Good day, ladies and gentlemen, and welcome to the Q3 2012 Commercial Vehicle Group Inc. Earnings Conference Call. My name is Laura, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Mr. Chad Utrup. Please go ahead.

Thank you, and welcome everybody to the call. As usual, before we begin today's call, I'll read through some Safe Harbor language; Merv will then give a company update and I’ll take you through our results for the third quarter of 2012 and then we’ll 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’ll turn the call over to Merv.

Thank you, Chad, and thanks to all of you who have joined our call today and we would also like to give a hopeful for that everyone of our investors, analysts and friends and just in general are safe on the East Coast from Hurricane Sandy tragedy. And then with that I'll get into the call. Earlier this year, we said that we thought the second half would be weaker than the first half and through the third quarter this has been the case. Based on replacement demand, however we still believe the industry will finish 2012 with substantial Class 8 build around 275,000 to 280,000 units. Although, we think next year will start off slowly; we expect 2013 to be relatively good and have a build rate in the range of 250,000 to 260,000 units. As we looked at the third quarter, our order flow was little more erratic than usual, as OEM suggested softening orders. In response, we began to manage our cost structure to help ensure we utilize our resources appropriately and mitigate any impact wherever possible. This has historically been the pattern when OEM orders begin to soften and OEMs fluctuate their days of production. Other end markets including construction also experienced some deterioration during the quarter. Traditionally, our construction business has been stronger in the first half than in the second half. Overall, the softening has not been limited to North America, but has impacted Europe, China and Asia as our global construction market orders declined nearly 20% from the prior quarter and more severe decline than anyone expected. Reports indicated that Chinese markets continues to be tentative about growth rate, but as we have previously said, we are a relatively new company in China which is still a large and growing market for us.…

Thanks, Merv. Our revenues this past quarter were $204.8 million, which is a decrease of approximately $12 million or 6% from the third quarter of 2011. This decrease is primarily the result of our global construction market revenues which decreased approximately $7 million or 13% from the third quarter of 2011. Our global OEM truck revenues were relatively flat from the same period last year, despite a moderate decline in Class 8 orders; while the other end markets collectively decreased by approximately $5 million from the same period of last year. Sequentially, revenues were down approximately $38 million from the second quarter of 2012, primarily as a result of the decline in our global OEM truck revenues which were down approximately $21 million or 17% from the prior quarter. Global OEM construction revenues also declined approximately $12 million or 21% from the prior quarter; while our other end markets collectively declined approximately $5 million from the prior quarter. Compared to the second quarter of this year, our operating income decreased approximately $10 million on a $38 million decreased in revenues which is a contribution margin of approximately 27% and generally inline with the high-end range of our internal expectations of 20% to 25% on a sequential change in revenues. Depreciation and amortization was $3.6 million and capital spending was $5.9 million for the quarter. As I sure you saw during the third quarter, we released tax valuation allowances, again certain domestic deferred tax assets. This in conjunction with tax expenses primarily in foreign jurisdiction resulted in net tax benefit for the quarter of approximately $27 million. The reason that these valuation allowances were released during this quarter is because we believe that these domestic deferred tax assets will be usable in the future. We also continue to carry approximately $16…

[Operator Instructions] And your first question comes from the line of Ann Duignan from JPMorgan.

Could you guys just talk a little bit about -- I don't think there was any surprise on the truck side. I mean there have been so much talk about the orders as we went through the summer and so lower truck production and 55,000 units in Q4, it's kind of consensus by now. It sounded to me like maybe the global construction side was a little bit more of a surprise to you. Can you just give us a little bit more color in that Merv and am I interpreting that right and then where exactly did the surprises happen, it’s not Caterpillar North America.

Yes, it was more of a surprise. The percentage wise, especially the 20% and what we are seeing was more of it in Europe and Asia than what we have expected. We expected it to kind of remain flat or maybe down a couple points, but to drop 20% was a real surprise to us.

