2
2
3
3
4
4
C o n t e n t s
Letter to the Stockholders
Our Vision
Global Network
Products
End Markets
Financial Highlights
Executive Management
Form 10-K
Corporate Information
5
5
6
ANOTHER SOLID YEAR FOR COMMERCIAL VEHICLE GROUP
IN OUR FIRST FULL YEAR as a public
mirror, controls and switch products, we
company,
CVG made great strides
feel we are in a greater position than
towards further developing a stronger,
ever before
to capitalize on
the
more diversified and integrated global
opportunities in the global commercial
company. During 2005, we completed
vehicle market.
three
strategic acquisitions while
Looking Ahead
maintaining our financial strength and
Our Research and Development team
flexibility. We continued to seek ways to
continues to focus on future product
lower costs,
improve manufacturing
innovation and process improvements.
efficiencies and
increase product
Throughout every
level of our
throughput.
organization, we have developed a
culture of continuous
improvement
M a n a g e m e n t
i s
f o c u s e d
o n
which keeps us at the forefront of the
implementing our strategy to become
i n d u s t r y a s we l l a s
i m p r ov i n g
the premier system supplier
for
the
m anufacturi ng effi ci enci es and
commercial vehicle industry. As a result
increasing product
reliability.
We
of our acquisitions, our product offering
continue
to search
for new and
has been enhanced to include complete
enhanced methods of providing the
cab structures, sleeper boxes and other
commercial vehicle market with higher
structural components; wiring harnesses,
quality, shorter lead times, 100% on-time
panel and cab frame assemblies and
delivery and the best service for the
injection molding products. Together
OEM and Aftermarket segments.
with our variety of seating, interior, wiper,
Management is committed to growing both the top line and the bottom line, while
remaining fiscally responsible, financially sound and tightly focused on our core
products, processes and customer base. While we are extremely pleased with our 2005
results, we continue to focus on enhancing our competitive position, growing sales and
earnings and creating shareholder value.
Sincerely,
Mervin Dunn
President and Chief Executive Officer
6
7
7
8
8
9
9
Seats and Seating Systems
Heavy Truck Seats
Other Commercial Vehicle Seats
Other Seating Products
Trim Systems and Components
Trim Products
Instrument Panels
Body Panels
Storage Systems
Floor Coverings Systems
Sleeper Bunks
Grab Handles and Arm Rests
Bumper Fascias and Fender Covers
Privacy Curtains
Sun Visors
10
10
Mirrors, Wipers and Controls
Mirrors
Windshield Wiper Systems
Controls
Cab Structures, Sleeper Boxes, Body Panels and Structural Components
Cab Structures
Sleeper Boxes
Body Panels and Structural Components
Electronic Wire Harnesses and Panel Assemblies
Electronic Wire Harnesses
Panel Assemblies
11
11
12
12
13
13
14
AT COMMERCIAL VEHICLE GROUP, we’ve built a solid financial foundation
through our disciplined approach to fiscal responsibility, detailed planning
and continuous improvement.
2005 was a successful year for us in many ways. With the completion of three
successful acquisitions, a successful concurrent equity and high yield offering
and operational advancements, CVG is poised to further enhance our
position as a leading global supplier to the commercial vehicle market.
During 2005, our revenues increased by 98% over 2004, and our EBITDA, the
tool management uses as our measurement of operating performance,
increased to 13.5% of revenues, our highest achievement to date. At the
same time, our substantial free cash flow generated during the year has
enhanced our overall financial position and allows us to continue to focus on
new growth and improvement opportunities.
Over the last five years, we have experienced significant growth in both
revenues and EBITDA despite a cyclical downturn from 2001 to 2003 in the
heavy duty (class 8) market. Our disciplined approach towards continuous
improvement, our flexible manufacturing processes and our growth strategy
have proven successful in top line growth and operational and financial
achievements. These endeavors along with other factors have contributed to
our revenue growth of 178% since 2001 to $754 million in 2005 while our EBITDA
has increased to over $101 million, going from 10.5% of revenues in 2001 to
13.5% in 2005.
While management is pleased with the success we have enjoyed
over the last five years, and most recently during 2005, we
continue to seek strategic opportunities to improve our
growth strategy, operating efficiency and financial strength
and durability.
Sincerely,
Chad M. Utrup
Chief Financial Officer
14
15
15
16
16
the experience and
takes
LONG TERM SUCCESS
perseverance of many people. Our management team
is highly respected within the commercial vehicle market,
and our five senior executives have a combined average
of 27 years of experience in the industry. We believe that
our team has substantial depth in critical operational
areas and has demonstrated success in reducing costs,
integrating business acquisitions and improving processes
through cyclical periods. In addition, we have added
significant management, technical and operations talent
with our recent acquisitions.
17
17
18
Common Stock Information
Ticker Symbol: CVGI
Exchange: NASDAQ
Independent Registered Public Accountants:
Deloitte & Touche LLP
Minneapolis, MN
Transfer Agent & Registrar:
Computershare Trust Company, N.A.
PO Box 43010
Providence, RI 02940-3010
781.575.2879
Email: www.computershare.com
Annual Meeting of Stockholders:
The Management and Board of Directors of Commercial Vehicle Group invite you to attend the
Company’s Annual Meeting of Stockholders.
The meeting will be held on:
Tuesday, May 16, 2006 at 1:00 pm
Official notice of the Annual Meeting and a Proxy
Statement will be mailed to stockholders.
Copies of this Annual Report, along with our periodic filings with the Securities and Exchange
Commission including Forms 10-K (excluding exhibits) and 10-Q, are available on our website.
Printed copies are also available upon request, free of charge, by contacting:
Chad M. Utrup
Chief Financial Officer
Commercial Vehicle Group, Inc.
6530 West Campus Oval
New Albany, OH 43054
614.289.5360
Website:
For more investor information, as well as information about our Company, products and
services, visit our website at www.cvgrp.com
18
Directors and Committees
Scott D. Rued, Chairman
Mervin Dunn, President and CEO
Scott C. Arves (1) (2)
David R. Bovee (1) (3)
Robert C. Griffin (1) (2) (3)
S. A. Johnson
Richard A. Snell (2) (3)
(1) Audit Committee
(2) Compensation Committee
(3) Nominating & Corporate Governance Committee
Mr. Bovee is Chair of the Audit Committee
Mr. Griffin is Chair of the Nominating & Corporate Governance Committee
Mr. Snell is Chair of the Compensation Committee
19
19
20
20
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended:
December 31, 2005
Commission file number:
000-50890
COMMERCIAL VEHICLE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State of Incorporation)
6530 West Campus Oval
New Albany, Ohio
(Address of Principal Executive Offices)
41-1990662
(I.R.S. Employer Identification No.)
43054
(Zip Code)
Registrant's telephone number, including area code:
(614) 289-5360
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes n
No ¥
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Schedule 15(d) of the Act. Yes n
No ¥
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ¥
No n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. n
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-
accelerated filer. See definition of ""accelerated filer and large accelerated filer'' in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer n
Accelerated filer ¥
Non-accelerated filer n
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes n
No ¥
As of February 28, 2006, 21,206,447 shares of Common Stock of the Registrant were outstanding. The
aggregate market value of the Common Stock of the Registrant as of June 30, 2005 (based upon the last
reported sale price of the Common Stock at that date by the Nasdaq National Market System), excluding
shares owned beneficially by affiliates, was approximately $376,414,434.
Information required by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are referred to herein) from the
Registrant's Proxy Statement for its annual meeting to be held May 16, 2006 (the ""2006 Proxy Statement'').
COMMERCIAL VEHICLE GROUP, INC.
Annual Report on Form 10-K
Table of Contents
Item 6.
Item 7.
PART I ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 1.
BusinessÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 1A. Risk Factors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 1B. Unresolved Staff CommentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Properties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 2.
Legal Proceedings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 3.
Item 4.
Submission of Matters to a Vote of Security HoldersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PART II ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selected Financial Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Management's Discussion and Analysis of Financial Condition and Results of
OperationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial Statements and Supplementary Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Controls and Procedures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 9A.
Item 9B.
Other Information ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PART IIIÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Directors and Executive Officers of the Registrant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 10.
Executive Compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Stockholder Matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Certain Relationships and Related Transactions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 13.
Item 14.
Principal Accountant Fees and Services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PART IV ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 15.
Consolidated Financial Statements, Financial Statement Schedule and Exhibits ÏÏÏÏÏÏÏ
SIGNATURESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Page
1
1
20
29
29
31
31
31
31
32
35
47
48
48
48
52
52
52
54
54
55
55
56
56
101
i
CERTAIN DEFINITIONS
All references in this Annual Report on Form 10-K to ""Commercial Vehicle Group,'' ""CVG,'' ""we,''
""us,'' and ""our'' refer to Commercial Vehicle Group, Inc. and its consolidated subsidiaries (unless the
context otherwise requires).
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements
contained herein that are not statements of historical fact, including without limitation, certain statements
under ""Item 1 Ì Business'' and ""Item 7 Ì Management's Discussion and Analysis of Financial Condition
and Results of Operations'' and located elsewhere herein regarding industry prospects and our results of
operations or financial position, may be deemed to be forward-looking statements. Without limiting the
foregoing, the words ""believes,'' ""anticipates,'' ""plans,'' ""expects,'' and similar expressions are intended to
identify forward-looking statements. The important factors discussed in ""Item 1A Ì Risk Factors,'' among
others, could cause actual results to differ materially from those indicated by forward-looking statements
made herein and presented elsewhere by management from time to time. Such forward-looking statements
represent management's current expectations and are inherently uncertain. Investors are warned that actual
results may differ from management's expectations. Additionally, various economic and competitive factors
could cause actual results to differ materially from those discussed in such forward-looking statements,
including, but not limited to, factors which are outside our control, such as risks relating to (i) our ability
to develop or successfully introduce new products; (ii) risks associated with conducting business in foreign
countries and currencies; (iii) general economic or business conditions affecting the markets in which we
serve; (iv) increased competition in the heavy-duty truck market; and (v) our failure to complete or
successfully integrate additional strategic acquisitions. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by
such cautionary statements.
ii
PART I
Item 1. Business
Overview and History
Commercial Vehicle Group, Inc. (a Delaware corporation) and its subsidiaries (collectively referred
to as CVG), is a leading supplier of fully integrated system solutions for the global commercial vehicle
market, including the heavy-duty truck market, the construction and agriculture markets and the specialty
and military transportation markets. As a result of our strong leadership in cab-related products and
systems, we are positioned to benefit from the increased focus of our customers on cab design and comfort
and convenience features to better serve their end user, the driver. Our products include suspension seat
systems, interior trim systems (including instrument panels, door panels, headliners, cabinetry and floor
systems), cab structures and components, mirrors, wiper systems, electronic wire harness assemblies and
controls and switches specifically designed for applications in commercial vehicles.
We are differentiated from other suppliers to the automotive industry by our ability to manufacture
low volume customized products on a sequenced basis to meet the requirements of our customers. We
believe that we have the number one or two position in most of our major markets and that we are the
only supplier in the North American commercial vehicle market that can offer complete cab systems
including cab body assemblies, sleeper boxes, seats, interior trim, flooring, wire harnesses, panel assemblies
and other structural components.
