that complement our core business. We remain disciplined in our approach to the industry, which we believe positions us both financially and strategically for growth in the coming years.

Before Chad goes through the financial results for the quarter, I would like to talk some about our ongoing initiatives. I would like to update everyone on the integrations of Mayflower, Monona Wire and Cabarrus Plastics, and the realignment of North American operations into three specialized product divisions. I would also like to take some time to talk about our new business and process initiatives.

We are pleased to report the integration of all three of our recent acquisitions continues without incident. We have integrated all the Mayflower sales and finance functions from a centralized location to our offices in New Albany, Ohio. We've integrated Monona Wire's sales and management functions into our existing corporate structure. In the coming weeks we will further integrate the back office functions for Monona Wire and Cabarrus Plastics into our existing infrastructure.

Following acquisition of Cabarrus Plastics we created three specialized product divisions in North America designed to realign our companies by product segment. The realignment includes the creation of an Interior Systems division, an Electromechanical division, and a Structures division. The Interior Systems division includes CVG flagship companies of National Seating, KAB) North America Seating and Trim Systems, as well as Cabarrus Plastics. Brake devices, Monona Wire, modem near (ph) and preston near (ph) now fall under the CVG Electromechanical division. Mayflower Vehicle Systems will be placed in the CVG structures division. These three business units will continue to report to Jerry Armstrong, President of CVG of the Americas. Gordon Voight (ph), who was formally served as President of Mayflower, now leads the CVGA international operations in Europe and Asia. This operational realignment will allow us to focus on building on our culture of innovation, excellence and comprehensive product offerings, while enabling us to better anticipate and serve the needs of our customers worldwide.

We continue to have great success in winning new business and finding new innovative ways to serve our customers. Our strong cooperative relationship with the OEMs have been instrumental in securing incremental business and expanding our product offerings to our customers. We look forward to capitalizing on our strong relationships with other OEM customers to secure even more new business opportunities in the future.

CVG has always prided itself on a culture of innovation and the ability to find new groundbreaking ways to serve our customers. Most recently we entered into a five-year exclusivity agreement with Beck Technologies, the developer of computer-controlled large composite parts and molding process, such as hoods, roofs and bumpers. The agreement grants CVG the exclusive right to license and use the Beck process in production of parts and components for Class 6, 7, and 8 heavy duty trucks. The Beck process is economical and has significant advantage over current molding processes, including environmental advantages and superior finish and durability. Our alliance with Beck will broaden our productlines and our availability -- available manufacturing technologies. With this new technology we're positioned to capitalize on significant competitive advantages over existing alternative molding processes in the Commercial Vehicle market.

Specifically we're positioned to more aggressively enter the market for exterior cab components, as well as to capture market share in recreational industrial products. We expect the Beck sales to be in production by early 2006 in our Concord, North Carolina facility. As a result of the Beck sale, new business and has been awarded and will be in production at startup.

We have also been awarded standard seat positions for freightliners starting in 2007 for North America, details being released upon contingent of customer approval, which some have come out yesterday. We also have delivered production instrument panels for Freightliner, Western Star, and the details of that will be following. This is our first IP program for this OEM. And again we will release details as our partner allows.

In summary, we are incredibly pleased with our Company's performance since going public a little over a year ago. And we will are confident we will continue to exceed our customers' expectations as we enter the fourth quarter of 2005 in what is certain to be another exciting year for us in 2006. With that said, I would like to turn the call over to Chad for details on our third quarter financial results, as well as our outlook for the rest of 2005.

As we review our results for the third quarter, please remember that these results include the effects of Cabarrus Plastics operations only from the date of acquisition, which was on August 8, and not on a pro forma basis unless otherwise noted. Our third quarter results remained solid as revenues, operating profit, EBITDA and net income again were all above about our guidance for the quarter. EPS came in at $0.57 per diluted share, based on 20.9 million common share equivalents for the quarter. This is approximately $0.06 or 12% better than our guidance of $0.51 per share. On a pro forma basis, we estimate that had Cabarrus been part of the reporting period for the full quarter, our EPS would have remained unchanged, due primarily to the size and the timing of the acquisition.

Revenue for the quarter came in at 205.9 million, which is up 109% versus the 98.7 million recorded in the prior year period. This increase resulted primarily from the addition of the Mayflower, Monona and Cabarrus operations, accounting for approximately 96.1 million of the increased sales over the prior year. In addition approximately 23% increase in North American heavy truck production combined with organic growth and other market fluctuations equated to approximately 9.1 million of increased revenue over the prior year. Higher OEM sales in the European and Asian markets accounted for increased revenues of approximately 2.5 million, while foreign exchange fluctuations resulted in approximately 600,000 of reduced revenue over 2004.

When comparing revenues to our guidance for the third quarter, actual revenues were $12.9 million higher. This is a result of several factors. Class 8 production volumes equating to approximately 88,000 units versus our guidance of 75,000, as well as product content changes in the heavy truck market equating to approximately 14.2 million of increased revenues. Fluctuations in other markets equated to a reduction of approximately 4 million in revenues, while the Cabarrus acquisition had an incremental impact of 2.7 million for the quarter. The European and Asian markets, along with foreign currency fluctuations, were at expected levels for the quarter. On a pro forma basis we estimate that had Cabarrus been part of the reporting period for the full quarter, our revenues would have increased by approximately $1.7 million for the quarter.

