Mar 25, 2008
Operator
Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Force Protection investor conference call.
During the presentation all participants will be in a listen only mode. After the speakers’ remarks you will be invited to participate in a question and answer session.
As a reminder ladies and gentlemen this conference is recorded today March 24, 2008. I would now like to turn the conference over to Mr.
Tommy Pruitt Force Protection’s Senior Communications Director. Please go ahead sir.
Tommy Pruitt
Certain statements in this presentation including without limitation statements relating to the company’s business expectation for the remainder of 2008, statements related to the beliefs of management of Force Protection, expectations or opinions and all other statements in this presentation other than historical facts are forward-looking statements. As such term is defined in the Securities Exchange Act of 1934 which are intended to be covered by the Safe Harbors created thereby.
Forward-looking statements are subject to risk and uncertainties, are subject to change at any time and may be affected by various factors that may cause actual results to differ materially from expected or planned results. In addition, to the statements discussed above certain other statements are forward-looking including without limitation the number of vehicles the company expects to deliver in 2008, the value of the sustainment and remanufacturing orders the company may receive during 2008, our ability to secure foreign military sales for our products, our relationship with the United States Department of Defense, General Dynamics Land Systems and DRS Sustainment Systems, Inc., our ability to develop and diversify our new product offerings, the desirability of the Cheetah vehicle as an interim solution for our customers, our ability to engage a new nationally recognized audit firm, our ability to address the disclosed material weaknesses over internal controls or other business systems and our beliefs about defending class action lawsuits.
These statements are subject to numerous risk and uncertainties including but not limited to the risks detailed in our annual report on Form 10K for the year ended December 31, 2006 and other reports filed by the company with the Securities & Exchange Commission. I would now like to turn the conference call over to Michael Moody our Chief Executive Officer.
Michael Moody
Good afternoon and thank you for joining us. My name is Michael Moody and I’m the Chairman and Chief Executive Officer of Force Protection.
With me today to answer questions are Frank Scheuerell, our Interim Chief Financial Officer and Damon Walsh the Executive Vice President of Customer Operations. I want to start by thanking you for your patience.
Let me begin today’s remarks with a little bit of information about my history with Force Protection. I joined the board of directors in September, 2006.
In September, 2007 the board asked that I assume the role of president. With the departure of our former chief executive officer I was appointed as chairman of the board of directors and interim CEO.
As of March the 1st of this year the board appointed me as the chief executive officer. I bring to this role 30 year of business management and finance experience in some difficult turnaround situations.
I understand the issues facing Force Protection and believe there’s a strong future for this company. We are very aware that there’s a demand for the company to address some of the announced recent events and its strategic direction.
We’re going to do our best to address that need in these remarks today and then to answer your questions. It had been our plan to hold this call following the filing of our 2007 Form 10K so that we could speak both to the numbers as well as to our strategic and competitive direction.
As you may have seen we continue to be faced with a delay in the completion of our 2007 Form 10K. As a result of that, as I am sure you can appreciate our ability to speak to the numbers is somewhat limited.
We will give you what information we can but we’re not in a position to give any additional detail. We will hold another conference call to discuss the financials as soon as we file our 2007 Form 10K.
There are a number of topics however, that we feel is important to address today. First off, I would like to address the most pressing issue for our investors which is the MRAP program, our outlook for the program and specifically the recent round of orders.
I think everyone is aware that MRAP is the Department of Defense program for vehicles that exists because of Force Protection’s innovation and development. We developed the survivability solutions well before the need for these vehicles was fully understood by our customer.
This kind of forward thinking research and development is at the core of the company and its culture. At the time the MRAP program began we were a development stage company and although we were increasing our production our capability did not match the growth of the demand that developed for these vehicles.
To put this into perspective MRAP which only began as a program in the fall of 2006 has since received approximately $23 billion of funding. While we increased our production capability and quickly created some partnerships to ramp up production the size and speed of this program opened the door for competitors.
While we continue to believe that we build the best vehicles in the category other companies were viewed as better positioned to fill delivery requirements. We were obviously disappointed by the decision of the army to select competitor vehicles for their fleet.