We offer a broad range of products and system solutions for a variety of end market vehicle
applications. Approximately 77% of our 2005 revenues were to heavy-duty truck and construction original
equipment manufacturers (OEMs), including Freightliner (DaimlerChrysler), PACCAR, International
(Navistar), Volvo/Mack and Caterpillar.
Since 2000, we have been able to improve our operating income margin each subsequent year through
core business growth and the effect of several acquisitions completed in 2005, despite the cyclical
downturn in the class 8 market from 1999 through 2001. In our largest market, the North American
Heavy-duty (Class 8) truck market, vehicle unit build rates declined from approximately 333,000 units in
1999 to a low of approximately 146,000 units in 2001, rebounding to approximately 341,000 units in 2005.
Demand for commercial vehicles improved in 2005 due to a variety of factors, including a broad economic
recovery in North America, the need to replace aging truck fleets as a result of under-investment and
increasing freight volumes.
The Company was formed on August 22, 2000. On October 6, 2000, the Company acquired the assets
of Bostrom plc in exchange for $83.6 million in cash and assumption of certain liabilities (the
""Acquisition''). The source of the cash consisted of $49.8 million of debt and $33.8 million of equity.
On March 28, 2003, the Company and Commercial Vehicle Systems Holdings, Inc. (""CVS'') entered
into an Agreement and Plan of Merger whereby a subsidiary of the Company was merged into CVS. The
holders of the outstanding shares of CVS received, in exchange, shares of the Company on a one-for-one
basis resulting in the issuance of 4,870,228 shares of common stock. On May 20, 2004, the Company and
Trim Systems, Inc. (""Trim'') entered into an Agreement and Plan of Merger whereby a subsidiary of the
Company was merged into Trim (the CVS and Trim mergers are collectively referred to as the
""Mergers''). On August 2, 2004, the Trim merger was effected. The holders of the outstanding shares of
Trim received, in exchange, shares of the Company on a .099-for-one basis resulting in the issuance of
2,769,567 shares of common stock. In accordance with SFAS No. 141, the Mergers were accounted for as
a combination of entities under common control. Thus, the accounts of CVS, Trim, and the Company
were combined based upon their respective historical bases of accounting. The financial statements reflect
the combined results of the Company, CVS and Trim as if the Mergers had occurred as of the beginning
of the earliest period presented.
1
On August 4, 2004, the Company reclassified all of its existing classes of common stock into one class
of common stock and in connection therewith effected a 38.991-to-one stock split. The stock split has been
reflected as of the beginning of all periods presented.
On August 10, 2004, the Company completed its initial public offering of common stock at a price of
$13.00 per share. Of the total shares offered, 3,125,000 were sold by the Company and 6,125,000 were sold
by certain selling stockholders. Net proceeds to the Company of approximately $34.6 million were used to
repay outstanding indebtedness.
On August 23, 2004, the underwriters, pursuant to their overallotment option, purchased an additional
1,034,500 shares of common stock resulting in net proceeds of approximately $12.6 million to the
Company, which was used to further reduce outstanding indebtedness and for general corporate purposes.
On July 6, 2005, the Company completed an offering of common stock at a price of $17.75 per share.
Of the total shares offered, 1,500,000 were sold by the Company and 6,308,191 were sold by certain selling
stockholders. Net proceeds to the Company of approximately $23.8 million were used to repay outstanding
indebtedness under the senior credit facility. In connection with this offering, Onex American Holdings II
LLC and its affiliated investors and Baird Capital Partners III L.P. and its affiliated investors sold all of
their share ownership in the Company. In addition, certain members of management exercised options to
purchase 217,404 shares of common stock, which were sold in the offering as part of the 6,308,191 shares
sold by the selling stockholders. Net proceeds to the Company of approximately $1.2 million from the
payment of the exercise price of such options were used to repay outstanding indebtedness under the
senior credit facility.
On July 13, 2005, the underwriters, pursuant to their over allotment option, purchased an additional
1,171,229 shares of common stock resulting in net proceeds of approximately $19.9 million to the
Company, which was used to further reduce outstanding indebtedness under the senior credit facility and
for general corporate purposes.
Recent Acquisitions and Material Events
During 2005, we undertook certain growth initiatives, including the acquisitions of substantially all of
the assets and liabilities related to Mayflower Vehicle Systems' North American Commercial Vehicle
Operations (Mayflower), all of the stock of Monona Corporation (Monona) and all of the stock of
Cabarrus Plastics, Inc. (Cabarrus). Our results of operations were materially impacted by these
acquisitions. Further, we completed a secondary public offering of our common stock as well as an offering
of our 8.0% senior notes due 2013. See Note 3 and Note 7 to our consolidated financial statements
contained in Item 15 of this Annual Report on Form 10-K for detailed information on these transactions.
Industry
Within the commercial vehicle industry, we sell our products primarily to the heavy truck segment of
the North American OEM market (approximately 62% of our 2005 revenues), the aftermarket and OEM
service organizations (approximately 9% of our 2005 revenues) and the construction segments of the global
OEM market (approximately 15% of our 2005 revenues). The majority of our remaining 14% of 2005
revenues were to other global commercial vehicle and specialty markets.
Commercial Vehicle Supply Market Overview
Commercial vehicles are used in a wide variety of end markets, including local and long-haul
commercial trucking, bus, construction, mining, general industrial, marine, municipal and recreation. The
commercial vehicle supply industry can generally be separated into two categories: (1) sales to OEMs, in
which products are sold in relatively large quantities directly for use by OEMs in new commercial vehicles;
and (2) ""aftermarket'' sales, in which products are sold as replacements in varying quantities to a wide
range of OEM service organizations, wholesalers, retailers and installers. In the OEM market, suppliers are
generally divided into tiers Ì ""Tier 1'' suppliers (like our company), who provide their products directly to
2
OEMs, and ""Tier 2'' or ""Tier 3'' suppliers, who sell their products principally to other suppliers for
integration into those suppliers' own product offerings.
Our largest end-market segment, the commercial truck industry, is supplied by heavy- and medium-
duty commercial truck suppliers. The commercial truck supplier industry is highly fragmented and
comprised of several large companies and many smaller companies. In addition, the Heavy-duty (Class 8)
truck supplier industry is characterized by relatively low production volumes as well as considerable
barriers to entry, including the following: (1) significant investment requirements, (2) stringent technical
and manufacturing requirements, (3) high transition costs to shift production to new suppliers, (4) just-in-
time delivery requirements and (5) strong brand name recognition. Foreign competition is limited in the
North American commercial vehicle market due to many factors, including the need to be responsive to
order changes on short notice, high shipping costs, customer concerns about quality given the safety aspect
of many of our products and service requirements.
Although OEM demand for our products is directly correlated with new vehicle production, suppliers
like us also can grow by increasing their product content per vehicle through cross selling and bundling of
products, further penetrating business with existing customers and gaining new customers and expanding
into new geographic markets. We believe that companies with a global presence and advanced technology,
engineering, manufacturing and support capabilities, such as our company, are well positioned to take
advantage of these opportunities.
Commercial Truck Market
Purchasers of commercial trucks include fleet operators, owner operators and other industrial end
users. Commercial vehicles used for local and long-haul commercial trucking are generally classified by
gross vehicle weight. Class 8 vehicles are trucks with gross vehicle weight in excess of 33,000 lbs. and
Class 5 through 7 vehicles are trucks with gross vehicle weight from 16,001 lbs. to 33,000 lbs. The
following table shows commercial vehicle production levels for 2005 through 2001 in North America:
Class 8 heavy trucks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class 5 Ì 7 light and medium-duty trucksÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005
341
250
591
2004
2002
2003
(Thousands of units)
181
182
269
194
188
225
494
370
375
2001
146
189
335
Source: ACT Research (February 2006).
The following describes the major segments of the commercial vehicle market in which we compete:
Class 8 Truck Market
The global Class 8 truck manufacturing market is concentrated in three primary regions: North
America, Asia-Pacific and Europe. The global Class 8 truck market is localized in nature due to the
following factors: (1) the prohibitive costs of shipping components from one region to another, (2) the
high degree of customization of Class 8 trucks to meet the region-specific demands of end users, and
(3) the ability to meet just-in-time delivery requirements. According to ACT, four companies represented
approximately 98% of North American Class 8 truck production in 2005. The percentages of Class 8
production represented by Freightliner, PACCAR, International and Volvo/ Mack were approximately
36%, 24%, 18% and 20%, respectively. We supply products to all of these OEMs.
Production of commercial vehicles in North America peaked in 1999 and experienced a downturn
from 2000 to 2003 that was due to a weak economy, reduced sales following above-normal purchases in
advance of new EPA emissions standards, an oversupply of new and used vehicle inventory and lower
spending on commercial vehicles and equipment. Following a substantial decline from 1999 to 2001, truck
unit production increased modestly to approximately 181,000 units in 2002 from approximately
3
146,000 units produced in 2001, due primarily to the purchasing of trucks that occurred prior to the
October 2002 mandate for more stringent engine emissions requirements. Subsequent to the engine
emissions requirements, truck production continued to remain at historically low levels due to the
continuing economic recession and the reluctance of many trucking companies to invest during this period.
In mid-2003, evidence of renewed growth emerged and truck tonmiles (number of miles driven
multiplied by number of tons transported) began to increase. Accompanying the increase in truck
tonmiles, new truck sales also began to increase. During the second half of 2003, new truck dealer
inventories declined and, consequently, OEM truck order backlogs began to increase. According to ACT,
monthly truck order rates began increasing significantly in December 2003. Accordingly, Class 8
production for 2005 was approximately 341,000 units, approximately 269,000 units in 2004 and
approximately 182,000 units in 2003.
The following table illustrates North American Class 8 truck build for the years 1998 to 2010:
North American Class 8 Truck Build Rates
(In thousands)
333
267
252
341
348
353
299
269
181
182
146
204
181
1998
1999
2000
2001
2002
2003
2004
2005
2006 E 2007 E 2008 E 2009 E 2010 E
""E'' Ì Estimated
Source: ACT Research (February 2006).
According to ACT, unit production for 2006 is estimated to increase approximately 2% over 2005
levels to approximately 348,000 units. We believe the increase in 2005 and anticipated increase in 2006 is
primarily the result of the following factors: (1) improvement in the general economy in North America,
(2) corresponding growth in the movement of goods, which is expected to lead to demand for new trucks
and increasing requirements of logistics companies and (3) under investment during the recession and the
growing need to replace aging truck fleets. In addition, ACT forecasts truck unit production to decline
sharply in 2007. We believe that both the anticipated increase in 2006 as well as the projected decrease in
2007 are also impacted by the institution of more stringent EPA emissions standards in early 2007.