Operating income was 24.6 million or 11.9%. This is an increase of 118% from the 11.3 million, or 11.4%, reported in the third quarter of 2004. Yet it is still mitigated by the impact of increased steel and petroleum-related raw materials, utilities and freight costs during the quarter. SG&A for the quarter was 11.9 million or 5.8% of sales, as compared to 6.9 million or 7% of sales from the prior year period. This improvement as a percentage of revenues is primarily the result of the sales growth in excess of SG&A growth, and the addition of Mayflower, Monona and Cabarrus have reduced SG&A levels. SG&A was in line with guidance expectations for the quarter.

Depreciation was approximately 3 million and amortization was 53,000 for the quarter. Capital spending was approximately $3.8 million for the quarter. We did experience some slightly favorable pretax impact from marking to market our foreign currency contracts of approximately $257,000, which improved our EPS for the quarter by about $0.01. Interest expense was $4 million for the third quarter of 2005 compared to 1.6 million from the same period in 2004. This increase is primarily the result of the increased debt related to the Mayflower, Monona and Cabarrus transactions, and was in line with our expectations.

As a result of the reduction of our senior credit facility in connection with the $150 million senior notes transaction during the quarter, we recorded a $1.5 million expense related to the write-off of a portion of our deferred financing fees. This was in line with our expectations and was included in our guidance for the quarter. Excluding such impact, our EPS we have been improved by approximately $0.04 or increased to $0.61 for the quarter.

Our effective tax rate for the quarter was 38.6%, which was in line with our guidance of 38%. EBITDA for the quarter was approximately 27.6 million, or 13.4%. This is an increase of 112% from the 13 million, or 13.2%, for the same period in 2004, and is in line with our guidance of 27 million. On a pro forma basis we estimate that had Cabarrus been part of the reporting period for the full quarter, our EBITDA we have been increased by approximately $200,000 for the quarter.

When we look at contribution margins versus prior year end guidance, EBITDA increased by $14.6 million versus the prior year on a sales increase of 107.1 million, or a contribution margin of approximately 14%. As you know, this is below our expected rate due primarily to the addition of Mayflower, Monona and Cabarrus at a reduced EBITDA margin than the expected contribution margin of 20 to 25% on incremental sales. In addition, costs related to steel and petroleum-related products and services, the overall growth and costs related to becoming a public company have impacted our margin compared to the prior year period.

Our EBITDA contribution margin for the third quarter versus guidance was below the expected contribution margin of 20 to 25% due to the following key factors, the reduction of revenues in specialty markets, the addition of the Cabarrus acquisition at lower than normal contribution margins, the specific increase in revenues related to the pass-through of increased purchase content of raw material, and the increase of freight costs another product and service price increases during the quarter. Excluding these fluctuations in the business, our contribution margin was approximately 20% on the incremental change in the sales for the quarter.

Our balance sheet remains strong as the Company generated approximately $7.5 million of free cash flow during the quarter. Our net debt position at the end of the third quarter, which includes 25.2 million of cash on hand, and excludes letters of credit, was approximately $166.4 million. This is a reduction of approximately 36 million since the second quarter, and can be attributed to the net proceeds from our equity transactions and free cash flow generation during the quarter, offset by the purchase price of Cabarrus Plastics. Our net debt to pro forma EBITDA as of the end of the third quarter was approximately 1.45 times, and our net debt to book capitalization was approximately 47%.

Our guidance for the remainder of 2005 is based on 79,000 Class 8 units during the fourth quarter of 2005 and 339,000 units for the full year. We estimate that the global construction market will show a modest decrease during the fourth quarter from our previous customers on those products for which CVG is a supplier. While we will not be providing our 2006 outlook, we do anticipate providing estimates for the first quarter and full year 2006 during our fourth quarter 2005 conference call.

Related to the fourth quarter 2005, we have given no effect, positive or negative, for any impact of mark-to-market or foreign exchange contracts. Our tax rate assumption is approximately 37%. Our interest rate on funded debt is assumed at 7%. And the rate on our $150 million senior notes is, as you know, at 8%. The Company uses a weighted average approach regarding common shares outstanding, and therefore we will have approximately 21.2 million diluted shares outstanding for the fourth quarter, and 19.7 million weighted average shares for the full year 2005.

Given these assumptions and the previously mentioned activities, we believe that our revenues for the fourth quarter will be in the range of $207 million. EBITDA is expected to be in the range of 26.5 million, and our EPS expectations is approximately $0.57 per share, assuming 21.2 million diluted shares. Revenue for the fourth quarter is expected to remain relatively flat from the third quarter revenues, and can be attributed primarily to the estimated reduction in North American Class 8 market, offset by new business programs, as well as changes in content, which we previously discussed.

