Commercial Vehicle Group Inc (CVGI) 2012 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the fourth-quarter 2012 Commercial Vehicle Group Incorporated earnings conference call.

At this time, all participants are in a listen-only mode.

Later we will facilitate a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Chad Utrup, Chief Financial Officer.

You may proceed.

Thank you, Frances, and thanks everybody for joining the call today.

As usual, before we begin today's call, I will read through some Safe Harbor language.

Merv will then give a brief Company update and I'll take you through our results for the fourth-quarter and full-year of 2012, and then we will take time to answer your questions.

With that, I would 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, expectations for future periods with respect to cost savings initiatives, tax positions and estimates, financial covenant compliance and liquidity, new product initiatives, the economic conditions in the markets in which CVG operates, fluctuations in 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.

With that, I will turn the call over to Merv.

Good morning, and thanks Chad.

Our fourth-quarter markets were difficult and disappointing.

As expected, third-quarter softening continued into the fourth quarter, but more deeply than we had originally anticipated.

Although Class 8 was down sequentially, it was also really no surprise, as we expected the market to soften in Q4.

OEM market shift drove negative mix shift for us during Q4.

Our other end markets, however, declined significantly more than anticipated.

Our construction revenues, for example, declined 29% compared to Q4 of 2001, and 17% sequentially, versus the third quarter of this year.

This was the result of weakness in both North American and Asian markets for our products.

We believe OEMs continued to use up inventory instead of building new equipment, in addition to the construction market decline during the quarter.

We also saw orders drop in the military, aftermarket, and service areas of our business.

Overall, we saw sequential revenue decline of 15%, compared to the third quarter of this year.

In response to the decline in our markets during the quarter, we quickly adjusted our cost structure, as we have done many times in the past.

Since our peak levels in 2012, we have adjusted our total hourly workforce by over 1,600 employees.

We also finalized the closure plans for our Statesville, North Carolina facility.

The products made there will be absorbed into other CVG facilities.

These decisions are never easy, as we know they impact whole families beyond the affected workers.

Nonetheless, they are necessary to ensure that we adjust to the needs of our markets.

As Chad will go through in a few minutes, during the quarter, we also incurred certain costs related to foreign currencies, acquisitions, and other items, all of which we believe to be of short-term nature and impact.

It is important to note that while we have made significant adjustments in reaction to the markets during the quarter, we still strongly believe in our five-year plan for growth, and that these market fluctuations are only short term for CVG.

Based on this, we have continued to invest in our exploration of acquisitions and other growth opportunities, which can impact us in the short-term, but are critical to our long-term goals.

As we look at 2013, we believe North American Class 8 builds will be in the range of 250,000 to 260,000 units.

We expect our construction markets to be flat to down 5% when compared to 2012.

We feel the global construction markets will be very strong over the coming years, but hit a major correction of overbuilt inventory, which is what we are experiencing now.

Thanks, Merv.

As we look at this past year, as Merv said, it is a dynamic of two very different halves.

The first half of 2012 saw an annualized Class 8 build rate of 310,000 units, and our annualized revenues were around $960 million, while the second half of 2012 saw annualized Class 8 build rates drop to 245,000 units, and annualized revenues for CVG of $756 million.

Through the second quarter of 2012, we achieved 13 consecutive quarters of adjusted operating income growth, then in the third and fourth quarters as our markets began to weaken.

Being in volatile markets is not new to us, and we have a variable cost structure to flex up and down as needed.

That said, we want to point out today the impact of the market pause during the most recent quarter, and its impact on our bottom line, relative to our strong push towards our five-year plan to grow our revenues to $1.6 billion through organic growth and acquisitions.

Achieving this target is not possible without staying the course with staffing appropriately around the globe, and investing in the development of new products and processes to ensure our aggressive organic growth targets are achieved.

We continue to focus on the integration of our new facilities in Mexico, Beijing and Ukraine, each of which are very important steps for both new business wins already achieved, as well as cost improvement efforts for the long term.