We believe the following factors are currently driving the North American Class 8 truck market:
Economic Conditions. The North American truck industry is directly influenced by overall economic
growth and consumer spending. Since truck OEMs supply the fleet lines of North America, their
production levels generally match the demand for freight. The freight carried by these trucks includes
consumer goods, machinery, food and beverages, construction equipment and supplies, electronic
equipment and a wide variety of other materials. Since most of these items are driven by macroeconomic
conditions, the truck industry tends to follow trends of gross domestic product, or GDP. Generally, given
the dependence of North American shippers on trucking as a freight alternative, general economic
conditions have been a primary indicator of future truck builds.
4
Truck Freight Growth. ACT projects that total domestic truck freight will continue to increase over
the next five years, driven by growth in GDP. In addition, national suppliers and distribution centers,
burdened by the pricing pressure of large manufacturing and retail customers, have continued to reduce
on-site inventory levels. This reduction requires freight handlers to provide ""to-the-hour'' delivery options.
As a result, Class 8 trucks have replaced manufacturing warehouses as the preferred temporary storage
facility for inventory. Since trucks are typically viewed as the most reliable and flexible shipping
alternative, truck tonmiles, as well as truck platform improvements, should continue to increase in order to
meet the increasing need for flexibility under the just-in-time system. ACT forecasts that total heavy-duty
truck tonmiles will increase from 3,462 billion in 2005 to an all time high of 4,030 billion in 2010, as
summarized in the following graph:
Total U.S. Tonmiles (Class 8)
(Number of tonmiles in billions)
2,867
2,998
3,091
3,100
3,122
3,220
3,753
3,861
3,628
3,967
4,030
3,381
3,462
1998
1999
2000
2001
2002
2003
2004
2005
2006 E 2007 E 2008 E 2009 E 2010 E
""E'' Ì Estimated
Source: ACT Research (2006).
Truck Replacement Cycle and Fleet Aging. Since 1995, the average age of active Class 8 trucks has
increased from approximately 5.4 years in 1995 to approximately 5.8 years in 2005. The average fleet age
tends to run in cycles as freight companies permit their truck fleets to age during periods of lagging
demand and then replenish those fleets during periods of increasing demand. Additionally, as truck fleets
age, their maintenance costs typically increase. Freight companies must therefore continually evaluate the
economics between repair and replacement. Other factors, such as inventory management and the growth
5
in less-than-truckload freight shipping, also tend to increase fleet mileage and, as a result, the truck
replacement cycle. The chart below illustrates the average age of active U.S. Class 8 trucks:
Average Age of Active U.S. Class 8 Trucks
(Number of years)
5.9
5.9
5.8
5.8
5.7
5.7
5.5
5.5
5.5
5.4
5.4
5.3
5.3
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006 E 2007 E
""E'' Ì Estimated
Source: ACT Research (2006).
Commercial Truck Aftermarket
Demand for aftermarket products tends to be less cyclical than OEM demand because vehicle owners
are more likely to repair vehicles than purchase new ones during recessionary periods, and thus aftermarket
demand generally is more stable during such periods. Demand for aftermarket products is driven by the
quality of OEM parts, the number of vehicles in operation, the average age of the vehicle fleet, vehicle
usage, the average useful life of vehicle parts and total tonmiles. The aftermarket is a growing market, as
the overall size of the North American fleet of Class 8 trucks has continued to increase and is attractive
because of the recurring nature of the sales. Additionally, aftermarket sales tend to be at a higher margin,
as truck component suppliers are able to leverage their already established fixed cost base and exert
moderate pricing power with their replacement parts. The recurring nature of aftermarket revenue provides
some insulation to the overall cyclical nature of the industry, as it tends to provide a more stable stream of
revenues.
Commercial Construction Vehicle Market
Purchasers of heavy construction equipment (weighing over 12 metric tons) include construction
companies, municipalities, local governments, rental fleet owners, quarrying and mining companies, waste
management companies and forestry related concerns. Purchasers of light construction equipment
(weighing under 12 metric tons) include contractors, rental fleet owners, landscapers, logistics companies
and farmers. Sales of heavy construction equipment are particularly dependent on the level of major
infrastructure construction and repair projects such as highways, dams and harbors, which is a function of
government spending and economic growth.
Military Equipment Market
We supply products for heavy- and medium-payload tactical trucks that are used by the U.S. military
and other foreign militaries. Sales and production of these vehicles are influenced by overall defense
spending both by the U.S. government and foreign governments and the presence of military conflicts and
potential military conflicts throughout the world. Demand for these vehicles is expected to increase as the
result of the continuing conflict in the Middle East. Additionally, demand has also increased for
6
remanufacturing and replacement of the large fleet of vehicles that have served in the Middle East due to
over-use and new armor and technology requirements.
Commercial Vehicle Industry Trends
Our performance and growth are directly related to trends in the commercial vehicle market that are
focused on driver retention, comfort and safety. These commercial vehicle industry trends include the
following:
System Sourcing. Commercial vehicle OEMs are beginning to seek suppliers capable of providing
fully-engineered, complete systems rather than suppliers who produce the separate parts that comprise a
system. By outsourcing complete systems, OEMs are able to reduce the costs associated with the design
and integration of different components and improve quality by requiring their suppliers to assemble and
test major portions of the vehicle prior to beginning production. In addition, OEMs are able to develop
more efficient assembly processes when complete systems are delivered in sequence rather than as
individual parts or components.
Globalization of Suppliers. To serve multiple markets more cost effectively, many commercial
vehicle OEMs are manufacturing global vehicle platforms that are designed in a single location but are
produced and sold in many different geographic markets around the world. Having operations in the
geographic markets in which OEMs produce their global platforms enables suppliers to meet OEMs' needs
more economically and more efficiently.
Shift of Design and Engineering to Suppliers. OEMs are focusing their efforts on brand development
and overall vehicle design, instead of the design of individual vehicle systems. OEMs are increasingly
looking to their suppliers to provide suggestions for new products, designs, engineering developments and
manufacturing processes. As a result, Tier 1 suppliers are gaining increased access to confidential planning
information regarding OEMs' future vehicle designs and manufacturing processes. Systems and modules
increase the importance of Tier 1 suppliers because they generally increase the Tier 1 suppliers' percentage
of vehicle content.
Broad Manufacturing Capabilities. With respect to commercial vehicle interiors, OEMs are requiring
their suppliers to manufacture interior systems and products utilizing alternative materials and processes in
order to meet OEMs' demand for customized styling or cost requirements. In addition, while OEMs seek
to differentiate their vehicles through the introduction of innovative interior features, suppliers are
proactively developing new interior products with enhanced features.
Ongoing Supplier Consolidation. The worldwide commercial vehicle supply industry is in the early
stages of consolidating as suppliers seek to achieve operating synergies through business combinations, shift
production to locations with more flexible work rules and practices, acquire complementary technologies,
build stronger customer relationships and follow their OEM customers as they expand globally. Suppliers
need to provide OEMs with single-point sourcing of integrated systems and modules on a global basis, and
this is expected to drive further industry consolidation. Furthermore, the cost focus of most major OEMs
has forced suppliers to reduce costs and improve productivity on an ongoing basis, including by achieving
economies of scale through consolidation.
Competitive Strengths
We believe that our competitive strengths include, but are not limited to, the following:
Leading Market Positions and Brands. We believe that we are the leading supplier of seating
systems and interior trim products, the only non-captive manufacturer of Class 8 truck body systems
(which includes cab body assemblies), the second largest supplier of wiper systems and mirrors for the
North American commercial vehicle market and the largest global supplier of construction vehicle seating
systems. Our products are marketed under brand names that are well known by our customers and truck
fleet operators based upon the amount of revenue we derive from sales to this market. These brands
include KAB Seating, National Seating, Trim Systems and Sprague Controls, Sprague Devices»,
7
PrutsmanTM, Moto Mirror», RoadWatch» and Mayflower». The Mayflower, Monona and Cabarrus
acquisitions gave us the capability to achieve market leadership across a broader spectrum of commercial
vehicle systems, including complete truck cab assemblies and electrical wire systems. We plan to leverage
our customer relationships and dedicated sales force to cross-sell a broader range of products to position
ourselves as the leading provider of complete cab systems to the commercial vehicle market.
Comprehensive Cab Product and Cab System Solutions. We believe that we offer the broadest
product range of any commercial vehicle cab supplier. We manufacture a broad base of products, many of
which are critical to the interior and exterior subsystems of a commercial vehicle cab. In addition, through
our acquisitions of Mayflower, Monona and Cabarrus, we believe we are the only supplier worldwide with
the capability to offer complete cab systems in sequence, integrating interior trim and seats with the cab
structure and the electronic wire harness and instrument panel assemblies. We also utilize a variety of
different processes, such as urethane molding, injection molding, VEC large composite molding, vacuum
forming and ""twin shell'' vacuum forming that enable us to meet each customer's unique styling and cost
requirements. The breadth of our product offering enables us to provide a ""one-stop shop'' for our
customers, who increasingly require complete cab solutions from a single supply source. As a result, we
believe that we have a substantial opportunity for further customer penetration through cross-selling
initiatives and by bundling our products to provide complete system solutions.
End-User Focused Product Innovation. A key trend in the commercial vehicle market is that OEMs
are increasingly focused on cab design, comfort and features to better serve their end user, the driver, and
our customers are seeking suppliers that can provide product innovation. We have a full service
engineering and product development organization that proactively presents solutions to OEMs to meet
these needs and enables us to increase our overall content on current platforms and models.
Flexible Manufacturing Capabilities and Cost Competitive Position. Because commercial vehicle
OEMs permit their customers to select from an extensive menu of cab options, our customers frequently
request modified products in low volumes within a limited time frame. We have a highly variable cost
structure and can efficiently leverage our flexible manufacturing capabilities to provide low volume,
customized products to meet each customer's styling, cost and ""just-in-time'' delivery requirements. We
manufacture or assemble our products at facilities in North America, Europe, China and Australia.
Several of our facilities are located near our customers to reduce distribution costs and to maintain a high
level of customer service and flexibility.
Strong Free Cash Flow Generation. Our business generates strong free cash flow, as it benefits from
modest capital expenditure and working capital requirements. Over the three years ended December 31,
2005, our consolidated capital expenditures averaged $11.8 million per year, which amounts to
approximately 2.5% of consolidated net revenues. The recent acquisitions of Mayflower, Monona and
Cabarrus have also provided us with cost saving opportunities, such as consolidation of supplier
relationships as well as utilization of low cost manufacturing capabilities at our facility in Mexico, and we
intend to continue implementing operating enhancements to improve our overall cost position.
Strong Relationships with Leading Customers and Major Fleets. Because of our comprehensive
product offerings, sole source position for certain of our products, leading Class 8 brand names and
innovative product features, we believe we are an important long-term supplier to all of the leading truck
manufacturers in North America and also a global supplier to leading heavy equipment customers such as
Caterpillar, Oshkosh Truck, Deere & Co., Komatsu and Volvo. In addition, through our sales force and
engineering teams, we maintain active relationships with the major truck fleet organizations that are end
users of our products such as Yellow Freight, Swift Transportation, Schneider National and Ryder
Leasing. As a result of our high-quality, innovative products, well-recognized brand names and customer
service, a majority of the largest 100 fleet operators specifically request certain of our products.