Our expectation for the full year 2005 revenues is in the range of 761 million. EBITDA is expected to be in the range of 102.5 million, and our EPS expectation is approximately $2.49 per share, assuming 19.7 million diluted shares. For comparative purposes, our previous guidance for the year was $2.42. And our Q3 results were $0.06 better than expected, which would indicate a revised guidance figure of $2.48, while we are at $2.49, as I previously mentioned.

Our net debt position at the end of the third quarter was a approximately 160's mill 166 million, as I previously noted, and our net debt to pro forma EBITDA was in approximately 1.45 times. With the expected free cash flow generation, capital spending requirements and working capital movements, we anticipate our net debt position to be an arranged 0100 $2 million at the end of 2005, and are net debt to pro forma it EBITDA ratio to be an arranged 01.35 times. At the end of the year.

As we sit back and try to recap the sequence of events to where we are today and where the Company is going for the balance of the year, we think it is important to take a glance at where we started this year, a mere nine to ten months ago. As you may recall, we began this year with a full year EPS guidance of approximately $1.80. Today after three successful acquisitions and successful concurrent equity and high yield offerings, our expectations reflects EPS in the range of $2.49 for the same period. This is an increase of approximately 38%, while at the same time reducing our overall leverage to an estimated 1.35 times on a pro forma basis.

We are very proud of the progress that we have made during this most recent quarter and so far this year. We're looking forward to our first full quarter with Cabarrus and its management team as part of the CVG family. And we look forward to continuing to pursue our strategic goals and increasing shareholder value.

With that I would like to open up the call for questions.

(OPERATOR INSTRUCTIONS). Adam Plissner with CSFB.

Maybe just a little bit of an update. You started the discussion with the integration update in terms of your realignment of -- announcement of the three product divisions. But most of it sounds like has been accomplished that I guess that makes sense is really moving some of the centralized functions you talked about between the acquisitions, Mayflower, and Monona. Where do you stand sort of in the more I guess the high impacted strategic moves in terms of facility realignment, some of the Mexico facilities that you were looking into?

What we are -- today we have a plan that is pulled together. And we will be seeing some movement in the next six to eighteen months -- facility realignment and movement of products to spread out among the facilities. I think, as we noted in the -- that Beck is going into the Cabarrus Plastics facility that we just purchased. And we're also moving some of the plastics out of Trim into that facility. And moving -- we're doing several internal movements right now. But those are just capturing normal expense lines.

Some of the potential larger moves you don't expect to be several quarters out?

I think so.

Merv, may be just in terms of the new business quoting activity, are you starting to see based -- I know it is early on -- with the new product offerings and the cross-selling opportunities are you getting the opportunity to quote on business that may have been a different pattern than what you had before all of this sort of came together?

Absolutely. We are saying a tremendous amount of activity in the structures on a global basis. We are seeing, as we announced earlier, the instrument panel into Freightliner is our first opportunity to get with Freightliner on instrument panels. We have been awarded some heavy plastics since the acquisition of Cabarrus -- within that we have not put out an announcement, but it is our entry into the heavy plastics inside the interior. This Beck technology we have already landed an exterior piece that we're setting up on it. The seating opportunities, you know going global with Volvo has been a big impact. I think when you look at the things that is happening, you can see that a lot of this had come in place -- like the standard seat position is a 2007 effort which will help us in a down market. And we're putting a lot of effort into the strategy of making sure that '07 and down markets have less effect on us by either product cross-selling, leveraging inside the customer or either by bringing in new customer and global footprints.

I want to make point clear, because I'm not quite sure where the question was going. But in each in these acquisitions the idea was to broaden our product portfolio and have more of an integrated product offering. There was never any discussion or promise past, present, or future about a great degree of cost savings initiatives and plant rationalizations or anything like that associated with any of the three acquisitions we have done this year. I want to make sure that everybody --.

I understand that. I was probably -- that was the realignment question before. This one was just more or less trying to -- I think Merv hit on it -- in terms of new business quoting activity, some of the benefits that would come from the result of the assimilation of these businesses as well. Some of them sound like they would have occurred, if I understand it correctly, if you talk about the Freightliner seat business, is that something that would have been an opportunity presented in and of itself to the National Seating Group, irrespective of just the Mayflower Monona acquisition, or were these happening off because of the type of relationship and cross-selling opportunity?

I think a lot of them are happening because the customers are worried about down markets too, and having good strong suppliers. And the more you can put in a strong supplier, to know that you're not going to have difficulty and they are not going to have financial problems in the downturn, gives them one less problem to worry with.

I guess the last thing. In terms of some of the new technology, you have even talking about Beck Technology, is there a shift in strategy in potentially away from just the interior that you would be looking to expand further in your capabilities on the exterior? Obviously the composite technology puts you in a better position there.

Keep in mind that our strategy since day one has be inside the cab, outside the cab, or the cab itself. And the hoods and the air dams and the roof tops are definitely hooked onto the cab, as our wipers are, as our mirrors are. And we're just determined not to go into the chassis with a full force, because that is a completely different set of buyers. And also the thing to keep in mind is that this composite can also be used on the interior panels too.