In addition to these efforts, we completed two acquisitions during this past quarter, one domestic and one international, both of which require resources, time, and expense, regardless of what our markets do in the short-term.

We think it is very important to understand the full scope of our efforts, which may impact our short-term results, yet provide long-lasting benefits.

Overall, we are disappointed with our results for the fourth quarter of 2012, but at the same time, extremely excited about the opportunities that await us in 2013 and beyond.

We firmly believe in our five-year plan, and are committed to achieving our objectives.

Looking specifically at the fourth quarter of 2012, our revenues were $173.4 million, which is a decrease of $52.5 million or 23% from the fourth quarter of 2011.

This decrease is primarily the result of the reduction in our OEM truck revenues, which declined approximately $30 million, or 27% versus the fourth quarter last year.

We also saw a decline in our global construction market revenues, which decreased approximately $16 million or 29%, as well as a $6.3 million decline in our military and aftermarket revenues from the prior-year quarter.

On a sequential basis, compared to the third quarter of 2012, our revenues declined approximately $31.5 million or 15%.

This decrease is primarily related to the decline in our OEM truck market, which decreased approximately $21 million, or 20% versus the third quarter.

In addition, our global construction market revenues declined approximately $8 million or 17%, while our military and aftermarket revenues declined approximately $3.8 million or 11% from the third quarter.

Overall, our revenues for this past quarter saw a sharp decline in each of our key end markets, notably in our military aftermarket and OE service end markets, which can have a higher impact in our profitability levels.

When it comes to our OEM truck markets, we saw negative mix shifts impact us in the fourth quarter, as our revenues declined further than the general market.

While this mix and market shift occurs in any given period during the year, this past quarter was certainly more noticeable.

To give further clarity on this from a full-year perspective, our domestic OEM truck revenues for 2012 increased approximately 12% versus 2011, whereas Class 8 production levels increased only 9%.

This positive trend for the full year 2012 versus 2011 is related to both content improvements and new business wins, as well as changes in product mix.

Unlike our OEM truck market, which saw positive increase for the full year 2012 versus 2011, our construction market revenues declined approximately 6% year-over-year and our military revenues declined nearly 20%, primarily related to the dramatic decline experienced in the second half of this past year, and most notably, in the fourth quarter.

We believe this high-level overview of our end markets is important, as we look at year-over-year impact as opposed to the fourth quarter in isolation.

That said, the impact of our markets on our fourth quarter was difficult.

From November to December alone, as customers reduced orders and took out production days, we saw a decline in revenues of nearly 25%.

We reacted with a reduction in our workforce and costs accordingly, without making short-term decisions that would be harmful to our long-term objectives.

Compared to the third quarter of this year, our operating income decreased approximately $11.1 million, on a $31.5 million decrease in revenues, which is a contribution margin of 35%.

As mentioned in the press release, we did incur certain unique expenses during the quarter, including foreign exchange impacts of approximately $1 million, $0.3 million additional costs related to the final stages of ramp-up of our new Ukraine facility, and approximately $0.5 million of costs related to the two acquisitions announced during the quarter.

In addition, we also experienced an increase in certain health-related claims and other costs of approximately $0.5 million, as well as an incremental $0.5 million of depreciation and amortization expense related to changes in our capital investments, as well as incremental amortization from the Vijayjyot Seats acquisition in November.

Excluding these items, which we believe are unique to the quarter on a sequential basis, our contribution margin on the decline in revenues was approximately 26%.

Depreciation and amortization was approximately $4.1 million, and capital spending was approximately $4.8 million for the quarter.

Our effective tax rate for the quarter was 25%.

As we move into 2013 we expect our tax provision rate to be in the 35% to 40% range for the full year, subject to fluctuations that may occur within the periods of the year, based on the timing of income in certain regions where we operate.

From a fully-diluted EPS standpoint, the quarter came in at a loss of $0.20 and the full year was $1.76 positive, primarily driven by the unique tax benefit in the third quarter.

As of the end of this past quarter, we had a cash balance of approximately $68.4 million.