Significant Barriers to Entry. We believe we are a leader in providing critical cab assemblies and
components to long running platforms. Considerable barriers to entry exist, including significant investment
and engineering requirements, stringent technical and manufacturing requirements, high transition costs for
8
OEMs to shift production to new suppliers, just-in-time delivery requirements and strong brand name
recognition.
Proven Management Team. Our management team is highly respected within the commercial
vehicle market, and our five senior executives have a combined average of 27 years of experience in the
industry. We believe that our team has substantial depth in critical operational areas and has demonstrated
success in reducing costs, integrating business acquisitions and improving processes through cyclical
periods. In addition, we have added significant management, technical and operations talent with our
recent acquisitions.
Strategy
In addition to capitalizing on expected growth in our end markets, our primary growth strategies are
as follows:
Increase Content, Expand Customer Penetration and Leverage System Opportunities. We are the
only integrated commercial vehicle supplier that can offer complete interior cab systems. We are focused
on securing additional sales from our existing customer base, and we actively cross-market a diverse
portfolio of products to our customers to increase our content on the cabs manufactured by these OEMs.
To complement our North American capabilities and enhance our customer relationships, we are working
with OEMs as they increase their focus on international markets. We have established operations in China
and are aggressively working to secure new business from both existing and new customers with Chinese
manufacturing operations and Chinese OEMs. We believe we are well positioned to capitalize on the
migration by OEMs in the heavy truck and commercial vehicle sector towards commercial vehicle
suppliers that can offer a complete interior system and components.
Leverage Our New Product Development Capabilities. We have made a significant investment in our
engineering capabilities and new product development in order to anticipate the evolving demands of our
customers and end users. For example, we recently introduced a new wiper system utilizing a tubular
linkage system with a single motor that operates both wipers, reducing the cost, space and weight of the
wiper system. Also, we believe that our new high performance seat should enable us to capture additional
market share in North America and provide us with opportunities to market this seat on a global basis.
We will continue to design and develop new products that add or improve content and increase cab
comfort and safety.
Capitalize on Operating Leverage. We continuously seek ways to lower costs, enhance product
quality, improve manufacturing efficiencies and increase product throughput. Over the past three years, we
realized operating synergies with the integration of our sales, marketing and distribution processes; reduced
our fixed cost base through the closure and consolidation of several manufacturing and design facilities;
and continue to implement our Lean Manufacturing and Total Quality Production Systems (""TQPS'')
programs. We believe our ongoing cost saving initiatives and the establishment of our sourcing
relationships in China will enable us to continue to lower our manufacturing costs. As a result, we are well
positioned to grow our operating margins and capitalize on any volume increases in the heavy truck sector
with minimal additional capital expenditures. With the integration of Mayflower, Monona and Cabarrus,
our management will be pursuing cost reduction opportunities which include: consolidating supplier
relationships to achieve lower costs and better terms, strategic sourcing of products to OEMs from new
facility locations, implementing lean manufacturing techniques to achieve operational efficiencies,
improving product quality and delivery and providing additional capacity. Cost reductions will also target
merging administrative functions, including accounting, IT and corporate services.
Grow Sales to the Aftermarket. While commercial vehicles have a relatively long life, certain
components, such as seats, wipers and mirrors, are replaced more frequently. We believe that there are
opportunities to leverage our brand recognition to increase our sales to the replacement aftermarket. Since
many aftermarket participants are small and locally focused, we plan to leverage our national presence to
increase our market share in the fragmented aftermarket. We believe that the continued growth in the
9
aftermarket represents an attractive opportunity to diversify our business due to its relative stability as
well as the market penetration opportunity.
Pursue Strategic Acquisitions and Continue to Diversify Sales. We will selectively pursue complemen-
tary strategic acquisitions that allow us to leverage the marketing, engineering and manufacturing strengths of
our business and expand our sales to new and existing customers. The markets in which we operate are highly
fragmented and provide ample consolidation opportunities. We expect the acquisition of Mayflower will enable
us to be the only supplier worldwide to offer complete cab systems in sequence, integrating interior trim and
seats with the cab structure. We expect the Monona acquisition will enable us to provide integrated electronic
systems into our cab products and the Cabarrus acquisition will enable us to expand the breadth of our interior
systems capabilities. Each of these acquisitions has allowed us to diversify our revenue base by customer,
market or product offering.
Products
We offer OEMs a broad range of products and system solutions for a variety of end market vehicle
applications that include local and long-haul commercial truck, bus, construction, agricultural, military, end
market industrial, marine, municipal and recreation. Fleets and OEMs are increasing their focus on cabs
and their interiors to differentiate products and improve driver comfort and retention. Although a portion
of our products are sold directly to OEMs as finished components, we use most of our products to produce
""systems'' or ""subsystems,'' which are groups of component parts located throughout the vehicle that
operate together to provide a specific vehicle function. Systems currently produced by us include cab
bodies, sleeper boxes, seating, trim, body panels, storage cabinets, floor covering, mirrors, windshield
wipers, headliners, window lifts, door locks, temperature measurement and wire harnesses. We classify our
products into five general categories: (1) seats and seating systems, (2) trim systems and components,
(3) mirrors, wipers and controls, (4) cab structures, sleeper boxes, body panels and structural components
and (5) electronic wire harnesses and panel assemblies.
See Notes 2 and 10 to our consolidated financial statements in Item 15 in this Annual Report on
Form 10-K for information on our significant customer revenues and related receivables, as well as
revenues by product category and geographical location.
Set forth below is a brief description of our products and their applications:
Seats and Seating Systems. We design, engineer and produce seating systems primarily for heavy
trucks in North America and for commercial vehicles used in the construction and agricultural industries
through our European operations. For the most part, our seats and seating systems are fully-assembled and
ready for installation when they are delivered to the OEM. We offer a wide range of seats that include air
suspension seats, static seats, passenger seats, bus seats and rail car seats. As a result of our strong product
design and product technology, we are a leader in designing seats with convenience features and enhanced
safety. Seats and seating systems are the most complex and highly specialized products of our five product
categories.
Heavy Truck Seats. We produce seats and seating systems for Heavy-duty (Class 8) trucks in our
North American operations. Our heavy truck seating systems are designed to achieve maximum driver
comfort by adding a wide range of manual and power features such as lumbar supports, cushion and back
bolsters and leg and thigh supports. Our heavy truck seats are highly specialized based on a variety of
different seating options offered in OEM product lines. Our seats are built to customer specifications in
low volumes and consequently are produced in numerous combinations with a wide range of price points.
There are approximately 350 parts in each seat, resulting in over 2 million possible seat combinations.
Adding features to a standard seat is the principal way to increase pricing, and the price of one seat can
range from $180 for a standard suspension seat to over $400 for an air seat with enhanced features.
We differentiate our seats from our competitors' seats by focusing on three principal goals: driver
comfort, driver retention and decreased workers' compensation claims. Drivers of heavy trucks recognize
and are often given the opportunity to specify their choice of seat brands, and we strive to develop strong
10
customer loyalty both with the commercial vehicle OEMs and among the drivers. We believe that we have
superior technology and can offer a unique seat base that is ergonomically designed, accommodates a
range of driver sizes and absorbs shock to maximize driver comfort.
Other Commercial Vehicle Seats. We produce seats and seating systems for commercial vehicles
used in the global construction and agricultural, bus, commercial transport and municipal industries. The
principal focus of these seating systems is durability. These seats are ergonomically designed for difficult
working environments, to provide comfort and control throughout the range of seats and chairs.
Other Seating Products. Our European operations also manufacture office seating products. Our
office chair was developed as a result of our experience supplying chairs for the heavy truck, agricultural
and construction industries and is fully adjustable to maximize comfort at work. Our office chairs are
available in a wide variety of colors and fabrics to suit many different office environments, such as
emergency services, call centers, receptions, studios, boardrooms and general office.
Trim Systems and Components. We design, engineer and produce trim systems and components for
the interior cabs of commercial vehicles. Our interior trim products are designed to provide a comfortable
interior for the vehicle occupants as well as a variety of functional and safety features. The wide variety of
features that can be selected by the heavy truck customer makes trim systems and components a complex
and highly specialized product category. For example, a sleeper cab can contain three times as many trim
components as a day cab, and the selling price can range from approximately $900 for a fully loaded
sleeper cab to approximately $260 for an average day cab. Set forth below is a brief description of our
principal trim systems and components:
Trim Products. Our trim products include A-Pillars, B-Pillars, door panels and interior trim panels.
Door panels consist of several component parts that are attached to a substrate. Specific components
include vinyl or cloth-covered appliquπes, armrests, radio speaker grilles, map pocket compartments, carpet
and sound-reducing insulation. In addition, door panels often incorporate electronic and electrical
distribution systems and products, including lock and latch, window glass, window regulators and audio
systems as well as wire harnesses for the control of power seats, windows, mirrors and door locks. Our
products are attractive, lightweight solutions from a traditional cut and sew approach to a contemporary
""molded'' styling theme. The parts can be color matched or top good wrapped to integrate seamlessly with
the rest of the interior.
Instrument Panels. We produce and assemble instrument panels that can be integrated with the rest
of the interior trim. The instrument panel is a complex system of coverings and foam, plastic and metal
parts designed to house various components and act as a safety device for the vehicle occupant.
Body Panels (Headliners/Wall Panels). Headliners consist of a substrate and a finished interior
layer made of fabrics and materials. While headliners are an important contributor to interior aesthetics,
they also provide insulation from road noise and can serve as carriers for a variety of other components,
such as visors, overhead consoles, grab handles, coat hooks, electrical wiring, speakers, lighting and other
electronic and electrical products. As the amount of electronic and electrical content available in vehicles
has increased, headliners have emerged as an important carrier of electronic features such as lighting
systems.
Storage Systems. Our modular storage units and custom cabinetry are designed to improve comfort
and convenience for the driver. These storage systems are designed to be integrated with the interior trim.
These units may be easily expanded and customized with features that include refrigerators, sinks and
water reservoirs. Our storage systems are constructed with durable materials and designed to last the life of
the vehicle.
Floor Covering Systems. We have an extensive and comprehensive portfolio of floor covering systems
and dash insulators. Carpet flooring systems generally consist of tufted or non-woven carpet with a
thermoplastic backcoating which, when heated, allows the carpet to be fitted precisely to the interior or
trunk compartment of the vehicle. Additional insulation materials are added to minimize noise, vibration
and harshness. Non-carpeted flooring systems, used primarily in commercial and fleet vehicles, offer
11
improved wear and maintenance characteristics. The dash insulator separates the passenger compartment
from the engine compartment and prevents engine noise and heat from entering the passenger
compartment.
Sleeper Bunks. We offer a wide array of design choices for upper and lower sleeper bunks for heavy
trucks. All parts of our sleeper bunks can be integrated to match the rest of the interior trim. Our sleeper
bunks arrive at OEMs fully assembled and ready for installation.
Grab Handles and Armrests. Our grab handles and armrests are designed and engineered with
specific attention to aesthetics, ergonomics and strength. Our T-SkinTM product uses a wide range of inserts
and substrates for structural integrity. The integral urethane skin offers a soft touch and can be in-mold
coated to specific colors.