Got it. I guess maybe the last thing. In terms of the instrument panel capabilities that you bring on, is that the close tie (ph) anchor product that you have to maybe tie into some of Monona's capabilities?

Yes. It gives us the ability to certainly look at wire and harnesses for the dash, to go ahead and load the gauges in it like what we had talked about in the past that our customers have asked us to. And part of the Monona Wire Group was to buy -- they assemble the gauges and did the complete testing out for the customer. And also the Monona brought us in opportunities to start quoting on complete truck cab assemblies.

David Leiker with Robert W. Baird.

Is there a way that we can put some numbers around these two pieces of business you got with Freightliner, what that can mean in terms of revenue?

No. There are ways of putting around it, but we're not at liberty to discuss those at this point -- by our customer. What we can tell you is you know enough about the marketing know how it works, that if your standard positioned, the only time that you're not putting in the truck is when an end-user, like a fleet, specifically requests a different brand of seat. And the places that we're in today that we're standard seat position we pull between 90 and 95% of the total production for the standard sear.

And at Freightliner you're currently what -- just an option?

Yes, we are currently an option. And keep in mind though that when we're an option we pull pretty strong because 83% of the the fleets that choose what seed to spec, they choose national brand.

What portion of their business do you think you have today?

17%.

Probably less than 20.

I can work with those. On Cabarrus Plastics, it seems that the interest there with the technology and not the end market. Is that fair?

The technology was the sole interest really, but once we got in there it is -- they have got a good book of business with Yamaha. And that is something that is certainly of interest to us.

What kind of products are they making? (multiple speakers).

They are making anywhere from small clean room items, which are like contact lens trays to large items which are the exterior panels for the Yamaha ATVs and wave runners. And we have just installed -- our are in process of installing a new 3000 ton press there, which has taken us into the large panels for several of our OEM truck customers we have acquired business with.

And then as we look out to 2006, and I know you're going to talk about this when you do your fourth quarter, but wanting to get some insights whether the incremental revenue beyond the end market, how that would compare in '06 relative to what we saw here in '05, which wasn't really a very big number?

In terms of -- what do you mean by not a very big number in '05?

If you exclude production, -- exclude the production in the acquisitions to kind of get to an organic growth number, that wasn't a very large number for you in '05.

I think it is still in line with that 4 to 6% organic growth number year-over-year. That is probably something that we going to stick to. I think you'll probably see that again with what we estimate for '06 organic growth to be.

Keep in mind on organic growth the best timeframe that we have for it, if you exclude the market conditions themselves, are '07 and 10.

And the organic growth for '05, remember too your base is a $380 million preacquisition base, so you're only talking 15, 16 million incremental business at the 4 to 6% range, I guess.

That makes sense to me. And last thing here just a couple of number items. Where do you think your depreciation ends up for the year, 12, 13 million?

Yes, it will be around 12.

That is probably not a whole lot different next year?

I think it will increase probably slightly next year, because with the acquisitions we realigned and reset depreciation, so there won't be a whole lot of fall off. So I would expect it to go up a little bit, but this year it will be around 12 million or so.

And then the same question for capital spending.

It will still be in line with what we talked about for this year, around that 20, 21 million range. We've got a lot of programs that pushed into the fourth quarter, so you'll see that pick up a little bit. But I would anticipate the same, if not a couple of million higher in '06.

John Emerwich (ph) with Ironworks Capital.

With flattish sequential revenue and share count up just slightly, the guidance sounds like you are expecting either slightly lower gross margin or SG&A as a percent net sales to be up sequentially. Which or both or either of those two would be inputs in your guidance?

In regards to the fourth quarter?

Yes.

I think what you'll have, which we touched on previously, both Merv and I did, you've got some change in probably your cost of sales bases and some mix content changes from our previous guidance for the fourth quarter. So you'll see some reduction there and you will see some pick up in things like tax and interest and the depreciation, which really nets us out to the same guidance that we have of $0.57 for the quarter.

Got you. Thanks.

Things like petroleum related products and services like freight, and all those kind of things, definitely changed since we last spoke.

Joel Tiss with Lehman Brothers.

I wondered --just three questions. One, can you break out a little bit better for us pricing versus volumes versus acquisitions in the quarter? And if that is too sensitive, you can broaden it out to the whole year. Just to give us a sense of what the pieces are.

In terms of the third quarter guidance or --?

Yes, in terms of the third quarter comparisons and maybe for the whole year how it breaks out as well.

If you look at the third quarter there is really roughly four things that I touched on. You're talking about a specialty revenue -- or a specialty market change shift from what we previously provided guidance for for the third quarter. Things like aftermarket OEM service and that type of thing, which as we have all talked before typically generates a higher standard margin than your typical OE business.