We believe that orders will be based on production capability, meeting or exceeding the delivery schedules, survivability and sustainability is the major contributing factors for future awards. There were two key elements to the December order.
The first one was the US Marine Force decision to reduce the size of its MRAP acquisition. Up until the day before the order we had been advised that the customer was going to order between 1,500 and 1,600 Cougars.
When the Core reduced its requirement this directly impacted our order. We also believe that the Army selected their MRAP vehicles based on commonality with their existing fleet.
Further, we believe that our short fall was in regard to customer service that other larger capable defense contractors and truck manufacturers brought to the game. Particularly a presence and existing relationships of take on, existing sustainment capabilities, the speed with which we responded to engineering change requests and the ability of our large competitors to tap into the powerful congressional delegations.
We have taken and will continue to take steps to create better relationships with our Department of Defense customers such as having a presence with [Tycom] and [Syscom]. We have excellent products and an excellent value for our customer.
We will continue to build on the relationships with all of our customers. We’ve been very pleased with our relationship with General Dynamics Land Systems.
As you know, we teamed up to serve the Marine Corp with their requirement for MRAP. We believe we’ve done a very good job with GDLS on this program and our relationship with the Marine Corp has been and continues to be strong.
Force Protection has since we began delivered 2,805 blast resistant vehicles to our customers around the world. For 2008 we expect to deliver 1,134 vehicles and we’ve shipped 264 vehicles through the end of February, 2008.
The total in revenues for the vehicles expect to ship for 2008 for Force Protection is approximately $580 million. As you know, our work under the MRAP program is conducted in conjunction with Force Dynamics, that subcontracting relationship with GDLS.
Let me take a moment to clarify the way that we account for this work. Because of the way the relationship is currently set up, all of GDLS’ revenue for MRAP cougars shows on our income statement which is essentially a pass through.
We recognize the revenue allocated to GDLS and record the same amount as a cost of goods sold. While the current MRAP acquisition programs is expected to be complete in 2008 as we satisfy the requirement, we do expect considerable service and sustainment work due to either combat losses or because of wear and tear on the existing fleet and some level of remanufacture activity.
As you might know these vehicles see tremendous usage hours and are operating in a punishing environment for equipment. Beyond this, the threat the vehicles faced has continued to evolve since our first deliveries and there are substantial improvements that have been made to the current vehicles.
We expect that the customer will be operating the fleet to reflect the current specifications. Obviously, the level of remanufacture activity will be dependent on many variables which are very difficult to quantify.
What we do expect is to generate significant business over a lengthy period. A final word on the partnership with GDLS.
The original relationship was structured somewhat narrowly to reflect the requirements and opportunities for MRAP at the time. We’re reexamining our relationship to reflect the progress of the opportunities in a broader and more strategic way.
We’re very proud to have a partnership with one of the largest and most favorable defense contractors in the industry. Our vehicle business also extends to foreign military customers.
Several weeks ago we announced an order for 174 vehicles from the United Kingdom Ministry of Defense and a small order for 10 vehicles for the Italian Ministry of Defense. We do not share revenues or any associated service and support work.
We think there’s a good market opportunity for additional foreign military customers for our fleet of vehicles. We’re working hard to secure additional orders at the moment and while we have nothing to announce as of yet we are hopefully that we can supplement our backlog and diversify our customer base through this effort.
To sum up on MRAP and foreign vehicle styles and put some numbers to it, Force Protection currently has 870 vehicles in its backlog for the remainder of 2008. This includes work for the Marine Corp and vehicles for the United Kingdom and Italy.
This equate to approximately $450 million of net backlog for Force Protection. On top of that, as I’ve described is the sustainment and support work and any potential remanufacture or additional foreign military orders.
We believe that this business is going to generate a significant amount of cash for us. As our vehicle business stabilizes and begins to be driven more by sustainment, remanufacture and international orders we believe we can achieve significant working capital efficiencies.
Our current cash level is approximately $70 million. There’s no significant long term debt on the balance sheet and we currently believe we have sufficient capital to operate our business and to pursue strategic initiatives.
We’re working hard to diversify our business by product offering and customer while creating a focus on survivability solutions. With respect to vehicles this includes Cheetah as well as our development efforts for JLTV, through our partnership with DRS Technologies.
