Good day, ladies and gentlemen and welcome to the fourth quarter 2011 Commercial Vehicle Group Incorporated earnings conference call. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Chad Utrup. Please proceed.

Thank you and welcome everybody to the conference call. As usual, before we begin today's call, I'll 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 of 2011. And at the end, we'll take time to answer your questions. With that, 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, expectations for future periods with respect to cost savings initiatives, 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'll turn the call over to Merv.

Thanks Chad and thanks to everyone that was able to join our call today. We're pleased to report that during the fourth quarter of 2011, we achieved our highest revenue in operating income levels since the fourth quarter of 2006. And for those keeping score, it was also our eleventh consecutive quarter of operating income improvement, excluding impairment and restructuring charges. Indications are that we will continue to see good strength in North American Class 8 market in 2012. Global construction also remains a key revenue generator for CVG, and currently shows little or no signs of weakening. As we predicted at the beginning of the last year, our military sales dropped from their 2010 highs and remained relatively flat in 2011. With a slight decline in orders during the fourth quarter, barring any new major defense contracts in 2012, we don't see that changing. During 2011, we added new business in Asia that included domestic Chinese producers such as Foton Motors. The new Foton business should result in annualized revenues of approximately $11 million in 2012 and grow to more than $30 million at full production. We also gained new Chinese business with global companies such as John Deere and Cummins. Last night, we announced a letter of intent between CVG's Electrical Systems Group and Cummins Emission Solutions that calls for CVG display Cummins On-Highway program with wire harnesses beginning in 2013. Under this new program, we will supply Cummins facilities in both North America and China with products produced in our Agua Prieta, Mexico and Shanghai, China facilities. CVG products will be used on after-treatment systems provided by Cummins to power on highway tracks. Cummins is a pioneer in helping Chinese and other global customers achieve their fuel efficiencies and emission goals. We are proud to have been…

Thanks Merv. Our revenues, as you saw for this past quarter, were $225.8 million, which is an increase of $67.8 million or 43% from the fourth quarter of 2010. This increase is primarily the result of our global OEM truck market revenues, which increased nearly $47 million or 71% from the fourth quarter of 2010. Our global OEM construction revenues also saw a sharp increase of approximately $12 million or 28% from the same period last year, while our other end markets collectively increased approximately $9 million or 18% from the prior year quarter. Operating income was $16.1 million or 7.1% of revenues, which is an improvement of approximately $10.7 million over the prior year period. Sequentially, revenues were up approximately $8.9 million from the third quarter of 2011 with an operating income increase of $2.5 million or 28% contribution margin. With start-up cost related to our Saltillo and Beijing expansions beginning to subside along with strong focus on cost and margin improvement, we are extremely pleased with our performance this quarter and the contribution on incremental revenues. Depreciation and amortization was $3.1 million and capital spending was $6.9 million for the quarter, and our interest expense was generally in line with what we discussed on our last quarter conference call. Tax provision for the quarter was slightly lower than expected and is primarily related to tax expense for our foreign operations, offset by changes in valuation allowances for our U.S. based entities. Looking forward to 2012, our estimate for tax provision at this time is approximately 20% of pre-tax income, and we will continue to monitor the status of our valuation allowances as we progress through the year. You will notice that, we did record approximately $15,000 attributable to our non-controlling interest. This is related to the new joint…

[Operator Instructions] Your first question comes from the line of Ann Duignan.

Could you talk a little bit about the near-term? We've heard of recall of trucks for braking issues that across several OEMs. Are you seeing any disruption in your orders or your bill schedules from your OEM customers in North America on the back of that?

Not really. We understand that the brake company in question has got a retrofit that they are going to the field with. And also keep in mind that they do not supply a 100% of the OEMs.

Okay. So are you saying you're more leveraged to the OEM to do not choose then excess, is it?

What I'm saying is that we have not seen an impact yet at this point. And specifically on -- there are OEMs that we -- that do not use them and we have obviously seen no impact on. And the ones that are using them, we have not seen an impact yet.