There is the acquisition of Cabarrus Plastics during the quarter. Obviously that is going to have a pretty large impact on your contribution margin, being that their EBITDA margins, if we stick to EBITDA, is in the mid teen range as opposed to 20, 25%. And we have had some changes in the way that we provide our products to the customers in terms of -- I won't get into specifics -- but in some cases the products which we previously had say consigned -- we are passing through materials with the customer due to some agreements that we had set up with them. So it significantly changes your revenue base, while it does not change your bottom line impact hardly at all. That is a pretty significant change for us. That is included in our guidance for the fourth quarter, and will be going forward as well. It was just a change for us in the third quarter.

Do you understand exactly what he's talking about there?

I have an idea. I'm not sure what percent of total sales that is and all that kind of stuff. And I figured you guys -- it wasn't that sensitive that you could say just of sort of pricing was up 4%, volumes were 15, and acquisitions were -- give us some numbers. But whatever works.

What is happening on some of this, steel was normally a pass-through, a consignment. And the customer is -- pushed it to us to pull through and to markup. And the margin on it, since it is pass-through, is virtually nothing. And that changed the revenue numbers significantly, but it did not change the contribution.

I don't have a problem giving you rough numbers. The roughly four things that we talked about. The specialty market revenues, that was a reduction -- I think I even mentioned before -- of about $4 million in the third quarter from are we had talked about from a revenue side. And you are talking 30, 35% say on a contribution margin basis compared to OE business.

Cabarrus was the 13.7 million that we added. That is roughly 14, 15%. And the content -- changes roughly about 2.5, $3 million on the top side. Revenue change -- really no change on the bottom line. And then the other pieces are the freight, and the price increases, the petroleum-related products and that is -- you are probably talking north of -- maybe $1 million impact something like that in the third quarter.

On EBITDA.

On EBITDA.

I had one more. Can you give us a little more granularity on the Class 8 versus Class 5 to 7? We've heard a couple of comments here and there that 5 to 7 was kind of week in the quarter. Can you give us any sense of what you guys were seeing?

Yes, it was down a little bit from what we were expecting. But keep in mind it doesn't have -- if that changes, unless it changes dramatically, doesn't have a significant impact on us -- the 5 through 7 side doesn't.

Just a last clarification. Does the product realignment mean that you're not going to integrate the Cabarrus Plastics as much as you would a normal acquisition, because you're just (multiple speakers) by itself?

Cabarrus Plastics will be fully integrated into the interior systems group. All of the core responsibilities are fully integrated and will be fully integrated into CVG. It is the operational -- these are basically operational business units. So that they can take leverage -- common processes -- common markets. So in the Structures division for example, we not only can do the plastic side of it, we can do the sheet metal side. So if we've got a customer who goes, hey, I really had wanted this hood out of plastics, and the only thing you do is either aluminum or steel -- we can say no, we also do plastics for it.

(OPERATOR INSTRUCTIONS). Manny Somia (ph) with Banc of America Securities.

A couple of questions. Chad, (technical difficulty) I missed the EBITDA number. I don't know if you gave out --.

I'm sorry, on this end we cannot hear anything.

Hello. how is this?

No, we still can't.

A couple of questions. Chad, I don't know if you gave out a full year EBITDA guidance. I joined the conference call late. Or did you just give out EPS numbers? I guess basically I'm looking at 115ish for full year EBITDA on a pro forma basis. Does that look reasonable?

On a pro forma basis, I don't have it front of me, but the guidance that I gave out for full year '05 was 102.5

(technical difficulty) include past years and different things like that.

I don't know if you guys talked about free cash flow guidance for the full year?

Full year we are estimating that our net debt will be down around 150 million at the end of the year.

Just in terms of some of the growth opportunities that Merv talked bout earlier in the comment section, I guess from an organic perspective there has been a lot of debate as to the fact that the organic growth rates don't seem robust. But I was hoping if you guys can comment on acquisitions, and if you have any sort of acquisition opportunities, and if so, what products would be compelling to add or enhance at this point?

The organic growth thing concerns me somewhat since we added $50 million worth of Volvo business that people tend to forget that we did not have, and is also in Europe and North America. And when I apply $50 million worth of business against what we started out the year at and we gained the business, that is almost what -- 25%? 20%?

On the CVG side.

Yes. And then when we look at the business that we just gained at Freightliner for a down year, and look at the numbers there. We looked at the dash that we joined. We look at the heavy plastics we have, I quite frankly don't understand the organic growth question.

Merv, could you comment on potential acquisition opportunities?

We continue to look in Eastern Europe, a small -- in the Scandinavia area. And we continue to look in products that relate to us that would fall into much of the opportunities, like we have seen with Monona and Cabarrus and with Mayflower. Things that our accretive to earnings. Things that would be bought for value that with the use the management expertise that we have to increase their value to the shareholders. And we continue to look at them. We are not big on jumping in out and overpaying. We do not give in to bidding wars for things.

Just sort of finally on industry demand, it looks like '05 is going to be a pretty strong year for heavy trucks. Could you give us a sense for '06? Do you see more supply chain bottlenecks in '06 perhaps that could deter an increase on the production side for Class 8? And then for '07 what kind of potential declines are we looking at for '07 in production rates because of new engine emission standards?