Bumper Fascias and Fender Covers. Our highly durable, lightweight bumper fascias and fender
covers are capable of withstanding repeated impacts that would deform an aluminum or steel bumper. We
utilize a production technique that chemically bonds a layer of paint to the part after it has been molded,
thereby enabling the part to keep its appearance even after repeated impacts.
Privacy Curtains. We produce privacy curtains for use in sleeper cabs. Our privacy curtains include
features such as integrated color matching of both sides of the curtain, choice of cloth or vinyl, full ""black
out'' features and low-weight.
Sun Visors. Our sun visors are fully integrated for multi-access mounting and pivot hardware. Our
sun visor system includes multiple options such as mirrors, map pockets and different options for
positioning. We use low pressure injection molding to produce our premium sun visors with a simulated
grain texture.
Mirrors, Wipers and Controls. We design, engineer and produce a wide range of mirrors, wipers and
controls used in commercial vehicles. Set forth below is a brief description of our principal products in this
category:
Mirrors. We offer a wide range of round, rectangular, motorized and heated mirrors and related
hardware, including brackets, braces and side bars. Most of our mirror designs utilize stainless steel pins,
fasteners and support braces to ensure durability. We have introduced both road and outside temperature
devices that are integrated into the mirror face or the vehicle's dashboard through our Road WatchTM
family of products. These systems are principally utilized by municipalities throughout North America to
monitor surface temperatures and assist them in dispersing chemicals for snow and ice removal. We have
introduced a new lower-cost system for use in long-haul commercial trucks and mission critical vehicles
such as ambulances. We have also introduced a new molded aerodynamic mirror that is integrated into the
truck's exterior.
Windshield Wiper Systems. We offer application-specific windshield wiper systems and individual
windshield wiper components for all segments of the commercial vehicle market. Our windshield wiper
systems are generally delivered to the OEM fully assembled and ready for installation. A windshield wiper
system is typically comprised of a pneumatic electric motor, linkages, arms, wiper blades, washer reservoirs
and related pneumatic or electric pumps. We have introduced a new low-weight, cost effective tubular
wiper system design. We also produce air-assisted washing systems for headlights and cameras to assist
drivers with visibility for safe vehicle operation. These systems utilize window wash fluid and air to create
a turbulent liquid/air stream that removes road grime from headlights and cameras. We offer an optional
programmable washing system that allows for periodic washing and dry cycles for maximum safety.
Controls. We offer a range of controls and control systems that includes a complete line of window
lifts and door locks, mechanic, pneumatic, electrical and electronic HVAC controls and electric switch
products. We specialize in air-powered window lifts and door locks, which are highly reliable and cost
effective as compared to similar electrical products.
Cab Structures, Sleeper Boxes, Body Panels and Structural Components. We design, engineer and
produce complete cab structures, sleeper boxes, body panels and structural components for the commercial
12
vehicle and automotive industries in North America. Set forth below is a description of our principal
products in this category:
Cab Structures. We design, manufacture and assemble complete cab structures used primarily in
heavy trucks for the major commercial vehicle OEMs in North America. Our cab structures, which are
manufactured from both steel and aluminum, are delivered to our customers fully assembled and primed
for paint. Our cab structures are built to order based upon options selected by the vehicles' end-users and
delivered to the OEMs, in line sequence, as these end-users' trucks are manufactured by the OEMs. In
addition, we also design, produce and assemble cab structures for certain automotive OEMs.
Sleeper Boxes. We design, manufacture and assemble sleeper boxes primarily for heavy trucks in
North America. We manufacture both integrated sleeper boxes that are part of the overall cab structure as
well as stand alone assemblies depending on the customer application. Sleeper boxes are typically
constructed using aluminum exterior panels in combination with steel structural components delivered to
our customers in line sequence after the final seal and E-coat process.
Body Panels and Structural Components. We produce a wide range of both steel and aluminum
large exterior body panels and structural components. Approximately 80% of the body panels and
structural components we manufacture are used internally in our production of cab structures as described
above, with the remaining approximately 20% being sold externally to commercial vehicle and automotive
OEMs. The products we produce for the external market include large exterior body panels and structural
components for both heavy trucks and the Ford GT automobile, heavy truck bumper assemblies and large
stampings for the construction industry.
Electronic Wire Harnesses and Panel Assemblies. We design, engineer and produce a wide range of
electronic wire harnesses and related assemblies as well as panel assemblies used in commercial vehicles
and other equipment. Set forth below is a brief description of our principal products in this category.
Electronic Wire Harnesses. We offer a broad range of complex electronic wire harness assemblies
that function as the primary current carrying devices used to provide electrical interconnections for gauges,
lights, control functions, power circuits and other electronic applications on a commercial vehicle. Our wire
harnesses are highly customized to fit specific end-user requirements and often include more than 350
individual circuits and weigh more than 30 pounds. We provide our wire harnesses for a wide variety of
commercial vehicles, military vehicles, specialty trucks and other specialty applications, including heavy-
industrial equipment and medical equipment.
Panel Assemblies. We assemble large, integrated components such as panel assemblies and cabinets
for commercial vehicle OEMs, other heavy equipment manufacturers and medical equipment manufactur-
ers. The panels and cabinets we assemble are installed in key locations on a vehicle or unit of equipment,
are integrated with our wire harness assemblies and provide user control over certain operational functions
and features.
Manufacturing
A description of the manufacturing processes we utilize for each of our principal product categories is
set forth below:
‚ Seats and Seating Systems. Our seating operations utilize a variety of manufacturing techniques
whereby fabric is affixed to an underlying seat frame. We also manufacture and assemble the seat
frame, which involves complex welding. Generally, we utilize outside suppliers to produce the
individual components used to assemble the seat frame.
‚ Trim Systems and Components. Our interior systems process capabilities include injection
molding, low-pressure injection molding, urethane molding and foaming processes, compression
molding and vacuum and twin shell vacuum forming as well as various trimming and finishing
methods.
13
‚ Mirrors, Wipers and Controls. We manufacture our mirrors, wipers and controls utilizing a variety
of manufacturing processes and techniques. Our mirrors, wipers and controls are primarily hand
assembled, tested and packaged.
‚ Cab Structures, Sleeper Boxes, Body Panels and Structural Components. We utilize a wide range
of manufacturing processes to produce the majority of the steel and aluminum stampings used in
our cab structures, sleeper boxes, body panels and structural components and a variety of both
robotic and manual welding techniques in the assembly of these products. In addition, both our
Norwalk, Ohio and Kings Mountain, North Carolina facilities have large capacity, fully automated
E-coat paint priming systems allowing us to provide our customers with a paint-ready cab product.
Due to their high cost, full body E-coat systems, such as ours, are rarely found outside of the
manufacturing operations of the major OEMs. The four major large press lines at our Shadyside,
Ohio facility provide us with the in-house manufacturing flexibility for both aluminum and steel
stampings delivered just in time to our cab assembly plants. This plant also provides us with low
volume forming and processing techniques including laser trim operations that minimize investment
and time to manufacture for low volume applications.
‚ Electronic Wire Harnesses and Panel Assemblies. We utilize several manufacturing techniques to
produce the majority of our electronic wire harnesses and panel assemblies. Our processes, both
manual and automated, are designed to produce complex, low- to medium-volume wire harnesses
and panel assemblies in short time frames. Our wire harnesses and panel assemblies are both
electronically and hand tested.
We have a broad array of processes to offer our commercial vehicle OEM customers to enable us to
meet their styling and cost requirements. The interior of the vehicle cab is the most significant and
appealing aspect to the driver of the vehicle, and consequently each commercial vehicle OEM has unique
requirements as to feel, appearance and features. Within the last several years, we have added new
technologies, including injection molding, compression molding and vacuum forming capabilities, to our
facilities through research and development, licenses of patented technology and equipment purchases.
The end markets for our products are highly specialized and our customers frequently request
modified products in low volumes within an expedited delivery timeframe. As a result, we primarily utilize
flexible manufacturing cells at the vast majority of our production facilities. Manufacturing cells are
clusters of individual manufacturing operations and work stations grouped in a circular configuration, with
the operators placed centrally within the configuration. This provides flexibility by allowing efficient
changes to the number of operations each operator performs. When compared to the more traditional, less
flexible assembly line process, cell manufacturing allows us to maintain our product output consistent with
our OEM customers' requirements and reduce the level of inventory. While the Norwalk and Shadyside,
Ohio and Kings Mountain, North Carolina manufacturing facilities we acquired as part of the Mayflower
acquisition do utilize an assembly line model, we believe we can adapt these operations to accommodate
product changes and limit future capital expenditures.
When an end-user buys a commercial vehicle, the end-user will specify the seat and other features for
that vehicle. Because each of our seating systems is unique, our manufacturing facilities have significant
complexity which we manage by building in sequence. We build our seating systems as orders are
received, and systems are delivered to the customer's rack in the sequence that the vehicles come down
the assembly line. We have systems in place that allow us to provide complete customized interior kits in
boxes that are delivered in sequence, and we intend to expand upon these systems such that we will be
able to provide, in sequence, fully integrated modular systems combining the cab body and interior and
seating systems.
In most instances, we keep track of our build sequence by vehicle identification number, and
components are identified by bar code. Sequencing reduces our cost of production because it eliminates
warehousing costs and reduces waste and obsolescence, offsetting any increased labor costs. Several of our
manufacturing facilities are strategically located near our customers' assembly plants, which facilitates this
process and minimizes shipping costs.
14
We employ just-in-time manufacturing and system sourcing in our operations to meet customer
requirements for faster deliveries and to minimize our need to carry significant inventory levels. We utilize
visual material systems to manage inventory levels, and in certain locations we have inventory delivered as
often as two times per day from a nearby facility based on the previous day's order. This eliminates the
need to carry excess inventory at our facilities.
Typically, in a strong economy, new vehicle production increases and greater funding is available to be
spent on enhancements to the truck interior. As demand goes up, the mix of our products shifts towards
more expensive systems, such as sleeper units, with enhanced features and higher quality materials. The
shift from low-end units to high-end units amplifies the positive effect a strong economy has on our
business. Conversely, when economic conditions and indicators decline and customers shift away from
ordering high-end units with enhanced features, our business is adversely affected from both lower volume
and lower pricing. We strive to manage down cycles by running our facilities at capacity while maintaining
the capability and flexibility to expand. We work with our employees and rely on their involvement to help
eliminate problems and re-align our capacity. During a ramp-up of production, we have plans in place to
manage increased demand and achieve on-time delivery. Our strategies include alternating between human
and machine production and allowing existing employees to try higher skilled positions while hiring new
employees for lower skilled positions.
As a means to enhance our operations, we continue to implement TQPS throughout our operations.
TQPS is our customized version of Lean Manufacturing and consists of a 32 hour interactive class that is
taught exclusively by members of our management team. A significant portion of the labor efficiencies we
gained over the past few years is due to the program. TQPS is an analytical process in which we analyze
each of our manufacturing cells and identify the most efficient process to improve efficiency and quality.