I’d like to address the status of the Cheetah initiative first. Cheetah is essentially a small, relatively agile and mobile vehicle that offers a very high level blast and ballistic protection.
MRAP protection level is excellent but generally these vehicles are limited to road use. Cheetah is significantly more flexible in [inaudible] and reverse and for urban use.
The simple fact is the Cheetah offers similar capabilities to the [inaudible] Humvee but offers a much better level of protection. We believe Cheetah directly addresses MRAP an urgent and evolving need.
The company incurred risk in purchasing a production facility for Cheetah before it had any orders. This was intended to avoid the lack of immediate capacity that impacted our ability to get a larger share of MRAP.
The capital costs for us is significant totally approximately $20 million. Of that total, it’s important to recognize that there is about $11 million of capital improvement all of it essentially brand new and about $9 million of costs in real estate and property improvements.
Additionally, we have materials to manufacture approximately 100 Cheetah vehicles. The development of the Cheetah gives us an excellent start on developing a vehicle for JLTV.
There is not a doubt that this program is going to see an intense level of competition. The potential size of the JLTV program is in the 10s of billions of dollars and the field of competitors includes some excellent and capable defense companies.
All of that said, we believe that our vision for blast and ballistic design combined with DRS’ strength in command and control systems and integration work makes for a strong contender. We are excited about this opportunity to work closely with DRS and to build another important relationship.
Additionally, we believe that the research and development work that will go into this effort is likely to be accrued in any number of capacities. The reality of the tactical world vehicle market [inaudible] and continues to be fluid.
The needs and capabilities of the fleet continue to evolve in the face of an evolving threat level for the conflicts. Given that, we know a few things for certain, those are that the entire tactical world fleet needs to be designed to accommodate significant levels of blast and ballistic protection, that there is a need for a heavily protected subset of the fleet across light, medium and heavy platforms and that we have an area of expertise that plays directly into those needs.
To leverage this opportunity we need to address a number of challenges. It is extremely important to this organization and an absolute priority that we resolve our financial reporting issues.
Finance is one of the areas that we need to improve. We were very pleased to be able to Frank Scheuerell as our interim chief financial officer.
He has direct experience in turnaround situations and I’m confident that he can help bring the finance and IT department here at Force Protection up the curve very quickly. As you may have seen in our Form 8K filings this afternoon our auditor has resigned.
We are currently talking with a new national recognized audit firm to complete the restatement and the Form 10K. While this is going to take us a bit more time and efficiencies are not going to be cured overnight the process to resolving the issue is well underway.
We’ve also made changes to the management company. We’re breaking down some silos and creating a more flexible and more responsive management structure for each of our programs and initiatives.
It is our intent to create efficiencies, install a greater level of accountability across all areas of the business, create a more responsive organization from the standpoint of the customer and partnerships and to adjust the culture to reflect the value of cooperative business practices. Our culture is and has been firmly rooted in product development and design but we’re now expanding that cultural to ensure there’s a focus on the customer and sustainment.
This is essential for us as we go forward. Another important area of change that we’ve begun to address is the way we communication with our wide range of stake holders.
As you may know, we’ve hired ICR, a capable investor relations organization to directly address our relationship with shareholders. Today’s call is certainly part of that effort and we intend to make regular disclosures and comprehensive conference calls as a routine part of our communications.
I think to a create expense the Force Protection corporate store has been told for us. We believe that this had led to some misperception and inaccuracy for investors, on Capitol Hill and in the media.
We will be more proactive with all our audiences. In keeping with that policy and in relation to any inaccuracy or misperception that may have existed I’d like to make a few brief comments on the class action lawsuits that have been recently filed.
I’ve been given the obvious and generally good advice, it’s never a good idea to comment on litigation outside the courtroom. That having been said, I would like to say a couple of things.
First, I will reiterate that we believe that we have in Cougar and Buffalo the best vehicles in the marketplace. There are literally thousands of young men and women walking around today who would not be alive had they not been in our vehicles.
We take great pride in this, it’s the single most important motivating factor in our business. We take what we do and how important our vehicles are with the utmost seriousness.