This cash balance, combined with our ABL revolver capacity, means we have approximately $106 million of liquidity immediately available, as we continue to look at strategic opportunities.

The primary driver for the change in cash balance from the end of the third quarter of 2012 is the use of approximately $24 million related to the two acquisitions announced during the quarter.

Looking to 2013, our estimates for North American Class 8 units, as Merv mentioned, is in the range of 250,000 to 260,000 units, and our expectation for our global construction market is to be flat to down 5% year-over-year.

We saw a very strong first-half construction market in 2012, followed by a very weak second half.

Our current expectation is that we may see the weakness in the construction market linger for another quarter, and begin to pick up through the balance of 2013.

For as much as we saw certain negative market impacts in the last half of 2012, we are excited about the coming year.

We expect the two acquisitions from last quarter to contribute positively for the year.

In addition, we expect the new business with Skoda, which was the basis for our Ukraine start-up, to ramp up throughout the year, and as we finalize the movement of product to our new Saltillo facility, we currently expect approximately $2 million of cost savings versus 2012.

We will also continue to focus on growth in all of our key markets through new business wins, as we target an additional 4% to 6% organic growth rate for 2013, and we will continue to focus on strategic acquisitions, both domestic and international.

With that I will turn it over for final comments to Merv before we take questions.

Chad bailed me out a little bit, I was stuck in a cough, so he took over for me.

I wanted to finish out with, during the coming year, we do expect business awards from Bota, JAC, Cummins and Skoda to begin ramping up.

A few of these programs have been delayed and not in launch, but in ramp-up.

So we also had our two most recent acquisitions to begin to providing revenue and profitability for the year.

In November, we acquired the seat assembly, Vijayiyot Seats, and VJ has lease facilities in Bosca, Pune and Dawood regions of India.

And VJ supplies seats to the India passenger, school, and coach bus markets.

Its top four customers are Tata Motors, Tata Marcopolo, Ashok Leyland, and [Babalysher].

In December, we acquired the assets of Daltek LLC, a US company specializing in applications of customized industrial films, paints and other interior and exterior finishes.

Daltek has two leased facilities in Dalton, Georgia.

In addition to the heavy truck market, Daltek serves ATV, and UTV markets.

Its top four customers are Honda, John Deere, Yamaha and Bemis.

We expect Daltek to contribute around $13.2 million to CVG's top-line in 2013, and approximately $0.07 per share for the year.

During the quarter, we also realigned our leadership team to better support our objectives in North and South America, and also to have on-the-ground effect in Europe.

We hired Timo Haatanen as European Managing Director.

He has substantially management experience in the US and Europe.

He will be responsible for operations and market developments across Europe.

Greg Welch, who has been with the Company since 2005, will serve as Asian Managing Director.

He will be responsible for China operations, including market development and growth in that region.

Gordon Boyd, a CVG veteran, will focus his international manufacturing experience on the development of our Indian and Australian markets.

Overall, despite the short-term market conditions, we continue to invest in product developments, and across accretive acquisition opportunities.

We intend to stay focused on our long-term strategy to expand our global footprint, broaden our product portfolio, and grow our customer base.

We feel our cash position and balance sheet puts us in an excellent position to do that on a global basis.

At this point, I think we are ready for questions.

Frances?

(Operator Instructions).

Our first question is from the line of Ann Duignan with JPMorgan.

You may proceed.

Merv, could you talk a little bit about your construction revenues decline?

Can you talk to us about what you saw in North America versus what you saw in China?

And what kind of feedback are you getting from your OEM customers?

Are we near the bottom, are we a couple of quarters in, are we kind of crossing our fingers in China.

If you can just address the fundamentals of both regions, that would be great.

North America Q3 to Q4 was down much more, but the one thing that we really saw, Ann is what I touched on a little bit, was the overbuild during the Q3 that really people were selling out of inventory.

And the other area was mining was hit big.

And Kevin Frailey president of the construction wiring businesses in here.