The goal is to achieve total cost management and continuous improvement. Some examples of TQPS-
related improvements are: reduced labor to move parts around the facility, clear walking paths in and
around manufacturing cells and increased safety. An ongoing goal is to reduce the time employees spend
waiting for materials within a facility. We intend to implement TQPS improvements at each of the
manufacturing facilities we integrated into our operations as part of the Mayflower, Monona and Cabarrus
acquisitions and in an effort to increase operational efficiency, improve product quality and provide
additional capacity at these locations.
Raw Materials and Suppliers
A description of the principal raw materials we utilize for each of our principal product categories is
set forth below:
‚ Seats and Seating Systems. The principal raw materials used in our seat systems include steel,
aluminum and foam chemicals, and are generally readily available and obtained from multiple
suppliers under various supply agreements. Leather, vinyl, fabric and certain components are also
purchased from multiple suppliers under supply agreements. Typically, our supply agreements are
for a term of at least one year and are terminable by us for breach or convenience. Some purchased
components are obtained from our customers.
‚ Trim Systems and Components. The principal raw materials used in our interior systems processes
are resin and chemical products, foam, vinyl and fabric which are formed and assembled into end
products. These raw materials are obtained from multiple suppliers, typically under supply
agreements which are for a term of at least one year and are terminable by us for breach or
convenience.
‚ Mirrors, Wipers and Controls. The principal raw materials used to manufacture our mirrors,
wipers and controls are steel, stainless steel, aluminum, glass and rubber, which are generally
readily available and obtained from multiple suppliers.
‚ Cab Structures, Sleeper Boxes, Body Panels and Structural Components. The principal raw
materials used in our cab structures, sleeper boxes, body panels and structural components are steel
15
and aluminum, the majority of which we purchase in sheets and stamp at our Shadyside, Ohio
facility. These raw materials are generally readily available and obtained from several suppliers,
typically under purchase orders that are cancelable by us without cause, pursuant to one year supply
agreements.
‚ Electronic Wire Harnesses and Panel Assemblies. The principal raw materials used to manufacture
our electronic wire harnesses are wire, connectors, terminals, switches, relays and braid fabric.
These raw materials are obtained from multiple suppliers and are generally readily available. Many
of our customers specify particular wire and connectors and, as such, negotiate pricing of these
materials directly with our suppliers. Our panel assembly materials are generally procured directly
from the customer.
Our supply agreements generally provide for fixed pricing but do not require us to purchase any
specified quantities. We have not experienced any significant shortages of raw materials and normally do
not carry inventories of raw materials or finished products in excess of those reasonably required to meet
production and shipping schedules as well as service requirements. We purchase materials such as steel,
foam, vinyl and cloth in large quantities on a global basis through our central corporate office, and other
materials for which we require lower volumes are purchased directly by our facilities. We purchase steel at
market prices, which during the last year, have increased to historical highs as a result of a relatively low
level of supply and a relatively high level of demand. As a result, we are currently being assessed
surcharges and price increases on certain of our purchases of steel and petroleum related products. We
continue to work with our customers and suppliers to minimize the impact of such surcharges. We intend
to exploit the increased purchasing power we have gained through the Mayflower acquisition to obtain
purchase price reductions on certain raw materials, such as steel and aluminum. We do not believe we are
dependent on a single supplier or limited group of suppliers for our raw materials.
Customers and Marketing
We sell our products principally to the commercial vehicle OEM truck market. Approximately 62% of
our 2005 revenues and approximately 56% of our 2004 revenues were derived from sales to commercial
vehicle truck OEMs, with the remainder of our revenues being generated principally from sales to the
construction and aftermarket.
We supply our products primarily to the heavy truck OEM market, construction market, the
aftermarket and OEM service segment and other commercial vehicle and specialty markets. The following
is a summary of our revenues by end-user market for the three years ended December 31:
Heavy Truck OEMÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Construction ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Aftermarket and OEM Service ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Bus ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Military ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
AgricultureÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005
2004
2003
62% 56% 54%
18
15
15
9
2
2
2
2
1
1
6
9
18
14
3
2
1
8
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
100% 100% 100%
The change in revenues by end market in 2005 is primarily related to the acquisitions of Mayflower,
Monona and Cabarrus as well as increased demand in the North American (Class 8) heavy truck market.
Our principal customers in North America include International, PACCAR, Freightliner, Volvo/
Mack and Caterpillar. We believe we are an important long-term supplier to all leading truck
manufacturers in North America because of our comprehensive product offerings, leading brand names
and product innovation. In our European and Asian operations, our principal customers in the commercial
16
vehicle market include Caterpillar, Volvo, Deere & Co., Komatsu, Hitachi and CNH Global (Case New
Holland). We also sell our trim products to OEMs in the marine and recreational vehicle industries and
seating products to office product manufacturers principally in Europe.
The following is a summary of our significant revenues by OEM customer for the three years ended
December 31:
International ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PACCAR ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Freightliner ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Volvo/Mack ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Caterpillar ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
KomatsuÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deere & Co. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Oshkosh Truck ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005
2004
2003
19%
17
16
14
7
2
2
2
21
9%
28
17
6
5
3
1
Ì
31
8%
26
18
4
6
3
1
Ì
34
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
100% 100% 100%
Except as set forth in the above table, no other customer accounted for more than 10% of our
revenues for the three years ended December 31, 2005. The change in revenues by significant OEM
customers in 2005 is primarily related to the acquisitions of Mayflower, Monona and Cabarrus.
Our European, China and Australian operations collectively contributed approximately 16%, 28% and
30% of our revenues for the years ended December 31, 2005, 2004 and 2003, respectively. The change in
revenue by geographic location in 2005 is primarily related to the acquisitions of Mayflower, Monona and
Cabarrus.
Our OEM customers generally source business to us pursuant to written contracts, purchase orders or
other firm commitments in terms of price, quality, technology and delivery. Awarded business generally
covers the supply of all or a portion of a customer's production and service requirements for a particular
product program rather than the supply of a specific quantity of products. In general, these contracts,
purchase orders and commitments provide that the customer can terminate the contract, purchase order or
commitment if we do not meet specified quality, delivery and cost requirements. Such contracts, purchase
orders or other firm commitments generally extend for the entire life of a platform, which is typically five
to seven years. Although these contracts, purchase orders or other commitments may be terminated at any
time by our customers (but not by us), such terminations have been minimal and have not had a material
impact on our results of operations. In order to reduce our reliance on any one vehicle model, we produce
products for a broad cross-section of both new and more established models.
Our contracts with our major OEM customers generally provide for an annual productivity cost
reduction. These reductions are calculated on an annual basis as a percentage of the previous year's
purchases by each customer. The reduction is achieved through engineering changes, material cost
reductions, logistics savings, reductions in packaging cost and labor efficiencies. Historically, most of these
cost reductions have been offset by both internal reductions and through the assistance of our supply base,
although no assurances can be given that we will be able to achieve such reductions in the future. If the
annual reduction targets are not achieved, the difference is recovered through price reductions. Our cost
structure is comprised of a high percentage of variable costs that provides us with additional flexibility
during economic cycles.
Our sales and marketing efforts with respect to our OEM sales are designed to create overall
awareness of our engineering design and manufacturing capabilities and to enable us to be selected to
supply products for new and redesigned models by our OEM customers. Our sales and marketing staff
works closely with our design and engineering personnel to prepare the materials used for bidding on new
17
business as well as to provide a consistent interface between us and our key customers. We currently have
sales and marketing personnel located in every major region in which we operate. From time to time, we
also participate in industry trade shows and advertise in industry publications. One of our ongoing
initiatives is to negotiate and enter into long term supply agreements with our existing customers that allow
us to leverage all of our business and provide a complete cab system to our commercial vehicle OEM
customers.
Our principal customers for our aftermarket sales include OEM dealers and independent wholesale
distributors. Our sales and marketing efforts for our aftermarket sales are focused on support of these two
distribution chains, as well as direct contact with all major fleets.
Research and Development, Design and Engineering
Our objective is to be a leader in offering superior quality and technologically advanced products to
our customers at competitive prices. We engage in ongoing engineering and research and development
activities to improve the reliability, performance and cost-effectiveness of our existing products and to
design and develop new products for existing and new applications.
We work with our customers' engineering and development teams at the beginning of the design
process for new components and assemblies, or the redesign process for existing components and
assemblies, in order to maximize production efficiency and quality. These processes may take place from
one to three years prior to the commencement of production. On average, the development time for a new
component takes between 12 and 24 months during the design phase, while the re-engineering of an
existing part may take between one and six months. Early design involvement can result in a product that
meets or exceeds the customer's design and performance requirements and is more efficient to
manufacture. In addition, our extensive involvement enhances our position for bidding on such business.
We work aggressively to ensure that our quality and delivery metrics distinguish us from our competitors.
We focus on bringing our customers integrated products that have superior content, comfort and
safety. Consistent with our value-added engineering focus, we place a large emphasis on the relationships
with the engineering departments of our customers. These relationships not only help us to identify new
business opportunities but also enable us to compete based on the quality of our products and services,
rather than exclusively on price. In addition, we have also provided engineering solutions for certain
specialty vehicles including, most recently, the body development for the prestigious Ford GT sports car.
We are currently involved in the design stage of several products for our customers and expect to
begin production of these products in the years 2006 to 2010.
Intellectual Property
We consider ourselves to be a leader in both product and process technology, and, therefore,
protection of intellectual property is important to our business. Our principal intellectual property consists
of product and process technology, a limited number of United States and foreign patents, trade secrets,
trademarks and copyrights. Although our intellectual property is important to our business operations and
in the aggregate constitutes a valuable asset, we do not believe that any single patent, trade secret,
trademark or copyright, or group of patents, trade secrets, trademarks or copyrights is critical to the
success of our business. Our policy is to seek statutory protection for all significant intellectual property
embodied in patents, trademarks and copyrights. From time to time, we grant licenses under our patents
and technology and receive licenses under patents and technology of others.
We market our products under well-known brand names that include KAB Seating, National Seating,
Trim Systems and Sprague Controls, Sprague Devices», PrutsmanTM, Moto Mirror», RoadWatch» and
Mayflower». We believe that our brands are valuable and are increasing in value with the growth of our
business, but that our business is not dependent on such brands. We own U.S. federal registrations for
several of our brands.
18
Competition
Within each of our principal product categories, we compete with a variety of independent suppliers
and with OEMs' in-house operations, primarily on the basis of price, breadth of product offerings, product
quality, technical expertise, development capability, product delivery and product service. We believe we
are the only supplier in the North American commercial vehicle market that can offer complete cab
systems in sequence integrating interior systems (including seats, interior trim and flooring systems) and
wire harnesses with the cab structure. A summary of our estimated market position and primary
independent competitors is set forth below:
‚ Seats and Seating Systems. We believe that we have the number one market position in North
America with respect to our seating operations. We also believe that we have the number one
market position in supplying seats and seating systems to commercial vehicles used in the
construction industry on a worldwide basis. Our primary independent competitors in the North
American commercial vehicle market include Sears Manufacturing Company, Accuride Corpora-
tion, Grammer AG and Seats, Inc., and our primary competitors in the European commercial
vehicle market include Grammar and Isringhausen.