And in line with that, is that the reason why your inventories days on hand looked a bit higher than normal?

Yes, that is a part of it, and keep in mind, we also did some new program launches in the middle of the quarter and we also had a, where we continue ramping up our plant in Mexico as well as transfer of some products to Mexico and you always have to do inventory builds. And whenever a customer takes out a week out of the forecast or 2 or 3 days out of the forecast without any notice, you get caught with inventories coming in and inventories going out. Also so that ends up a little bit with an increase. So all those things put together is the reason for the inventories spiking up a little bit, but much of it was in China and Europe with the reduction in the construction market was a big portion of it. As you know, we manage inventories very well and this is something we are not very happy with, but it will be taken care of.

Yes, totally I can appreciate when customers change the schedule a little bit it's not easy to react quickly. So how should we think about gross margin in the fourth quarter? I think you said, revenue seems to be down sequentially 10% on the construction side. Will you have an opportunity to liquidate those inventories enhance further under absorption or I am just trying to get a sense I know you don’t guide to gross margins. But if you just could give us a sense of how we should think about it from a modeling perspective?

Yes, from our contribution if we can talk contribution margin perspective, we are still going to stick with that 20% to 25%. If you look at Q2 to Q3 it was kind of on the higher end of that range you had mentioned and Merv mentioned when you get days and weeks out it’s a little bit hard to take that out one for one in a short period. So as we look at Q3 to Q4, we are really expecting to still be in that 20 to 25% range. On the downside it’s going to be closer to that 25% range, so that’s still where we would expect it to be even with looking at global construction down another 10% and then we think the Class 8 is going to be in that 50,000 to 60,000 unit range for the quarter.

Sure, okay so we usually look at it on a year-over-year basis so constructive to look at it sequentially. And then Merv just one final one, you mentioned that you would be willing to make acquisitions in Europe. Should we be concerned that acquisitions in Europe are going to look cheap because the environment is so terrible and may be you get what you paid for or. Are there really some strategic assets over there that you think are worth looking at for the long-term?

Well we there’s strategic assets over there looking at for the long term, because we were kind of looking at them before all the hits that they have taken recently. And it’s still going to be continue in the future of the commercial vehicle world and the construction world and it's still going to be a big player. As long as you got the CNH [ph], the Abacos, Daimler and Volvo and Dolph [ph] and guys like that over there. And there is still going to be a very healthy market in comparison to any other market. And usually it runs a little bit more steady than many other markets. And right now, it's not. But we don't buy cheap for cheap sake, or we would have already spent all of our money. We had a lot of really inexpensive deals come through or cheap deals I would prefer to say come through. What we kind to shop for is the strategic fit, and then if we can get the strategic fit then we kind of look for the bargain in the strategic fit. With down market, we know that there is a lot of companies over there that are having cash flow problems, and we’ve got 3 or 4 that we kind of got our eye on and when the time is right we are going to pounce on them. We obviously would help us in that market if you could pull off a seat acquisition and we know there is some of them that are struggling. And interiors and heavy plastics are areas that we continuously scour the globe for, whether it will be China, India which is where our main focus is. But if we can take up a sideline deal that would grow our portfolio, grow our customers base and grow our geographic footprint we are going to be all over it.

Okay, and that's helpful color and I appreciate the fact that you said you have looked to achieve them pass them by so good to hear. I'll get back in line in the interest of fairness to the others.

Your next question comes from the line of David Leiker from Baird.

Chad, as we look at the fourth quarter versus third quarter contribution margins, should that degradation be a bit better than what we saw here in Q3 given the quickness of the schedules coming down.

Yes, that's kind of what I would say. I think if you look at Q2 to Q3, David -- with the lag of and some of the, how rapid some of the orders were taking out in short notice, it’s a little bit to do a one-for-one drop in the cost. So you typically end up closer to the 25% range and so as we look at Q3 to Q4, we are still expecting a relatively decent drop in Class 8 and construction. So we are already working on plans to improve that detrimental contribution. So we are still comfortable we are going to be in that 20% to 25% range.