Okay, thanks. I thought it might hit you a little bit in Q4, but obviously it didn't. So I just wanted to make sure I'm modeling correctly. My follow-up question then is on China. Can you just talk a little bit about what your team is seeing there? We've got very, very tough comps, some question about excess inventory in the field. Can you talk about what you guys are seeing specifically in China?

Well, we've seen a little bit of slowdown in Q1 and we are a little bit of softening. But we think it will pick up in the start of Q2. And even with the market softening it's still a huge marketplace for us. And in most cases it's brand new territory for us. So even with the softening market it's still a great region for us to be in.

Okay. And based on what are you seeing out there that gives you confidence that you will see pickup in Q2 or is it just, you hope?

We see some -- that there has been some inventory, we see a slow comeback from the Chinese New Year. And frankly the way orders in customers we just got back, Chad and I and through the Division Presidents from China and India and after the 1st of the year, right before Chinese -- during Chinese New Year actually, and met with several of our main customers there and looked at their projections and that's what their projections show.

Okay, so their plan is to reaccelerate productions in the near-term is that…

Yes.

Okay. And then, just finally maybe the same question in Europe. What are you seeing in Europe, particularly in construction?

We're seeing some softening but that's not a major hit for us.

Yes, we're seeing some softening, Ann, but it's not impacting us significantly.

Why do you think that is?

Why is the softening or why is not impacting?

No, no. I'm not going to ask your guesses why the market is slowing but if the market is slowing and it's not impacting you, is it just a matter of time or again as your mix leverage to some…

Yes, it's more of the latter, Ann. Our mix for European construction and truck is -- we're more leveraged to all other countries other than Europe at this point. So that's why I say it's not a significant impact to us. We are seeing some softening, but we don't expect it to be a huge impact for us.

We're going to go ahead and move on to the next question. And that question comes from the line of Robert Kosowsky.

I was wondering, Chad or Merv, if you guys could maybe build a bridge between 3Q and 4Q, like were there any -- what were some of the major swing factors in the profitability? Was it some raw material recovery that might have given you a lift? Was it kind of Saltillo and Beijing materially stepping down, kind of any other insight into that?

Well, I think, if you remember, we said that there had been some major disruptions at some of our OEMs and instead of letting the temps go, we've retained them, because we were in the middle of training them and it made no sense for us to drop them off and then bring them back. So we had to add. Then we had some material recovery. I mean, there was just a little bit of several things, but, I mean keep in mind the numbers in Q3, we're still part of the consecutive -- 11 quarters in a row of improvement.

Yes, there's a -- it's not really one thing, Rob. As Merv said, it's a little bit of what he mentioned and you get things like Mexico expansion. We had some costs in Q3. We saw some costs in Q4, came down a little bit from Q3 when you're looking at it sequentially, peso helped us a little bit, not significantly. So it was a combination of a lot of things and then some specific cost control measures that, as Merv mentioned, that really drove the sequential margin up.

So the cost control measures, that was kind of a function of just increased, or more appropriate utilization of your, I guess, labor and your plants? Is that kind of a fair way of looking at it?

Well, I guess you could look at it that way. I think the way we'd prefer to look at it is, we didn't take a hit on labor in Q4 because we let the employees go for 3 weeks and then had to bring them back and or try to find more and then retrain the labor. So, I guess it was just -- we didn't knee jerk react in Q3 and drop the employees off and then try to find new ones in Q4. So when they hit Q4, they were already properly trained and were able to work more efficiently.

Okay. And then, as you look -- if revenue were to flow in at this quarterly run rate level, are there further efficiencies or further margin expansion that could occur or is this kind of an optimized profitability stance given what your mix looks like right now if you were to just kind of to freeze Q4 and roll that forward?

Well we always are -- start out first of the year with productivity get backs and you start with the materials that -- where you're working on efficiencies, where you got programs in for the year just start out in January too, January also or Q1 also and then ramp up. So you've got all kinds of moving things that will not freeze but in overall aspect if the market stayed the same and everything stayed the same, we've always predicted that we would have between 20% and 25% incremental margins. So that's what we're always looking for and of course we are always looking to improve the base line EBITDA percentage.