Kevin you want to speak to anything on this?

Merv, I would agree with you that the decline in Q4 was a real tough one, especially the month of December.

I attribute that tot the destocking situation with our number one construction equipment company.

They had a deliberate strategy to pull back on inventory, I will tell you my experience is, that is the devil we know, that is volatility, that is what we deal with, that is what keeps competitors out, but we have reacted, we've taken about 1,000 people out of the operation since our peak, back in that April, May time frame.

When that starts to happen, it makes me think about what the recovery might look like.

I really struggle to correlate what is going on with our customer and their equipment sales with what goes on with harness sales.

I guess the rates of ups and downs are probably double, triple for us.

Yes.

Also on Kevin's point, for example in the plant that builds the lot of the electrical wiring harnesses for his area, due to the country that we produce in, there is basically five month of severance, so whenever you eliminate the hourly positions, you continue their payroll for five months.

Even though we took the people out, we are still hit with the cost of them.

I think Ann, as you look at where we go from here, our general thought is, as Merv said North America, from a sequential basis Q3 to Q4 was it harder for our total construction business than the rest of the world, and as we look out into the next couple of quarters, what we are really seeing or currently expecting is that the weakening we saw in the fourth quarter is probably going to continue through the first quarter, and then we believe it's going to start picking up shortly beyond that point.

And would you expect sequentially our quarter-over-quarter Q4 to Q1 --are you anticipating a decline of that enormity like down 17, Q3 to Q4, you're expecting an additional?

We expect it to be flat.

Yes Q4 was down fairly significantly, and we are currently expecting Q4 to Q1 to be relatively flat from a construction standpoint.

And could you address the same question then on the truck side?

What are your OEM customers telling you on the truck side in terms of production?

Jerry Armstrong, President of the truck business is in here.

Yes, from Q4 to Q1 we expect the business to be up slightly.

And that is for the full quarter, is that on a daily build rate?

Yes, the adjustments that our customers have been making at this point has been dropping days out or weeks out versus change in their build rate.

It takes them a while to go through the process of changing build rate, shifts, taking shifts out or realigning their capacity.

So we do not anticipate them doing any of that in this quarter.

It would just be, we have sales we are building, or we do not have sales, we're going to drop a day out here are there.

And based upon what we saw in the sales, that orders that have come in, like in January is a very strong month.

We see positive signs there.

Right, yes I was at that World of Concrete last week in the question there seems to be some level of excitement in terms of the impact of the construction cycle on things like dump trucks and cement mixers, so hopefully that starts to support orders going forward and production.

Just finally, the five-month severance, when did you start to incur that, when do we see the benefits of that cost rolling out?

We started incurring in probably May, maybe, June and then you know we have been incurring it all along and I think our last cutback was in December.

So but it is obviously, of the 1,000 that were cut back there, there was a lot less of those in December, so that amount that will affect Q1 will be quite a bit less than what was affecting in say November, December.

Okay, and then finally, Merv, can you give us any kind of an outlook for your military business and aftermarket?

Well, aftermarket we see that as remaining -- what hit us in aftermarket probably more than anything, were some of the cabs that we produced that are shipped as aftermarket units into the export area, I believe is the way that is.

So we think aftermarket will be doing well.

The big area that we see is in the military, it is just, based upon any of the speeches that we have heard as of late, we're pulling out of one country, and then we are going to increase spending in military.

So Pat is head of our aftermarket area.

Pat Miller, you want to speak to that?

Yes, sure, on the aftermarket and OES side, we follow some of these traditional aftermarket indices, cut across our industry, and those trends were showing some reductions in the overall business segment through Q3, and even into Q4, and that affected us.

I think one of the things that we were pretty excited about is, we have been trying to grow that segment and we saw that our reductions were less than what those industry indices were reflecting.

So we think our share efforts and our growth efforts are going to pay benefits to us as the aftermarket starts to come back strong this year.

What we saw with most of the reductions were in the OES side, and that channel tended to be focused on imagery reductions than what we talked about with the construction.