Okay, and then a follow-up on that topic. Have you seen -- granted in the environment that the schedules are down here sequentially, have you at least seen the change in those schedules stabilize or is there still a lot of choppiness in exactly what those schedules are going to be for Q4?

Well, it depends upon the customer. We've got one customer or 2 that maybe losing market share and we have one that's picking up quite a bit of market share. And if you ask that one they are going to tell you they are very optimistic about the fourth quarter and have taken out shutdown days that they had planned in November, December. You talk to the other one and you got a forecast where they have taken a week out here and a week out there. So and that's the other thing, kind of hurts us, just to be completely transparent on it. If you got a factory that's running 3 customers and 2 of the customers. None of the 3 ever take the same week down, it's kind of like it’s a plan to not be down at the same time. One will take the first week out, one will take the last week out and one won't take any weeks out. So you've got to trying to move your people around and cover just the amount of job then indirects you can't take out because it’s hard to take out half a person. So that as good as we are flexing labor and I think we maybe one of the leaders in our industry doing that. It’s still difficult when you got 3 customers or 4 customers in a factory and only one is running wide open even over time. And the other 3 are taking weeks out here and there.

And then shifting over to China here for a bit, you went in there several years ago, new participant in the market, picked up a lot of market share. What have you seen your competitors do in that China market in response to your activities in the share gains that you had? Has anything happened there?

Well, frankly we've, it’s been kind of, I guess a surprise to see how -- we are very flexible. I just laid out that we're very flexible, we're very accommodating when it comes to designing product that they would like in the method, in delivering in the method that they want and we were responsive. We have a team; we put a team in place which I think you have even been over to meet and I think Ann has. And several of the analysts have been over and met the team that we have there. It’s not likely have to call here to have get an answer. We do it there, we got a design center there, we got R&D center there. So it's not like, we're trying to do business with them from North America or Europe. We're actually Johnny on the spot so to speak. And so if there is any issues, we're in some cases 15 minutes away and in some cases 4 hours away. But we're in the same time zone and we reacted to it and proactive in most of all cases and they really appreciate that we're not trying to manage the business from a different continent.

So if you look at the other suppliers there, I mean, you continue to take market share. Are they responding with cutting prices, or they redesigning their products or they taking capacity out?

They are taking capacity out, that’s what we're seeing. The other good part about it is too is that they are looking for a brand name that is pretty well known. And the CVG brand has become a very well known brand throughout Asia and obviously when you are looking to export vehicles, you may not have a brand name on the front of your truck that they recognize, so it’s good to have at least some brand names inside the truck that’s recognizable.

And then those competitors that you have over there on the construction side as you move and expand your efforts on the truck side, are those the same players or are they different, is there a difference there?

Some of them are different, our construction brand is really one of the best brands and we think it's best brand in the world. And obviously we have a lot customers that think so also. And so that’s really what got our foot in the door in Asia with our construction seats and in 2005 I think we transferred from Europe about $4 million worth of business over there. And today it’s $75 million this year on run rate something like that. And as we showed in 2016, we are at a $250 million or so million run rate. So it’s -- and some of it were taken out local, small mom and pop shops and they can’t compete with an international company on design capabilities and engineering talent. And our engineering talent is local, like I said it’s not on different continent and we haven’t seen our competitors, our foreign competitors -- foreign turn domestic over in China like we have done putting the infrastructure inside of China. They have tried to it from other parts of the world. And frankly, that drives our overhead rates up a little bit higher in our company, but it wins us the business and allows us to do the growth that we need.

Okay, just one last item here please, Chad. You have done a great job over the last years on the balance sheet in strengthening that with where that your capital structure is today on the cash, is there a point in time where share repurchase starts to makes sense for you?