Secondly, we do not believe that these lawsuits have merit and intend to vigorously defend ourselves against them. That’s the extent to which I will comment on this issue.
With respect to our restatement, at this point I can only restate what we previously noted, mainly that we currently expect to report approximately $875 million in revenues for fiscal 2007 year and that our net income is expected to be approximately flat to the fiscal 2006 level of $17 million. Additionally, the errors that were made appear to have been in connection with the receiving of materials and accounts payable accounting.
I’d like to take some time to answer your questions. Please bear with me because until the Form 10K is filed I’m not in a position to answer directly with respect to our numbers.
Similarly I hope I made it clear that we won’t comment further on the class action lawsuits. Before we take your questions, I’d like to summarize by saying that we believe there are significant opportunities to develop our business.
We have good capital resources now and expect to in the future. We have significantly developed our physical infrastructure and production capabilities.
We continue to have an excellent opportunity with Cheetah for which we think there is an urgent and developing need. We have excellent partners with General Dynamics and DRS and we’ll continue to leverage those relationships.
We are focused on doing the necessary work to improve those portions of our operations that need improvement. We have a forward thinking and highly capable research and development effort.
Perhaps most importantly, we are adjusting our leadership and our culture to be much more appropriate for the opportunities in front of us. Thank you.
I’d like to now open the call for questions.
Operator
The question and answer session will be conducted electronically. (Operator Instructions) with Chris Donaghey with Suntrust Robinson and Humphrey.
Chris Donaghey
First of all, on the third quarter accounting issue can you just clarify or provide any kind of detail, is it limited to just the third quarter of 2007 as far as you’ve been able to tell?
Michael Moody
We’re not in a position to comment on anything in relation to the 2007 accounts at this stage.
Chris Donaghey
Okay. So getting back to the business then, the potential upgrade program then for the Marine Corp, can you talk about how that would be treated in the factory?
Is this very much analogous to building a new vehicle? Is there the potential for it to be stripped down and rebuilt to a common protection level?
I think if you look back to the December order there were pretty significant engineering change proposals that were part of that and I’m assuming there were some upgrade protection packages. Are we talking about upgrading the fleet to some common protection package?
Michael Moody
The remanufacture program could take any number of forms and as I’ve indicated we’re not clear exactly what that will be. But, what I might ask is if Damon Walsh could say a few words on this.
I know he’s been in discussions with the Marines on the subject.
Damon Walsh
We’re working with the Corp to lay our different options for them to go back and it is addressing the entire fleet to include legacy [inaudible] and ATVs. To layout a program along the lines of the Abrams Tank, AIM and SEP program where they can pick and choose from everything from just installing new electrical components all the way up to dropping a new engine into the capsule.
Some of that work would involve bringing the capsule back, tearing it all the way down and remanufacturing, some of it might involve field work but we’re working with the Corp to identify and lay out time lines and budget options for them going forward.
Chris Donaghey
Okay, great. Thanks.
Then, on the international market opportunities, is there any way to put any parameters on the relative size of that market? We know the US military is currently somewhere around 15,000 potential vehicles and it would seem that the British move at a fairly rapid pace to expand their fleet from an initial 80 to now almost I guess 300 vehicles or so with the latest order.
Is there any way to put some kind of parameters around the size of the international market at least as far as you’ve been able to tell?
Michael Moody
Obviously there are some reasonably large forces and you’ve talked about the United Kingdom. I think the reality is that in terms of numbers rather than markets the numbers are likely to be somewhat less than that.
But, the accumulation of those obviously tend to be a reasonably significant number. They’re not in this stage where we’re in a position to put any specific numbers to it but obviously a vehicle has the survivability and sustainability record and it’s the vehicle that does the job so there are a number of countries that are interested in this vehicle.
Chris Donaghey
Then just one last question on the Cheetah vehicle itself, the Marine Corp obviously has spent more time with that vehicle, I think General [Comley] toured the facility, the Marine Corp actually published a story on this. Given the delays in that program can you just comment on the interest level from the Marine Corp in particularly given that we’re a little bit behind schedule on where the Cheetah is today?