And the OES site is for, I'm sure you know, but it is original equipment service, so it is going to their dealers, it's bought through the OEM.

Yes, I probably would've figured that out, thank you.

I will leave it there and get back in line in case there is somebody else in queue that wants to ask some questions.

Thanks.

Your next question is from the line of David Leiker from RW Baird.

You may proceed.

I got on the call little late, but it sounds like you talked about some new business ramps that were pushed out a bit here in the quarter.

I don't know if you care to put a number on how big that was at all.

Well, I think the biggest thing for us, David, is the mix shift that we saw, you know what we talked about before, some of the higher content products we have, like structural components for example.

So when we have our key customers that have market share shifts between the OEMs on the truck side, where it affects our higher dollar content, products like structures, that is going to impact us.

And that could have been anywhere from something like $4 million to $5 million between Q3 and Q4 as a mix change.

And I do not know if you were on the call for what I went through earlier, but that is looking at the fourth quarter in isolation.

If you step back and look at the full year, our domestic truck business revenues went up about 12% year-over-year, 2011 to 2012 versus the Class 8 that went up about 9%.

So if you step back and look at the full picture, the new business wins and content, and mix shift was positive for us year-over-year, but if you look at the fourth quarter in isolation, it is certainly not the case.

That is one thing we have always kind of talked about, David, where using average content is a misnomer for us, because if it is a truck where we have the cab, the interior, the seats, the mirrors and the wipers, it is a high content vehicle.

If we only have the seats in it, it drops the content significantly.

So any time we have a market dip that takes away the cab portion of the business, the structures, that is our highest revenue item, and that really cuts into our market, our revenue dollars.

Significantly.

I understand that.

On this new business number, it is kind of a nebulous number, if you model things out.

But we have been looking for that number in 2013 to be $50 million to $60 million with what you launched.

Given some of the things you are talking about, that number would seem to be too high today.

Delays.

I think it is mostly in the delays that we have had with it.

Rather than it being too high a number, I think that the Photon for example in Asia, like in the US, if you remember, we had trouble getting the diesel to match up with the compliance of the engines already in place.

And they have suffered a little bit of that in Asia.

Yes, David, when you talk about $50 million to $60 million, I think some of the -- just take the business, the new business awards that we have announced like the Photon that Merv talked about, the Cummins piece, the JAC piece, some of those don't all start production in 2012 or 2013.

But Photon is a good example of where we see delays that's going to impact us, and I think your $50 million to $60 probably included a $10 million, $15 million or maybe even $20 million number for Photon, that's likely going to be maybe even half of that.

So I think there is some impact relative to what you are saying, with delays and things like that.

And then on the other side, is there an opportunity to just follow-on on this with Cummins and then picking up incremental business with Navistar, and that new business award you had there, does that move the needle, is that big enough to move the needle for you at all?

I think for us being in with Cummins that could have a favorable impact, maybe $2 million for us.

I know you talked about some of the actions you have done on the cost side, where do you think here in North America you taken your breakeven point to, in context of Class 8 truck demand?

That one may be a little difficult to answer at this point because we are in a process of, as we have talked about closing one of our facilities in North Carolina, opening up two new plants or a campus plant down in Mexico.

There will be other products moved into there.

That plant has won quite a bit of new business, it is spread out over -- we originally went in there with only one customer.

It now has, Jerry, three customers?

Daimler, Navistar, and PACCAR.

And we have got some construction business that we are quoting on out of there.

So that one as you continue to make that shift, you are currently running with a couple of sets of overhead that will go out of the overhead numbers as soon as those plants get either downsized or eliminated.

David, I don't know if you heard on the call, when I mentioned too is -- what Merv is talking about with the consolidation, closure, and movement of final product into that Mexico.

We expect to see about a $2 million benefit in 2013 versus 2012 because of just the timing of having those two locations open during 2012.

So when do you think you have those costs right-sized then for the demand and get everything moved around where you want to be?

Roughly midyear of 2013, David.