No, I think Merv talked about the top priority for us is from a strategic perspective is not only organic growth but acquisitions. So at this point David, we are still have that as our top priority. We do have a lot of things that we are looking at and always have and Merv touched on Europe earlier. We are continuing to pound the pavement, look for opportunities in Asia in general but in India, China and Brazil. So that really as we sit here today is still our top priority.

David, you know it is something that we think about and we do look at, but frankly our stock is so thinly traded now, there is not much float out there. We are still averaging hundred and some thousand shares a day. And on the down day as we had somebody, I think dumped a million shares a month or 2 ago and they were snapped up in 2 blocks or something like that. So it's -- that is one of the things that we see as an issue with our stock as it is, so thinly traded. And at these prices it’s get a snapped up almost quicker than it can get out on the table. And we think that might cause a problem if we bought up shares. But it is something that we deal with a lot. We look at everything, we got the cash here, so we look at all different things, downturns, stock buybacks, debt buybacks, just a lot of different things.

Your next question comes from the line of Robert Kosowsky from Sidoti.

Just had a quick question, I mean the last time revenue was just kind of, I guess 2Q ’11 revenue was $206 million and SG&A was $16 million back then. Now it’s running at $17.5 million and it was down about $1 million versus 2Q. And I am wondering what are your thoughts are on SG&A over the next few quarters as you view this weak production environment?

Well, I am going to take this from Chad for a second and at least turn into, I think I kind of touched on it with the question that David asked about, how we are taking business in China and places like that. And one of the things is we've had to put in extra overhead to have an R&D center in China, so that the Chinese customers don't have to try to come to North America or to Europe to get their products launched or started launching, designed and tested. So that's increased our overhead. We now have put factories in Mexico to supply our customers down there. They are primarily Daimler and some with Navistar and we have won a couple of new customers down there. So we've got new factories that we didn't have in the past. We've expanded in Czech Republic to take on the -- put in a new place there to take on the Skoda business which has required more talent to be put in. As we bought the company in Australia; that's new businesses that we continue to have to as we track the Australia overhead increases as we have moved into India. We are putting in new people to be able to cover new business that we won there. So there is some growth of overhead through needing to be able to manage the new markets that we are in. If we were just totally in the U.S., then we could certainly we could take out overhead as it comes, as the market drops significantly here. But when it’s like that as you are growing at the same time it makes it little bit more difficult.

But would you need to see from just an end market standpoint in order to pull back on some of those growth investments?

Well, we probably won't pull back on the growth investments in Asia, because the U.S. market is down; like Chad said earlier, it's or I said one, if the China and India are growth markets for us, because we've gone in there with no business. And so because the U.S. and Europe being down, we can't pull back or our revenues would be like were at one point down to 400 and some million versus you know $1 billion or $900 million.

Yes, Rob to add on that. Merv’s right, I mean as you guys know the investment that you have to put into the operation comes well before any new business achievements and I think over the last couple of years what you've seen in our SG&A is just a portion of that. But Merv talked earlier about the development of the GSX 3000. We've been working on that for at least over a year. So there is cost like that that you have to do well in advance of new business. So I think the fruit from that is the new business wins that everybody is seeing from us over the last couple of years in terms of Nissan, Diesel [ph] or UD Photon, JAC, those are all the China operations, but there is also some content wins and other new business achievements that we've announced over the couple of years. Volvo and XCMG [ph], Daimler, all these things are result of us putting the investment in the resources and the technology in place way ahead of the actual revenues coming down the line, Skoda is another one. So those are just a few examples, and to look at what we have set for our 5-year plan, we're fully marching ahead in terms of achieving our 5-year target at 1.6 billion. So what we're putting in place today may not be popular from a quarter-to-quarter perspective because it's just viewed as adding costs. But it's absolutely critical that we continue to invest that way if we are going to achieve those 5 year targets.

Okay, that’s helpful and then any comments on the pace of new product launches, is there any kind of weakness we're seeing production market that are pushing out some new content wins you are going to be getting over the next few year or just pushing it back in this year like for Photon. Is that still on track and kind of just your thoughts about that going forward in to 2013?