‚ Trim Systems and Components. We believe that we have the number one market position in
North America with respect to our interior trim products. We face competition from a number of
different competitors with respect to each of our trim system products and components. Overall, our
primary independent competitors are ConMet, Fabriform, TPI, Findlay, Superior, Trim Masters,
Inc., Blachford Ltd., Gage Industries, Inc. and Mitras.
‚ Mirrors, Wipers and Controls. We believe that we hold the number two market position in North
America with respect to our windshield wiper systems and mirrors. We face competition from a
number of different competitors with respect to each of our principal products in this category. Our
principal competitors for mirrors are Hadley, Lang-Mekra and Trucklite, and our principal
competitors for windshield wiper systems are Johnson Electric, Trico and Valeo.
‚ Cab Structures, Sleeper Boxes, Body Panels and Structural Components. We believe we are a
leading non-captive supplier in North America with respect to our cab structural components, cab
structures, sleeper boxes and body panels. Our principal competitors are Magna, Ogihara
Corporation, Spartanburg Stamping, Union Stamping, Able Body and Defiance Metal Products.
‚ Electronic Wire Harnesses and Panel Assemblies. We believe that we are a leading producer of
low- to medium-volume complex, electronic wire harnesses and related assemblies used in the
global heavy equipment, commercial vehicle, heavy-truck and specialty and military vehicle
markets. Our principal competitors for electronic wire harnesses include large diversified suppliers
such as AFL, Delphi, Leoni, Stoneridge, Yazaki and smaller independent companies such as Fargo
Assembly and Unlimited Services.
Seasonality
OEMs' production requirements are generally higher in the first three quarters of the year as
compared to the fourth quarter. We believe this seasonality is due, in part, to demand for new vehicles
softening during the holiday season and as a result of the winter months in North America and Europe.
Also, the major North American OEM manufacturers generally close their production facilities at various
times during the holiday season in the last two months of the year.
Employees
As of December 31, 2005 we had approximately 5,339 permanent employees, of which approximately
13.1% were salaried and the remainder were hourly. Approximately 42.4% of the hourly employees in our
North American operations were unionized, and approximately 44.0% of our hourly employees at our
United Kingdom operations were represented by shop steward committees. On an as needed basis during
peak periods, contract and temporary employees are utilized.
19
As a result of the Mayflower acquisition, our total number of employees at December 31, 2005
increased by approximately 942, of which approximately 14.8% were salaried and the remainder were
hourly. We have unionized work forces at two of our newly acquired facilities located in Norwalk, Ohio
and Shadyside, Ohio. Although we have no operating history with these work forces or prior relationship
with the unions which represent them, Mayflower has not experienced any material strikes, lockouts or
work stoppages at these facilities in the last three years.
As the result of the Monona acquisition, our number of employees at December 31, 2005 increased
by approximately 1,900, of which approximately 3.5% were salaried and the remainder were hourly. Of the
1,900 employees, 1,473 of those are located in a Mexico facility of which 1,214 are unionized under the
Confederaci πon de Trabajadores de Mexico union in Mexico. Although we have no operating history with
this work force or prior relationship with the union that represents them, Monona has not experienced any
material strikes, lockouts or work stoppages at these facilities in the last three years. The remainder of
employees added with the Monona acquisition are not unionized.
As the result of the Cabarrus acquisition, our total number of employees at December 31, 2005
increased by approximately 127, of which approximately 15% were salaried and the remainder were hourly.
None of these employees added with the Cabarrus acquisition are unionized.
Backlog
We do not generally obtain long-term, firm purchase orders from our customers. Rather, our
customers typically place annual blanket purchase orders, but these orders do not obligate them to
purchase any specific or minimum amount of products from us until a release is issued by the customer
under the blanket purchase order. Releases are typically placed within 30 to 90 days of required delivery
and may be canceled at any time, in which case the customer would be liable for work in process and
finished goods. We do not believe that our backlog of expected product sales covered by firm purchase
orders is a meaningful indicator of future sales since orders may be rescheduled or canceled.
Available Information
We maintain a website on the Internet at www.cvgrp.com. We make available free of charge through
our website, by way of a hyperlink to a third-party Securities Exchange Commission (SEC) filing website,
our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports electronically filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act of 1934. Such information is available as soon as such reports are filed with the SEC.
Additionally, our Code of Ethics may be accessed within the Investor Relations section of our website.
Information found on our website is not part of this Annual Report on Form 10-K or any other report filed
with the SEC.
Item 1A. Risk Factors
You should carefully consider the risks described below before making an investment decision. The
risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial may also impair our business operations.
If any of these certain risks and uncertainties were to actually occur, our business, financial condition
or results of operations could be materially adversely affected. In such case, the trading price of our
common stock could decline and you may lose all or part of your investment. These risks and uncertainties
include, but are not limited to, the following:
‚ Volatility and cyclicality in the commercial vehicle market could adversely affect us.
Our profitability depends in part on the varying conditions in the commercial vehicle market. This
market is subject to considerable volatility as it moves in response to cycles in the overall business
environment and is particularly sensitive to the industrial sector, which generates a significant portion of
the freight tonnage hauled. Sales of commercial vehicles have historically been cyclical, with demand
20
affected by such economic factors as industrial production, construction levels, demand for consumer
durable goods, interest rates and fuel costs. For example, North American commercial vehicle sales and
production experienced a downturn from 2000 to 2003 due to a confluence of events that included a weak
economy, an oversupply of new and used vehicle inventory and lower spending on commercial vehicles and
equipment. This downturn had a material adverse effect on our business during the same period. We
cannot provide any assurance as to the length or ultimate level of the current recovery in the commercial
vehicle market.
‚ Our profitability could be adversely affected if the actual production volumes for our customers'
vehicles is significantly lower than expected.
We incur costs and make capital expenditures based upon estimates of production volumes for our
customers' vehicles. While we attempt to establish a price of our components and systems that will
compensate for variances in production volumes, if the actual production of these vehicles is significantly
less than anticipated, our gross margin on these products would be adversely affected. We enter into
agreements with our customers at the beginning of a given platform's life to supply products for that
platform. Once we enter into such agreements, fulfillment of our purchasing requirements is our obligation
for the entire production life of the platform, with terms ranging from five to seven years, and we have no
provisions to terminate such contracts. We may become committed to supply products to our customers at
selling prices that are not sufficient to cover the direct cost to produce such products. We cannot predict
our customers' demands for our products either in the aggregate or for particular reporting periods. If
customers representing a significant amount of our revenues were to purchase materially lower volumes
than expected, it would have a material adverse effect on our business, financial condition and results of
operations.
‚ Our major OEM customers may exert significant influence over us.
The commercial vehicle component supply industry has traditionally been highly fragmented and
serves a limited number of large OEMs. As a result, OEMs have historically had a significant amount of
leverage over their outside suppliers. Our contracts with major OEM customers generally provide for an
annual productivity cost reduction. Historically, cost reductions through product design changes, increased
productivity and similar programs with our suppliers have generally offset these customer-imposed
productivity cost reduction requirements. However, if we are unable to generate sufficient production cost
savings in the future to offset price reductions, our gross margin and profitability would be adversely
affected. In addition, changes in OEMs' purchasing policies or payment practices could have an adverse
effect on our business.
‚ We may be unable to successfully implement our business strategy, and as a result, our businesses
and financial position and results of operations could be materially and adversely affected.
Our ability to achieve our business and financial objectives is subject to a variety of factors, many of
which are beyond our control. For example, we may not be successful in implementing our strategy if
unforeseen factors emerge that diminish the expected growth in the heavy truck market, or we experience
increased pressure on our margins. In addition, we may not succeed in integrating strategic acquisitions
and our pursuit of additional strategic acquisitions may lead to resource constraints which could have a
negative impact on our ability to meet customers' demands, thereby adversely affecting our relationships
with those customers. As a result of such business or competitive factors, we may decide to alter or
discontinue aspects of our business strategy and may adopt alternative or additional strategies. Any failure
to successfully implement our business strategy could adversely affect our business, results of operations
and growth potential.
Developing product innovations has been and will continue to be a significant part of our business
strategy. We believe that it is important that we continue to meet our customers' demands for product
innovation, improvement and enhancement, including the continued development of new-generation
products, design improvements and innovations that improve the quality and efficiency of our products.
However, such development will require us to continue to invest in research and development and sales
21
and marketing. In the future, we may not have sufficient resources to make such necessary investments, or
we may be unable to make the technological advances necessary to carry out product innovations sufficient
to meet our customers' demands. We are also subject to the risks generally associated with product
development, including lack of market acceptance, delays in product development and failure of products
to operate properly. We may, as a result of these factors, be unable to meaningfully focus on product
innovation as a strategy and may therefore be unable to meet our customers' demands for product
innovation.
‚ If we are unable to obtain raw materials at favorable prices, it could adversely impact our results
of operations and financial condition.
Numerous raw materials are used in the manufacture of our products. Steel, aluminum, resin, foam
and fabrics account for the most significant components of our raw material costs. Although we currently
maintain alternative sources for raw materials, our business is subject to the risk of price increases and
periodic delays in delivery. For example, we are currently being assessed surcharges as well as price
increases on certain purchases of steel and other raw materials. If we are unable to purchase certain raw
materials required for our operations for a significant period of time, our operations would be disrupted,
and our results of operations would be adversely affected. In addition, if we are unable to pass on the
increased costs of raw materials to our customers, this could adversely affect our results of operations and
financial condition. Our operating results for the years ended December 31, 2005 and 2004 were adversely
affected by the costs on certain of our purchases of steel and petroleum costs. The Mayflower acquisition
has significantly increased our demand for both steel and aluminum elevating our risk with respect to
increases in price or delays in delivery of these commodities.
‚ We may be unable to complete additional strategic acquisitions or we may encounter unforeseen
difficulties in integrating acquisitions.
The commercial vehicle component supply industry is beginning to undergo consolidation as OEMs
seek to reduce costs and their supplier base. We intend to actively pursue additional acquisition targets
that will allow us to continue to expand into new geographic markets, add new customers, provide new
product, manufacturing and service capabilities and increase penetration with existing customers. However,
we expect to face competition for acquisition candidates, which may limit the number of our acquisition
opportunities and may lead to higher acquisition prices. Moreover, acquisitions of businesses may require
additional debt financing, resulting in additional leverage. The covenants of our senior credit facility may
further limit our ability to complete acquisitions. There can be no assurance that we will find attractive
acquisition candidates or successfully integrate acquired businesses into our existing business. If we fail to
complete additional acquisitions, we may have difficulty competing with more thoroughly integrated
competitors and our results of operations could be adversely affected. To the extent that we do complete
additional acquisitions, if the expected synergies from such acquisitions do not materialize or we fail to
successfully integrate such new businesses into our existing businesses, our results of operations could also
be adversely affected.
‚ We may be adversely impacted by labor strikes, work stoppages and other matters.