I will give you best expert advice. If I was real good, I would probably go buy a lot of stocks for '07, because I would know which ones to buy and which ones to sell. If I look at '06, I can tell you I think there will be -- continue to be shortages. I think what we saw with the hurricanes and it wiped out one of the large foam -- TTI foam supplier ingredients for foam. We will see shortages there.

I think it is a short-lived one I think. Anybody knows what is going to happen with steel. And what we see with petroleum-based products, the cost and the leverage of those. And then with general supply base, they had trouble keeping up volumes this year in different portions. And I don't think anyone has added capacity.

I think that we see a very positive for an '06 being strong, if not stronger than '05. According to what we are seeing out there and what we're reading, and what has come out of the truck companies. '07, we're hearing that '06 may not be as big a prebuy year. So what is '07 going to be within six months, we have seen some of the major forecasters change their numbers all over the map. I guess what we can do is just take and bear out. We will put our plan together for '06 based upon what the customers and what their research groups put together for us. And put a little bit of supplier wind (indiscernible) to understand it a little bit better. And then we will keep an eye on '07, see how we need to adjust for '07. But we do have a very flexible manufacturing system, and we will be ready for '07 when it comes down. Keep in mind these companies did very well in the last downcycle.

Pete Hogan with E-Invest (ph).

I just have one question left. CapEx, can you give me an update on what your year-to-date CapEx has been, and what your guidance is for the year? And then if you could, how does that look going out into '06 and '07?

Year-to-date I think it is 9, 10 million, something like that. I think we will be probably around the 19, 20 range, somewhere around there for this year. And like I said a few minutes ago, I think '06 will probably be in that same range, is not a couple of million higher. I actually see '07 right now, all things being equal, that it probably comes down a little bit, back into the -- maybe 16, 17 range.

Can you just explain, it looks like 20 million for the year, you spent half of it in the first three quarters and the other half in the last quarter. How does it get so lumpy like that, and will it be like that going forward?

Keep in mind some of the companies we added that started this year, one was in February or March?

Yes, February, June and August. So you've got some weighted average lopsidedness there. The other thing is we've got some of these programs that while you've seen some other releases coming out, a lot of this stuff is just timing related. It just gets pushed back in the fourth quarter. Not by design, just the way it had to happened.

Capitalization, we tend not to spend the capital until we need it. If we need it in the first quarter, we spend in the first quarter. If we do need it until the fourth quarter, we spend in the fourth quarter.

And another is a lot of acquisitions mixed into that -- mixed into the higher numbers. It still seems as a percentage of revenue, it has grown significantly from what the runrate looked like in say '02, '03, '04. What are you trying to achieve with some of these projects? Are these productivity improvements? Are they headcount reduction? Are we going to see margin improvement out of them, or is this just catch up?

I'm not sure I agree with your statement and that it has grown significantly. We're actually still at around 2.5% of sales -- 20 million on 761 million this year, which is still around the 2% range in the last two, three, five years, as far as I can recall. So I'm not sure that that is a significant change. Yes, we go through the same approval process for a $5,000 piece of equipment to up to a $5 million piece of equipment. It is the same payback. It has got to meet our hurdle rates and everything else. It is related to payback and everything else. It has definitely got to meet our requirements. It doesn't meet our requirements of the internal hurdle rates that we set for ourselves each year, then it has got to be a strategic move, and have a payoff down the road. There are several different ways that we look at them, but we look at them all the same.

Part of it was just trying to delve into -- I think Adam was one of the first people on talking about opportunity to maybe better align your plans. And I know you said that was never a condition of these acquisitions. But CapEx, productivity improvements at certain plants, did that created an opportunity to improve productivity, take out some capacity, that type of thing?

Sure. Absolutely. Those types of things are definitely part of our capital outlay. There's things that we go through in the operations reviews -- the (indiscernible) that we have talked so much about. That is definitely part of our capital structure.

And a big portion of this is also when you look under the way we reorganized into the process or product type groups in interior trims has parts that are in common in equipment, that is in common with some of the seating. Wire harness doesn't have a whole loan in common with a truck cab.

One last question, I guess. As gas prices have gone up materially, I imagine one of the strategies on track buyers is maybe choosing that slightly smaller engine to try to accomplish the same task. I don't think that would have any impact on how your mix of product would go into the trucks, is that correct?

That's correct. The mix of our products primarily is shifted around really the size of the cab. A big cab or a cab forward compared to say a 72 inch raise roof sleeper, which potentially has a significant more amount of content for us.

And then on the other side, on the automotive side, this has always been sort of a bad word, but decontenting, could you talk about how we can monitor to see if as gas prices go up, and as truckers become constrained, they maybe tried to decontent the purchase of the truck from a cab perspective?

I think that is something that is definitely out there in terms of decontenting or de-options -- reducing the options. And take interior to exterior, for example, that is one of the things that we are heading -- trying to head off with the plastic side of the business that we have been moving so fast on.

Another item that we -- to keep in mind with the truckers -- even with gas prices high, there is still a huge demand for truck drivers today that aren't being satisfied. If you decontent the truck too much, and you go away from the comfort features like the truck interior and the seats, then you tend to take a chance of not needing the gas because you won't have a driver to drive it.