Photon and any of the business that are our new models, platform also in Asia; they experience the same issue that we had in North America on the trucks were ready, the engines were ready before the fuel is ready. So there has been a slowing of that. Investment wise, we're still seeing pretty strong investment inside of China itself being put in to new products to improving the product lines. India which we see as a strong growth market for us, we still see that as really probably more of a radical change there all of a sudden now that truck drivers are becoming important to the Indian market instead of just going we don’t want a comfortable seat because we don’t want them to falling asleep. That was one of the OEMs comments at one point 2 years ago. Now all of a sudden that same OEM is going, we have really, really need to start improving the quality of the interiors of our cab as well as the exteriors. So we are seeing growth. A change in the market wanting better technology in countries like India and China has made that move a few years ago, probably started it in ‘05 and ‘06. So we are seeing now countries like India, we are seeing even Brazilian market starting to want an improvement in technology.

Okay, that’s helpful. And then any kind of thoughts about the construction market into 2013?

Yes, I think Rob if you look at year-over-year considering how high the first of this year 2012 was. We are looking at anywhere from flat to down 5% globally from full year 2012 to full year 2013, taking the high run rates we had in the first half and what we are expecting the last half of this year. We probably see North America down a little bit more than where we see the rest of the world from a construction market perspective, but if you look at our global construction market, we are anywhere between flat to down 5% globally.

You have no further questions at this time. [Operator Instructions] Sorry, there is a question that has just come through, would you like to take that one, or would you like today's closing remarks?

No, we will take the question.

It comes from the line of Perdeep [ph][indiscernible].

I just wanted to see how comfortable you guys are paying 8% on your note and what the plans are as far as refinancing. I know that other companies in your industry have been refinancing their debt to get a lot lower interest rate in this interest rate environment. So I just wanted to see what you guys are doing on that and also since you are not considering a share buyback, would you consider a one-time distribution or anything in the future. I know your big acquisition plans but considering track record with the Czech facility a few years back and shutting that down and bringing it back up. Are you planning on doing anything to get the stock moving again?

Well, let's start from the back side, I mean I am not sure what Czech facility that we shutdown and restarted back up because we have not done anything like that. We built the new facility in the Czech Republic and closed another one but we never at anytime phased it down and restarted it. And as far as 8% notes, our notes are what, 7 and 7.8 and they are due in 2019. So there would be and they are trading pretty much at par. So at this time it would not make any sense to refinance that, Chad?

Yes, those notes were put in place in April of last year. It’s about 18 months ago. So we do look at things like that, where it makes sense, I think Merv mentioned earlier a number of things that we consider. We consider all of our options from a partial debt repayment; we don't think completely redo of our debt structure makes sense. We've just put in place in April of last year, the rate is pretty good. It’s not due until 2019 and currently it would come with a prepayment penalty. So when you put all those things together, it doesn't make sense for us to look at that. We do look at things that share buybacks as Merv mentioned and also mentioned some concerns. So we look at a number of things. Right now as we sit here today, as I mentioned earlier, the top of our priority right now is still investing in organic growth and acquisition opportunities. I think we laid out pretty clearly our 5-year plan and acquisition is a key part of that. So we want to keep an eye on that to make and sure that what we do from a capital perspective lines up exactly with what our 5-year plan is.

I would now like to turn the call over to Merv Dunn for closing remarks.

Again, I thank all of you for calling in and we know that a lot of you have gone through a lot of trauma that's with the Hurricane Sandy and we certainly have been concerned for you. We also are very high on our company. We are very -- have adjusted down where possible with the downturn in the market and we still are on track with our strategic plan and still on track with the 2016 goals that we laid out for the Analyst Day that we had in New York and thank you again for joining the call. Chad?

Thank you, everybody. I appreciate your time and look forward to speaking with everybody again next quarter. Thank you.

Thank you for joining today's conference. This concludes your presentation. You may now disconnect and good day.