And we also opened a new plant in the Ukraine that Kevin is responsible for -- well, Timo is responsible for now.

So that one, and the Skoda ramp-up is just now starting.

So those are all coming into effect too, David.

Just one last follow-up, before I heard you talk about on some of these program launches being delayed.

Is that something that you catch up?

Is that a Q2, Q3, Q4 timeframe that you got there?

Or some of it just lost volume because of where the markets are?

No, I think that is definitely a catch-up.

And I would say it will be Q2, some of it will be in Q2, but most of it will probably be in Q3.

Okay, great.

Thank you much.

(Operator Instructions)

Our next question is from the line of Robert Kosowsky from Sidoti, you may proceed.

Chad, you alluded to a little bit of this with some of the product mix changes, but I was wondering if you could kind of segment or bridge the operating margin or operating income that we saw in the third quarter versus fourth quarter, and bucket it into product mix versus under-absorption of fixed costs versus incremental spending on growth.

Just give us an order of magnitude and specifications would obviously be better.

Yes, I think the biggest thing, Rob, to start out with is not the one time, but rather the unique items when we are bridging Q3 to Q4.

So let us just start there because there are three or four of them.

So we had FX expense, mostly all related to the decline in the yen, which I think everybody knows dropped about 10%, unfortunately it has not recovered yet.

But dropped about 10%.

So that is most of the decline, so we had about $1 million expense increase from Q3 to Q4 related to that.

We are obviously working on plans to curb that long-term.

And then we had about $0.5 million of incremental expense just related to the acquisitions.

We closed two acquisitions during the quarter.

There was obviously expense related to that.

And the we had, if you look at depreciation and amortization, if you are talking about operating income, there's roughly another $0.5 million of increase when you look at it sequentially.

Some of it is related to the increased amortization from Vijayjyot Seats, and the balance is just related to the change in the capital structure from PP&E.

And then we had roughly $0.5 million in just unique increase, like healthcare claims and other type of costs that we consider unique or one-time that we do not expect to recur at least at this point in time.

When you back all of those things out, plus the roughly $300,000 of incremental Ukraine start up cost which is in its final phase, it is roughly about $2.8 million.

You back that out of the operating income sequentially, and you get to a 26% range, which is, I think I even said it on the last call, when you get into market declines of 10% to 20% from one quarter to the next, we will be at that higher end of the 20% to 25% range.

So if you kind of back all those things out, obviously we do not like to give a laundry list of this, this, this, when they are all negative, but I think they are all explainable and some of them are related to FX and some are related to acquisitions, which are positive things.

Does that help kind of bridge you from Q3 to Q4 and get you to -- we still firmly believe in our 20% to 25% contribution margin, and I think that illustrates how we did not achieve that level from Q3 to Q4.

That is helpful.

One of the things, Rob, I'm sorry, one of the things too is acquisitions what we do them, like we did in India, and other countries where we have been looking at them very seriously, it is a lot more expensive to do them there than it is to do them in Dalton, Georgia.

Because you are having to do translations, you are having to try to travel, the travel itself is extremely expensive.

So it takes more cost into it.

That is where we were trying to focus our growth is in the emerging markets.

Okay, and so basically that is helpful.

Chad if you back out those items, you get about 26% decremental, and embedded in that is a negative product mix because cab structures was worse in the fourth quarter than it was in the third quarter, is that correct?

It is, but rather than that, Rob, I would point to the change in the aftermarket and military drop, because as we have always talked about, those markets for us are generally 10% to 15% higher in normal margin conditions.

So instead of a 20% to 25% contribution, you have to look at the severity of the drop that we saw in military and aftermarket and that really, frankly, you can attribute almost a 40% contribution to that piece.

So when all your markets including military, aftermarket, truck and construction drop at the same level, we're in that 20 to 25, but when you see more of a dramatic decline in higher-margin end markets like military and aftermarket, you are going to see an even higher detrimental.

Okay so that means that I guess the productivity and material utilization was actually very strong given your ultimate mix?