Michael Moody
As you look at it today there is significant interest in the vehicle. We believe there’s an operational need for this vehicle but certainly our understanding is that a vehicle with these capabilities is likely to be of enormous value particularly in Afghanistan but to some extent in Iraq.
That’s certainly the messages that we’re hearing.
Damon Walsh
There’s a lot of demand for something that is better than a Humvee but not as heavy as the MRAP fleet. We seem to step right in to that.
Operator
We’ll take our next question from Tim Quillin with Stephens, Incorporated.
Timothy Quillin
In terms of some of the goals that you laid out for 08 I just want to make sure that I got the numbers right. Was 1,134 vehicles for all of 08 and 264 through February?
Michael Moody
That is correct.
Timothy Quillin
Okay.
Michael Moody
That’s not for potential armory that’s just our vehicles, yes.
Timothy Quillin
Okay. And that $580 million that doesn’t include the pass through revenue for GD?
Michael Moody
That is correct.
Timothy Quillin
Now, does the $580 million include service though?
Michael Moody
No, it does not include service. That is purely for those vehicles.
Timothy Quillin
Purely for those vehicles.
Michael Moody
There’s no service included in that.
Timothy Quillin
And can you break down the 1,134 by vehicle? And, are you only including what’s in backlog right now?
Michael Moody
Correct. There aren’t any vehicles where we have a car holder.
These are vehicles that are currently on order that we’re delivering to an order.
Timothy Quillin
And how much of that is Buffalo?
Damon Walsh
It’s less than 100, it’s closer to about 75, 85 are Buffalo.
Michael Moody
In the 75 to 85 range.
Timothy Quillin
Okay. And how much of it is international or non-MRAP Cougar?
Michael Moody
A few hundred vehicles.
Timothy Quillin
Great. Could you discuss a little bit any specific opportunities that you might have on the international side?
Michael Moody
I don’t know if I can say anything more than I did in my comments. We are obviously actively seeking out international sales.
Damon Walsh has specific responsibility for that area just as we talked about beefing up our presence with [tycom] and other areas we’re strengthening our presence in terms of seeking our international opportunities. I can’t say anything more specifically than that but it’s an area that we are extremely active in.
Timothy Quillin
Then how do you think about right sizing the company? I think I had read where you might kind of given the current backlog of vehicles might slow your production rate a little bit and presumably right size your infrastructure?
But, how do you manage the process of moving into not a post MRAP world but a lower sustainment level on the MRAP program?
Michael Moody
We’re really in a position where obviously there’s a lot of work at the company to make sure we have a company at the right size for the production we have at the moment for the sustainment and the other opportunities. So, it’s just part of the normal operations of our business that we ensure we have the right facilities and the right people.
The other thing I’d say to you which I’m sure you’re all aware is this company went through extraordinary growth particularly during 2007 so it’s not that much different from where we are now to look at the company that has a different infrastructure and different operations.
Operator
We’ll go next to Pat McBain with Gruber & McBain.
Pat McBain
You mentioned one of the obvious areas of weakness as one looks back on the MRAP program was a lack of competitive lobbying and support on Capitol Hill. You’ve mentioned that is obviously an areas of focus but, could you put any specifics behind that?
Are you planning to meet with Lindsey Graham and a few others, he was on Face the Nation this weekend. He looks like he and John McCain want to stay in Iraq for 100 years.
So, he’s a pretty hard line guy I would think he could help you.
Michael Moody
Well, just generally we are reaching out to all of our elected officials. We’ll doing that as an organization on an ongoing basis.
I think it’s a very valuable thing for this company to do, it’s something that I will do on an ongoing basis. I’m doing it now and I’ll do it on an ongoing basis.
The elected officials that we’ve met and that’s been across a broad range of elected officials have been very receptive of the company and have welcomed the communication.
Pat McBain
Do you think they’re well aware of what happened to you in the sort of sequencing of MRAP vehicle orders? And, do they find themselves embarrassed by having been out politicked?
Michael Moody
I don’t know about the second part of your question but the first I believe they are aware of it actually.
Pat McBain
Okay. Could you just add a little bit of color to what you hope to get out of the DRS partnership?
Michael Moody
I think we talked about it in terms of [inaudible] scores and capabilities are and what theirs are. We obviously have capabilities in terms of platforms, we have developed these vehicles with the survivability and sustainability and DRS brings us everything in their broad range of integration and all the things they have associated with that.