And we have many projects, Rob, that focus on material cost reduction and taking cost out of products. So that's without giving specific what would it be, there is always those types of things there. I think the other key things to point out, I mentioned it earlier, well, there's a couple of things really when we look at timing through the year, we've got wage type inflation or increases that hit us in January 1. So we have timing of events, which will impact us in the first quarter and then really flatten out for the balance of the year. And then, we also have some finalization of the Saltillo expansion that will probably hit us more in the last half of this year. And numbers, the wasting could be $800,000 to $1 million just kind of one-time as we roll into the new year, And then probably the Mexico expansions, probably $500,000 to $750,000 in the second half of the year, something like that those are really the key 1x things that we'd probably point out at this time.

And the ramp up of our customer in China, they're ramping up this new program for them also. So they ramp up. And China is also starting in to their -- and that's one thing also to go back to Ann's question about China. China has implemented that new regulation on their engines and I think they may be -- their engine manufacturers are kind of like we were in North America, they may be ready before their fuel industry is ready to supply the type of diesel that they're wanting. So we're seeing that as a little bit of slowdown too, as they regain footing and decide what they're going to do.

Okay, that's helpful. And then can you talk about the amount of new business that's going to hit in 2012 and kind of how does that kind of flow through the year, like what is the cadence of that actually hitting your P&L?

I think what we've put out there over the last 12 months and the Cummins announcement doesn't really hit until 2013, but it's fairly -- as far as we are sitting here today, Rob, it's fairly evenly spread out throughout the year. I think our number was about $45 million to $50 million that was going to hit in production for 2012, and we're going to start seeing that already in Q1. So it's fairly evenly spread.

Okay, so we should expect to see some sequential revenue growth I guess?

Yes, it will probably more in the second quarter and third quarter more weighted towards the last 3/4 of the year, but we will see some in Q1.

Okay, so maybe Q1 looks a little bit like Q4, but then you get the better ramp throughout the year?

Yes, the timing thing for us for Q1 is more related to the productivity get backs, and annual wage increases. This is nothing new. It's kind of always been where -- a timing impact for us, but that I want to make sure that we're clear on that because that does impact us Q1 for sure.

[Operator Instructions] And your next question does come from the line of David Leiker.

Okay, this is Joe on the line for David. Just want to dive into the Cummins award. Is this your first piece of new business on after-treatment products?

Oh my. We're not going to take any more questions like that. They're too hard. I think so. It is our first award on the engine in the after-treatment. We do have some other wiring on the engine with some of the OEMs, but this is the first one and this type of after-treatment.

And just to be clear, Cummins Emission Solutions, not only it supplies Cummins, but they also supply other OE engines, I believe?

Yes.

Okay. And this award is for both of those categories?

All we are at liberty to say is that it's for Cummins engine solutions.

Do you think now that you've picked up this award, there's opportunities with the other big after-treatment guys, like Tenneco or [indiscernible]?

I'm not sure. That's not an area that we have really started looking at focusing on. Cummins, we've had a really great relationship with them from having worked in and lived in Columbus and been with some of our Board that has had great relationships with them. So it was just a natural meeting together between the 2 companies, and it was one that we had pursued as well as talking to them. And obviously with winning awards from Cat for their highest quality level award that they offer for this type of product on the wiring, you would think that that would be a natural opportunity, but it's not some that we have particularly pursued.

Okay, great. That's helpful. Do you think, looking at your mix of business, I don't have the updated 2010 numbers -- or 2011 numbers, but I think you were like 40% seating, 40% wiring harnesses? Do you think that mix is going to pretty much stay constant over the next few years? I know you've made some seating acquisitions, so that might drive up the mix of your business. And I'm just wondering if that has any implications for the profit contribution that you see.

Well the profit contribution is pretty well level across our different businesses. And the only place where margins substantially vary is usually from aftermarket military and, of course, military is down and we're putting a big effort in growing the aftermarket.