That's true. That's a good point.

John McGinty with Credit Suisse First Boston.

First question I have for you is what is the rationale for taking the build down from 88,000 in the third quarter to 79,000 in the fourth? If you listen to what the LOEs are saying, and you look at the ATA numbers, that is not exactly what they are. And I was wondering what your rationale was?

Have you been notified of many of the big four taking builds outs in the fourth quarter yet?

No. Are they taking builds down in the fourth quarter?

I don't know, I was asking if you have heard any of it. We keep hearing that obviously there is a lot of vacation days out in the fourth quarter, Christmas and with Thanksgiving holidays. And we think that given those numbers and given the talks that we have had the customers, and obviously I'm sure you listened to the ATA conference that they had, we think our numbers are pretty good.

I think --.

What you are assuming is that the fact that orders have been weak and they haven't picked up yet, even though there is some evidence that they are beginning to pick up in October, you're assuming that that kind of stays down, and that they take it out of the fourth quarter?

Yes. They are either not working during the holidays or taking the full time off during the holidays, or maybe not working the over time.

I can't recall exactly what the X (ph) number was for Q4, was it around $0.84 or like that John?

Yes.

We are -- technically we are at about 79,500 units for the fourth quarter is our estimate. I don't think we are terribly far off from where that is, but we are definitely down with what you mentioned earlier, sort of take the current runrate out.

And you are also being somewhat -- you're going to produce what they want is the bottom line, right?

We will produce -- if they want 90,000, we will be right here working to get them out for them.

Fair enough. Some of us were on the Packard (ph) call earlier today, a couple of hours ago. In any event -- okay.

Are they going to build more?

Do you think they are going to tell us what they are going to do on the call? But the point is that their forecast -- they are still throwing out their forecast for '05 and '06 are right where they were. They're not bringing those down. And they are talking about their orders being up. But their big deal is talking about orders being up.

So second question, and I think Chad you went through it, and I was scribbling it down, and I can't find it now. And if I just copied it down wrong, I apologize. But you talked about part of the -- one of the factors hitting in the fourth quarter was the construction market, some of the construction market being down relative to where you were before. Did I just mishear you on that?

No, no, that's right. From where we had the fourth quarter guidance from our last call, we had it down slightly. It is not significant, but down slightly.

Where? In other words, we also had the C&H call. We had Caterpillar the other day. I'm just trying to figure out, I don't see much in the way of construction equipment. I don't see anything in construction equipment going down. And I'm just trying to figure out what you have going down -- is it what type of equipment -- geographically type or where or why?

It may not be the whole market going down, but I'm talking in relationship to where we had the market in the fourth quarter previously. I can't recall how much we had it going up from Q3 to Q4, but we brought it back down from where we are saying things go out. And it is primarily in North America.

(inaudible).

I'm sorry?

Smaller equipment, larger equipment -- what is it?

Smaller.

It is the smaller equipment.

Again that is based on your -- the same sort of thing your expectation or is that based on you're actually being told that by whomever you're selling to?

And again, it is -- I want to make sure we're not talking apples and oranges here. The down is in reference to where we previously had estimated the market to go, not necessarily going down from where it is today.

Could you could get into perspective, in saying where it is versus the third quarter maybe on a seasonal rate or something or --?

In respect to the third quarter I'm not following your question.

In other words is fourth quarter -- for example, you can have built into your model that fourth quarter is up 10%, and you used to have it up 20%. But are you saying that the fourth quarter is up versus the third about but up (multiple speakers)?

No, I think it is relatively flat from the third quarter. Just maybe some production days out is about all. But from a runrate I think it is, if I recall right, it is relatively flat.

With regard to the wins that you have, you have not announced anything, or have you -- I'm sorry, if you have I have missed it, and I guess that is what I'm asking. Do you have any wins one way or another with regard to international?

No, we have not.

There's nothing that has been announced at this point?

Not from us no.

Are any of these winds '06 wins? In other words, does the Freightliner win -- I think the Freightliner wind are '07. And the Western Star and the Freightliner I think are '07. Is that correct?

The Western Star is actually '05, December '05. The VAC (ph) will be early, and then '06, as was mentioned in the press release, and the Freightliner, the seating is '07.

What I was trying to figure out is, if we make whatever assumption we want to make for Class 8 tracks in '06, then you do have -- there are some wins that benefit '06? In other words, there is some revenue benefit to new wins for you guys in '06, not just '07, but some in '06?

Yes.

Yes.

And there's also some marine industry in '06 too.

Can you give us some order of magnitude, if Class 8 tracks were flat in '06, in other words, dead on flat '06 versus '05, what would your order of magnitude revenues be up in '06 versus '05 based on wins, business and so on, just on the truck segment?

I think you've got to look at the organic side again. You are talking the 4 to 6% from '05 to '06.

The 4 to 6% is a good measure of the organic in a -- who knows if the market is going to be flat, up, or down? But holding the market constant that is pretty much where you would be?