We took the opportunity, both of these organizations took the opportunity of getting to know each other for a while before we decided that this was worthwhile and I think that was extremely helpful. I think there is a good fit between these two organizations.
Pat McBain
Specifically you see them helping in this remanufacturing or rebuild type program?
Michael Moody
No. The association with DRS is centered around JLTV.
So, we are working with DRS in terms of responding to the current need for JLTV but I think both organizations recognize there are potentially other opportunities as well. But, the relationship now with DRS is purely focused on JLTV.
Pat McBain
What’s the status of your issues with GAO? Has that been resolved or is that sort of an ongoing open case or where are you with that?
Michael Moody
I’m not exactly sure what you’re referring to. I’ll just make the general comment that obviously we have oversight and review all the appropriate government agencies and that’s just an ongoing part of our business and is something which is an important part of our business and an ongoing part of our business.
Pat McBain
My understanding was that some time ago there were at least from their perspective some deficiencies in that area. I just don’t know whether that was true or whether it’s been corrected.
Michael Moody
Would you be referring to the DCAA orders?
Pat McBain
Yes.
Michael Moody
We advised I think in our 2007 third quarter Q there was some detail around this issue. We are actively looking to make the requirements that the DCAA has identified related to providing the information that the customer needs.
Pat McBain
And we hope to get Frank to sign on as a permanent CFO? Or, if not get a permanent CFO?
Michael Moody
I would like to get Frank to sign on. Frank will not be our regular ongoing CFO even though he is enormously helpful to this organization and will stay with us as long as he needs to.
Frank indicated clearly to me that he would like to see this as an interim position. Frank has other business interests and other involvements and he’s not in a position to do this.
However, we are actively involved in a search for a chief financial officer. It is a search which we’ll take the time necessary to find the right person and Frank will be with us until that change takes place.
Operator
We’ll not next to Joe Maxa with Dougherty & Company.
Joe Maxa
Michael can you give us an idea how many vehicles you shipped in Q4?
Michael Moody
As it really relates to 2007, I’m not sure I should specifically comment at this stage.
Joe Maxa
Okay. I guess I was just looking at the production level versus what you’ve done so far this quarter.
It looks like you’re on pace to do about 400 in Q1 based on your first two months of production. Is that the level you’re planning on?
Do you expect to maintain that until you either get more orders or kind of run low on vehicle production later in the year? Or, do you expect to taper that down?
Michael Moody
That’s pretty much our current production. That’s pretty much how we see the production going through at least out a number of more months.
Joe Maxa
So, roughly 400 a quarter?
Michael Moody
Yeah.
Joe Maxa
Okay. So that will give you another couple of quarters of vehicles and then at that point if you don’t have more orders come in or significantly reduced what would your plan be?
Michael Moody
Well, there’s a few things. One, obviously we’re looking for more orders but as you say if we don’t have any more orders come in there’s the remanufacturing that we’re actively discussing with the customer, there’s all of our sustainment and support work, there’s this whole separate vehicle the Cheetah.
The Buffalo orders continue on, we cannot talk about the Buffalo but it’s a long term recurring revenue business for us and the orders for that reach way out in to the future.
Joe Maxa
So, can that continue at 25 to 30 per quarter for what a couple of years?
Michael Moody
We really see that going even further than that. We see that going on for some period of time.
Joe Maxa
Okay. Then when we look at your production capabilities and obviously you have the two facilities one up in Roxboro, does it make sense to consolidate those?
What are your thoughts along that line?
Michael Moody
We’re actively looking at that at the moment. We really in terms of what our current production levels are, in terms of where we are with orders, obviously we need to consider what facilities we need.
It’s a matter that’s under active consideration by the management at the moment and we’d expect to come to some resolution in the next two to three months on that issue.
Joe Maxa
Right. Then, again on the orders, international orders and others, how many active RFPs do you have out there for the Cheetah and may for the Cougar with international opportunities?
Michael Moody
Probably about the range of about six.
Joe Maxa
Six. Is that kind of a combination of the two then?