Joe, just to clarify for 2011, seats was around 43% and wire harnesses alone was really closer to 22%, just want to make sure I clarify it for you.

And then one last one on the construction piece of your business, I'm wondering if, one, you could maybe detail what China is as a percent of that number. And then if you, if you look at the construction industry in China, the comps there, just excavator sales are like down 20% or 30% I think in Q4. I think January actually saw it down 50% year-over-year. And you're still growing your business 20%. So is that purely new business, should we take the delta there and figure that's incremental business you picked up or is that your customer exposure you think that are just outperforming the broader markets that are still having you grow your construction revenues pretty solidly?

For 2011 that's a tough question, I don't have all the data in front of me, Joe. I think China maybe 15% to 20% of our total construction business globally. I'm shooting from the hip here just roughly. For 2011, our OEM global construction business was a little over $200 million, maybe $210 million and the China piece for that would be 20%, 25% of that at max. I can give some more numbers. I still have it in front of me. But that China represents really the biggest opportunity for growth for us in the construction market as evidenced with some of the awards that we've been talking about.

Okay. And then just one housekeeping item, but did you give an estimate for what CapEx could be in 2012?

It will probably be close to 3% of sales, 2.75% to 3% of sales, very similar to 2011.

And we have a follow-up question from the line of Robert Kosowsky.

What kind of growth did you see in the cab structures business this year, and kind of what's the outlook for that?

The cab structures, we actually added stamping business, we added some caterpillar business and some exterior products for Class 5 through 7 trucks, the UPS FedEx type trucks.

Okay, now what's the outlook for that? Because I know there was a much bigger business back in like the last up cycle and like 2006 or 2007, I know that you did lose some business in-sourcing over the years. And I'm just wondering how this business comes back and kind of its impact on margins if it does come back.

Well there is 2 types of business when you talk about the reduction in the size. One was from, when one of our customers relocated their business from Canada to Mexico and we chose not to -- and at the time we wouldn't been able to afford to, frankly, to establish a brand new plant in Mexico to be able to supply it. And then, the other one was when one of our major customers eliminated one of their brands. So, to grow the business, there is going to have to be new platforms to come out, new growth that comes out or we start continuing to expand in the Class 5 through 7 marketplaces in different areas or when some of the foreign turn domestic locate in North America, it offer -- it opens opportunities for us since we have facilities that are already capable. And, I guess the next marketplace, which is one that would play in and still continue to play in, is the niche vehicle. Since we've made vehicles like the Prowler, the SSR panels and we also made the complete Ford GT body. We are continuously working with people on niche vehicles. And those aren't at liberty to be discussed ever from my end, but yes, we do continue to look for growth for that business and it continues to be a very strong market for us. And we are the supplier for trucks, cabs, and it's 10% of our business last year. And it's a very nice market and it also provides us with design engineering revenues. We worked on a new truck introduction for like a garbage truck for one of our customers who we worked on a fire engine cab, it continues to also be one of our focuses in R&D center.

Okay, and would the success in this product line have a -- like a better impact on margins, like I said, margin accretive I guess so to speak?

Most of our businesses are pretty much the same margin across each one other than military and aftermarket.

Okay, that's helpful. And then, any outlook on the aftermarket side of the business, now you have Bostrom in for like a full year, so?

We continue to look at expanding that business. We have added field representatives. We rearranged some of our field marketing. We're launching a brand new seat in Europe this year for aftermarket and we're launching a new construction seat for aftermarket in North America and we're launching a new aftermarket truck seat in North America. And you'll see some of those at MATS this year.

Okay, so you think you might see better than market growth in that market?

We're absolutely looking at a focus on growing the aftermarket.

Yes, I mean just for reference, our aftermarket and OE service and distributed business grew about 35% from 2010 to 2011. So, yes, it's there. Now a portion of that's going to be Bostrom but even without Bostrom it's probably grown 15% to 20%.

And gentlemen, we have no more questions at this time.

Okay, thank you. I appreciate everybody joining the call and I look forward to speaking with you at the next quarter call. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.