Absolutely.

As Merv said, from our peak to December, we have taken out 1,600 people out of our hourly workforce.

And so, our operations have done just a great job of flexing down the costs in the workforce.

But we have said is the travel and all the one-time things we talked about in the mix shift, that is really what gets us to the higher end of, say the 26%.

Not only from a result of, we are taking out costs in the operations and the hourly workforce, but we are really being conscious and not cutting out the things that we have tried to put in place and build around the globe that are so critical to achieving that $1.6 billion target in five years.

So we are being conscious to take out areas that make sense for short-term but not long-term.

Okay that is helpful.

Back at the analyst day, you had about $75 million target for revenue in 2012 in China.

Wondering what that came in and kind of how you think that nice stair step chart you have, how that has changed, given all the changes in market growth assumptions?

China was 75 with what happened in the second half of this year, is really closer to 65.

I don't have it in front of me exactly, but it is between 60 and 65 so we saw a decline in the second half of the year.

Similar to what we've been talking about today.

The two big ones were the construction market for the inventory situation, and the second one was the launch of the Photon business.

Okay, that is helpful.

And then finally as far as the Daltek deal, how do you cross-sell this, because it seems like a pretty unique high-margin business that is there, and I'm wondering if you can bring it into the core truck or construction business?

It is already in the core.

It goes on the dashes, it goes on the seat panels, there is a lot of it that our customer originally came to us, I got a call from one of our larger customers that said, we are having really struggling in this area of the business with our current supply base, and we know you buy some of it to use on our dashes and on our door panels.

Have you thought about, would you acquire this company?

And we looked at the one they suggested to us and we said no, we won't acquire that, but we will look for that area of business, because it does allow us to be more vertically integrated.

And then it reports under Jerry, you want to follow up with it?

Yes, the existing Daltek, was the largest independent supplier of this hydrographics or film process, and it is a decorative process, and their existing business portfolio is primarily in the recreational.

They have less than a $0.5 million in truck, and the entire truck market for decorative is probably in the $12 million to $15 million range.

The stuff that we mold and send out to be decorated, we sent out to somebody else, because we did not have the process.

A lot of our competitors were vertically integrated on this process, so it sort of makes sense with our trim philosophy.

And our trim strategy really is a one-stop shop, I call it the Walmart Supercenter, we sell you tires, we sell you ice cream, but we prefer to sell you both.

So this further augments our ability to be that one-stop shop on the stuff like IPs, like the instrument panels where we put the wood grain finish on the hard plastics, that type thing.

So we think that cross-selling is really an easy opportunity into the truck market.

We are also in the recreational market with some of our molding, and it brings some additional customers to us there which we hope to cross-sell into, hard plastic, maybe some hard plastic molding at some point if it make sense for us.

But the thing that they -- that makes them unique, is they are big parts.

Fully robotic lines, that handle big parts.

So their base is not something that you can buy from China or Mexico that ships very well.

You put that with the truck piece over here that we have, we are very excited about the opportunity.

A week after we closed on it, I was back down for a visit and I got the management on the phone, and we called one of our three top customers.

And they responded so favorably right after I got back from China, a week ago, we had probably a six inch-high stack of business to quote on.

We do feel very good about the ability to cross-sell this business.

Any idea on the revenue potential that is there, may be five years down the road?

Some kind of stretch goal?

We hope to probably double it.

Okay, cool, thank you very much.

At this time we have no other questions in the queue.

I would like to turn the call back over to Mr. Merv Dunn for your closing remarks.

I appreciate all of you taking the time to hear what we had to say today.

Earnings when the truck market and the construction market and the military and all this go down to the substantial amount that they have, so quickly, in a matter of a two-month period, it really put a lot of stress on the operations people here to cut the cost and I think they responded very, very positively, and the whole management team here did a great job in responding to the radical swing in the market.

Very proud of what they have done.

Thank you again for calling in.

Thank you, everybody.

Ladies and gentlemen this concludes your presentation.

You may now disconnect, have a good day.