Half Cheetah half Cougar? What should we be thinking about?
Michael Moody
It’s a combination.
Operator
We’ll go next to Jim Mcilree with Collins Stewart.
James Mcilree
Once you deliver on your existing backlog what would be the total number of Cougars that you have deployed? What I’m trying to get at is what would be the available market that could be remanufactured?
So, what would be the total number in the field and then how many owned by the Marines which I think is the most likely to get remanufactured?
Michael Moody
Yeah, the number is around 4,000. It’s around 4,000 vehicles.
James Mcilree
And would most of those be with the Marines? Just a ballpark number how much with the Marines?
Michael Moody
The vast majority of those are with the Marines. 75 to 80% of them are with the Marines.
James Mcilree
Okay. So it’s your understanding that the Marines would potentially remanufacture in some fashion all of the vehicles in their fleet.
Damon Walsh
Over time.
Michael Moody
Not the most current ones because they bring the older vehicles to the most current specifications. But yeah, the vast majority of the vehicles in the fleet.
James Mcilree
And I think you’re going to tell me that you’re not going to answer this question but I’ll try it anyway. If you take the 07 net income it implies that Q4 was very weak.
Were there any specific or unusual costs in Q4 that would lead to such a weak number?
Michael Moody
I undertake to answer that question on the next conference call. When we publish the 10K I will answer that question.
James Mcilree
Okay. Going forward then do you have a target profitability level in terms of either operating margins or pre-tax margins that you think is appropriate for this business?
Michael Moody
We’re obviously working on what we think are the appropriate numbers. I’d really just prefer at this stage not to quote those.
I think it might be a good foundation once we have the 2007 K out there that we can have a discussion much more focused on numbers. I think at this stage I would prefer to hold that conversation off.
James Mcilree
And, on the cash level Michael I think I heard you say you have $70 million in cash. That would be as of right now?
Michael Moody
As of right now.
Operator
We’ll go next to James Cross with Franklin Templeton.
James Cross
Do you expect to make money this year?
Michael Moody
We obviously run this to be a for profit business. I mean, that’s our expectation to run a for profit business.
James Cross
And what do you expect in a broad range the cash to be at year end? Or, maybe you could talk about significant usages of cash this year?
Michael Moody
I can’t really provide you with a number at the end of the year. The cash usage this year is going to be really for ordinary working capital purposes unless there is significant order for Cheetah, there may be some capital expenditures surrounding that.
James Cross
Okay. Can you gage when do you expect to be able to file?
Is this one of those indefinite things like the auction investigations have been? Or, is this more of a finite time period to get the filing done?
Michael Moody
The objective of the management which includes Frank Scheuerell our interim chief financial officer is to file an accurate 10K. When we are comfortable we have an accurate 10K that’s been audited we’ll file it.
James Cross
Can you give a ballpark range in what amount of service support and engineering revenue you expect this year?
Michael Moody
$100 million.
James Cross
And when do you expect the Marines to make a decision on how much and what time of remanufacturing and upgrading they expect to do?
Michael Moody
I don’t know if we’ve gotten an exact timeframe but certainly they’re actively discussing it so I think it’s out through the summer sometime I suppose.
James Cross
And do they have the funding in place for that? Is it already appropriated and authorized?
Michael Moody
Not at this time.
James Cross
I had thought that a large portion of that was authorized in the original MRAP budget?
Damon Walsh
It could be if they reprogram they could use some of the MRAP money, their existing MRAP money to support that. But, more than likely it will be FY09 funding that will start the remanufacturing program.
James Cross
So, if we go into a continuing resolution situation with the FY09 budget proposal that would potentially delay this funding?
Damon Walsh
Yeah. I’m not sure, I’m not smart enough on what a CRA impact would be on O&M funding.
If they did this with O&M, I believe – I don’t think this would constitute a new start program. You might know better than I.
James Cross
Doubtful. Lastly, can you give us an update on MRAP II?
Damon Walsh
MRAP II testing is still ongoing. They’re in the final stages, they finished testing our coupons and are currently finishing testing on the vehicle.
We’re working closely with the Marine Corp every day.
Operator
We’ll take a follow up from Chris Donaghey with Sunrust Robinson Humphrey.