Yes, for '06, roughly speaking, right.

I think that is -- that makes good sense. Okay, thanks very much.

Shareen Cadrie (ph) with Pilot Advisers (ph).

Good quarter. I just wanted to -- I missed the numbers. It went a little fast for me. The breakdown you gave of the acquisitions, and I think you gave one number for Mayflower and Monona and Cabarrus. And then a separate number for truck market growth plus organic growth.

Compared to the prior year?

Yes.

Is that what you are are talking about?

Yes, it was in your (multiple speakers).

From the Q3 this year to Q3 '04 it was 96.1 million for the acquisitions.

But all three, right?

Yes, that's correct. The North American market, truck market and new business was 9.1 million.

That includes new business that you have won?

Yes, it does. That would include new business, price downs. Keeping in mind too that that excludes the acquisitions, so you're still only -- that incremental comparison to last year only includes the core or the original CVG, I guess is the way to call it, without the acquisitions. Asian and European market was 2.5 million. And foreign currency exchange was negative 600,000. That gets you to the 107.1 million change.

And then you said Cabarrus on its own was 2.7 contribution in the quarter?

Revenue, yes.

Than revenue, right. And then I think you said if it was a full year that was added another 1 7 -- or a full quarter rather?

Full quarter what has been another 1 7, that's right.

Joel Tiss with Lehman Brothers.

This is Andy Kaplan. It is just a follow-up question. You had mentioned to Joel on Specialty Systems, I guess, that you were down 4 million compared to your expectations. I'm just wondering -- and you said it was OEM service and aftermarket. I'm just wondering what that is -- a little more clarity there if you have it?

That would be more in aftermarket and military and slight OE service, but the biggest portion of this is that we have in that area you get into wipers and --.

Military products. That is -- we track a lot of our, I guess call it, non-OEM, traditional OEM, business through that segment that we're talking about. And that is like Merv said, it is primarily the OEM service, the aftermarket, and the military, fire truck, that kind of product.

Do you expect that to continue then? I assume your revised guidance has that incorporated in, but will military aftermarkets pick up or any of these other little things that you're talking about?

We certainly hope so.

We're estimating it to come back. I think a lot of it was just kind of pushed back into the fourth quarter, which is what we're estimating it. The difficulties with this is lead times on information of what orders are actually going to be relative to how far you can project it to be in the say three, four, eight months even, because of the short lead times from when new orders come in. So we are expecting it to come back a little bit which is what is in our guidance.

One other thing. You mentioned Europe and Asia in seating. Was that sort of what you expected for the quarter? Was it better or worse or you are sort of in line with expectations?

In line. Almost exactly in line with what we had expected there from a revenue standpoint.

Bill Kettigan (ph) with ABC.

Could you give us a comp for Q4 '04 versus the guidance that you provided for '05?

Q4 '04? I may have it here. One second. I don't have the revenue here with me in front of me. The actual EBITDA would have been 14.2 million I believe. Pro forma I think it was around 28. That is all I have in front of me.

Kareem Sislip (ph) with First View Capital.

Just a quick question surrounding the driver shortage. I just wanted to get your thoughts on how the shortage has impacted your business, potentially creating opportunities. What has been the impact, and how do you guys view that?

We think anytime there's a driver retention issues that we excel with helping our end-user. We spend a lot of time with our end-users at fleets going over the comforts of our seats, going over the adjustments of our seats to help save them on workers' comp claims, which keeps the drivers in the trucks. For us anytime there's a tight market it obviously gives a preference to our seats, which are, like I said, when you your pull through about 83% of the truck fleets that choose seats tells you that your working with them very closely, and they like your products.

You will have to indulge me, I have just been following the Company for a few weeks now. My other question is you were talking about business wins. What is the sales pitch? Obviously, there are some other competitor -- I don't know, like an Accurides, providing seating systems to a Freightliner before. What is the sales pitch? Why your products? Is it just that you guys offer this whole suit of products to customers? You guys have great quality? What is the sales pitch? What gets your customers to buy your products?

First of all, we do create a good value for our products. We have exceptional quality. Our delivery time is record setting for the industry. We also have a lot of innovations we have been in our seating and in our interior products. We do not have one product that is only interior and the rest of it on the chassis. Our products are all centered around the cab, on the cab, so all of our products end up going through the same set of purchasing families and same set of engineering families.

So if a person is familiar with, say Trim Systems has done an exceptional job for them, and we don't supply seats or very little seats, when they see the exceptional job that is going on with trim, then it opens up a door for us to do seats for them, or cabs or whatever. And doing seats and doing an exceptional job for Volvo in North America, landing the standard position which threw us up to about 95% of their seats that we supply now. It gave the opportunity to go to Europe and supply Volvo and develop their new line of seats on a global basis for them.

At this time there no further questions. Are there any closing remarks?

I would just like to thank everyone for joining us today. We look forward to speaking to you all again soon when we took about the fourth quarter. Thank you very much.

Thank you everybody.

This concludes today's Commercial Vehicle Group's third quarter earnings conference call. You may now disconnect.