Chris Donaghey
I’m just trying to boil down a couple of the questions that have come since I asked mine. The real question is do you have a reasonable expectation to fill the order book in the back half of the year to either remanufacture activity or Cheetah or international orders?
And, do you expect to be producing vehicles in 2009?
Michael Moody
We certainly have a large part of 2008 order book filled and it’s largely through producing vehicles and then there’s the expectation in terms of remanufacturing. We don’t have any specific orders in 2009.
We’re obviously actively looking at the foreign military, at the remanufacture, at the other areas that are going on. But certainly, what we’re looking at doing is being in the position to be producing vehicles next year but we have no orders.
Now, that is with the exception of Buffalo which will continue obviously during that whole time. But, we are actively seeking to place orders in the 2009 year now.
Chris Donaghey
Right. And I guess the analogy here is a commercial company typically has to work at filling its order book, it usually doesn’t at this stage of the year doesn’t have a plethora of orders booked for next year.
So, given your [inaudible] approach I understand the business model that [inaudible] sales play in this. But, I guess just looking at the pipeline is there a reasonable expectation that some biz will come through and that the factory will be running and producing vehicles in 2009?
Michael Moody
Well, as we’ve indicated before we’ve got the vehicle with the survivability and sustainability record. We’re actively seeking international sales.
We’re talking about remanufacturing. Obviously, that’s all directed towards filling this order book out.
The other thing that I would say having an order book largely filled up for 2008, I think this is the longest order book this company has had. I know that we and other folks are looking towards orders in 2009.
In Force Protection’s history this current order book goes out a fair way.
Operator
We’ll talk a follow up from Tim Quillin with Stephens Incorporated.
Timothy Quillin
Yeah I just had one quick follow up. Do you have in front of you the expected vehicle shipments by GD that will flow through your income statement?
Michael Moody
Not really. The only thing I could say to you in general terms is it’s a 50/50 deal.
So I think if you can look at our MRAP Cougar vehicles that’s basically a 50/50. It’s mirrored by what GD’s doing.
Operator
We’ll go next to Patrick McCarthy with FBR Capital Markets.
Patrick McCarthy
I just had two quick question for you. First, I was wondering if you could just talk about what types of scenarios are being examined with regards to the GD relationship at the current time?
Michael Moody
I think the best thing is just to maybe add a little to what I said before which is the relationship was put in place specifically to met the Marines’ requirements as far as MRAP. So there was a need when that opportunity arose to put this relationship in place and it’s been a good relationship and it’s allowed those vehicles to be delivered and we have an excellent relationship with the customer.
I think that both GD and Force Protection now see that there’s a chance to think about this relationship more strategically from an opportunistic point of view and we’re taking a broad view on that, a very broad view of how this partnership, or the relationship between these two companies might be beneficial. Obviously, Force Protection is in the sustainability solutions business and General Dynamics is a larger contractor so there are lots of way in which we could potentially develop this relationship.
Patrick McCarthy
Okay. Then, you spent quite a bit of time speaking about the Cheetah and I’m wondering what you think occurs here?
Do you think it’s a possibility that the Cheetah ends up being some sort of interim vehicle between the current Humvee and JLTV?
Michael Moody
We certainly believe that JLTV, I mean the dates are 2014 and 2015, we believe there are immediate operational requirements for an interim vehicle. We believe that the Cheetah meets or largely meets those requirements.
So, absolutely this is something much shorter than 2014 or 15.
Operator
We’ll take a follow up from Jim Mcilree with Collins Stewart.
James Mcilree
I just wanted to makes sure I heard correct, in response to a question on spares and service this year did you say $100 million this year you accepted? Or was that 07?
Michael Moody
No, this is this year, 2008 we expect the number to be $100 million.
Operator
(Operator Instructions) At this time we have no additional question in the queue. Mr.
Moody I’d like to turn the conference back to you for any additional or closing comments.
Michael Moody
Thank you very much. I’d really like to thank everyone for participating on the call today.
As I indicated before we will be having conference calls on a regular basis and I certainly hope that you join us for our next conference call. Thank you very much.
Operator
This concludes today’s conference. We appreciate your participation.
You may now disconnect.