The hourly workforces at our Norwalk, Ohio and Shadyside, Ohio facilities and Mexico operations are
unionized. The 1,850 unionized employees at these facilities represented approximately 34.6% of our total
employees as of December 31, 2005. The Norwalk, Ohio and Shadyside, Ohio facilities were acquired by
us in connection with the Mayflower acquisition and the Mexican operations were acquired by us in
connection with the Monona acquisition. We have no operating history with these work forces or prior
relationship with the unions which represent them. While neither Mayflower nor Monona has experienced
any material strikes, lockouts or work stoppages in the last three years, there can be no assurance that our
relationships with these workforces and their unions will be as amicable or that we will not encounter
strikes, further unionization efforts or other types of conflicts with labor unions or our employees. We have
experienced limited unionization efforts at certain of our other North American facilities from time to
time. In addition, a significant portion of our employees at our United Kingdom operations are represented
by a shop steward committee, which may seek to limit our flexibility in our relationship with these
22
employees. We cannot assure you that we will not encounter future unionization efforts or other types of
conflicts with labor unions or our employees.
Many of our OEM customers and their suppliers also have unionized work forces. Work stoppages or
slow-downs experienced by OEMs or their other suppliers could result in slow-downs or closures of
assembly plants where our products are included in assembled commercial vehicles. In the event that one
or more of our customers or their suppliers experience a material work stoppage, such work stoppage could
have a material adverse effect on our business.
‚ Our businesses are subject to statutory environmental and safety regulations in multiple
jurisdictions, and the impact of any changes in regulation and/or the violation of any applicable
laws and regulations by our businesses could result in a material and adverse affect on our
financial condition and results of operations.
We are subject to foreign, federal, state, and local laws and regulations governing the protection of the
environment and occupational health and safety, including laws regulating air emissions, wastewater
discharges, the generation, storage, handling, use and transportation of hazardous materials; the emission
and discharge of hazardous materials into the soil, ground or air; and the health and safety of our
colleagues. We are also required to obtain permits from governmental authorities for certain of our
operations. We cannot assure you that we are, or have been, in complete compliance with such
environment and safety laws, regulations and permits. If we violate or fail to comply with these laws,
regulations or permits, we could be fined or otherwise sanctioned by regulators. In some instances, such a
fine or sanction could have a material adverse effect on us. The environmental laws to which we are
subject have become more stringent over time, and we could incur material expenses in the future to
comply with environmental laws. We are also subject to laws imposing liability for the cleanup of
contaminated property. Under these laws, we could be held liable for costs and damages relating to
contamination at our past or present facilities and at third party sites to which we sent waste containing
hazardous substances. The amount of such liability could be material. We cannot completely eliminate the
risk of contamination or injury resulting from exposure to hazardous materials, and we could incur material
liability as a result of any such contamination or injury.
Several of our facilities are either certified as, or are in the process of being certified as ISO 14000
(the international environmental management standard) compliant or are developing similar environmental
management systems. Although we have made, and will continue to make, capital expenditures to
implement such environmental programs and comply with environmental requirements, we do not expect
to make material capital expenditures for environmental controls in 2006 or 2007. The environmental laws
to which we are subject have become more stringent over time, however, and we could incur material
costs or expenses in the future to comply with environmental laws. For example, our Northampton, U.K.
facility will likely be required to obtain an Integrated Pollution Prevention Control (""IPPC'') permit prior
to 2007. That permit will require that we use best available techniques at the facility to minimize
pollution. Although the requirements of the permit are not yet known, because the facility is already
operating under an integrated pollution control permit, we do not expect to have to make material capital
expenditures to obtain or comply with the IPPC permit.
Certain of our operations generate hazardous substances and wastes. If a release of such substances or
wastes occurs at or from our properties, or at or from any offsite disposal location to which substances or
wastes from our current or former operations were taken, or if contamination is discovered at any of our
current or former properties, we may be held liable for the costs of cleanup and for any other response by
governmental authorities or private parties, together with any associated fines, penalties or damages. In
most jurisdictions, this liability would arise whether or not we had complied with environmental laws
governing the handling of hazardous substances or wastes.
In connection with the Mayflower, Monona and Cabarrus acquisitions, we obtained indemnities for
certain environmental liabilities relating to the acquired and leased facilities, subject to certain limitations.
However, we cannot assure you that the sellers will be able to satisfy all of their obligations under these
indemnities or that these indemnities will cover all environmental liabilities that might arise.
23
‚ We may be adversely affected by the impact of government regulations on our OEM customers.
Although the products we manufacture and supply to commercial vehicle OEMs are not subject to
significant government regulation, our business is indirectly impacted by the extensive governmental
regulation applicable to commercial vehicle OEMs. These regulations primarily relate to emissions and
noise standards imposed by the Environmental Protection Agency, state regulatory agencies, such as the
California Air Resources Board (""CARB''), and other regulatory agencies around the world. Commercial
vehicle OEMs are also subject to the National Traffic and Motor Vehicle Safety Act and Federal Motor
Vehicle Safety Standards promulgated by the National Highway Traffic Safety Administration. Changes in
emission standards and other proposed governmental regulations could impact the demand for commercial
vehicles and, as a result, indirectly impact our operations. For example, new emission standards governing
Heavy-duty (Class 8) diesel engines that went into effect in the United States on October 1, 2002 resulted
in significant purchases of new trucks by fleet operators prior to such date and reduced short term demand
for such trucks in periods immediately following such date. New emission standards for truck engines used
in Class 5 to 8 trucks imposed by the EPA and CARB are scheduled to come into effect during 2007. To
the extent that current or future governmental regulation has a negative impact on the demand for
commercial vehicles, our business, financial condition or results of operations could be adversely affected.
‚ Our operating results, revenues and expenses may fluctuate significantly from quarter-to-quarter
or year-to-year, which could have an adverse effect on the market price of our stock.
For a number of reasons, including but not limited to, those described below, our operating results,
revenues and expenses have in the past varied and may in the future vary significantly from quarter-to-
quarter or year-to-year. These fluctuations could have an adverse effect on the market price of our
common stock.
Fluctuations in Quarterly or Annual Operating Results. Our quarterly operating results may fluctuate
as a result of:
‚ the size, timing, volume and execution of significant orders and shipments;
‚ changes in the terms of our sales contracts;
‚ the timing of new product announcements.
‚ changes in our pricing policies or those of our competitors;
‚ market acceptance of new and enhanced products;
‚ the length of our sales cycles;
‚ changes in our operating expenses;
‚ personnel changes;
‚ new business acquisitions;
‚ changes in foreign currency exchange rates; and
‚ seasonal factors.
Limited Ability to Adjust Expenses. We base our operating expense budgets primarily on expected
revenue trends. Many of our expenses are relatively fixed and as such we may be unable to adjust
expenses quickly enough to offset any unexpected revenue shortfall. Accordingly, any shortfall in revenue
may cause significant variation in operating results in any quarter.
Based on the above factors, we believe that quarter-to-quarter or year-to-year comparisons of our
operating results may not be a good indication of our future performance. It is possible that in one or more
future quarters or years, our operating results may be below the expectations of public market analysts and
investors. In that event, the trading price of our common stock may be adversely affected.
24
‚ Our customer base is concentrated and the loss of business from a major customer or the
discontinuation of particular commercial vehicle platforms could reduce our revenues.
Sales to International, PACCAR, Freightliner and Volvo/Mack accounted for approximately 19%,
17%, 16% and 14%, respectively, of our revenue for 2005, and our ten largest customers accounted for
approximately 81% of our revenue in 2005. The loss of any of our largest customers or the loss of
significant business from any of these customers could have a material adverse effect on our business,
financial condition and results of operations. Even though we may be selected as the supplier of a product
by an OEM for a particular vehicle, our OEM customers issue blanket purchase orders which generally
provide for the supply of that customer's annual requirements for that vehicle, rather than for a specific
number of our products. If the OEM's requirements are less than estimated, the number of products we
sell to that OEM will be accordingly reduced. In addition, the OEM may terminate its purchase orders
with us at any time.
‚ Currency exchange rate fluctuations could have an adverse effect on our revenues and results of
operations.
We have operations in Europe, Australia, Mexico and China, and sales derived from these operations
were approximately 16% of our revenues in 2005. As a result, we generate a significant portion of our sales
and incur a significant portion of our expenses in currencies other than the U.S. dollar. To the extent that
we are unable to match revenues received in foreign currencies with costs paid in the same currency,
exchange rate fluctuations in any such currency could have an adverse effect on our financial results.
During times of a strengthening U.S. dollar, our reported revenues and earnings from our international
operations will be reduced because the applicable local currencies will be translated into fewer
U.S. dollars. The converse is also true and the strengthening of the European currencies in relation to the
U.S. dollar can have a positive impact on our foreign revenues and earnings.
‚ We are subject to certain risks associated with our foreign operations.
We have operations in Europe, Australia, Mexico and China. Our international operations accounted
for approximately 16%, 28% and 30% of our total revenues for the years ended December 31, 2005, 2004
and 2003, respectively. There are certain risks inherent in our international business activities including,
but not limited to:
‚ the difficulty of enforcing agreements and collecting receivables through certain foreign legal
systems;
‚ foreign customers, who may have longer payment cycles than customers in the United States;
‚ tax rates in certain foreign countries, which may exceed those in the United States and foreign
earnings may be subject to withholding requirements or the imposition of tariffs, exchange controls
or other restrictions, including restrictions on repatriation;
‚ intellectual property protection difficulties;
‚ general economic and political conditions in countries where we operate, which may have an
adverse effect on our operations in those countries;
‚ the difficulties associated with managing a large organization spread throughout various
countries; and
‚ complications in complying with a variety of foreign laws and regulations, which may conflict with
United States law.
As we continue to expand our business globally, our success will be dependent, in part, on our ability
to anticipate and effectively manage these and other risks associated with foreign operations. We cannot
assure you that these and other factors will not have a material adverse effect on our international
operations or our business, financial condition or results of operations as a whole.
25
‚ Our inability to compete effectively in the highly competitive commercial vehicle component supply
industry could result in lower prices for our products, reduced gross margins, loss of market share,
which could have an adverse effect on our revenues and operations results.
The commercial vehicle component supply industry is highly competitive. Our products primarily
compete on the basis of price, breadth of product offerings, product quality, technical expertise and
development capability, product delivery and product service. Increased competition may lead to price
reductions resulting in reduced gross margins and loss of market share.
Current and future competitors may make strategic acquisitions or establish cooperative relationships
among themselves or with others, foresee the course of market development more accurately than we do,
develop products that are superior to our products, produce similar products at lower cost than we can or
adapt more quickly to new technologies, industry or customer requirements. By doing so, they may
enhance their ability to meet the needs of our customers or potential future customers. These
developments could limit our ability to obtain revenues from new customers and to maintain existing
revenues from our customer base. We may not be able to compete successfully against current and future
competitors and the failure to do so may have a material adverse effect on our business, operating results
and financial condition.
‚ Our products may be rendered less attractive by changes in competitive technologies.
Changes in competitive technologies may render certain of our products less attractive. Our ability to
anticipate changes in technology and to successfully develop and introduce new and enhanced products on
a timely basis will be a significant factor in our ability to remain competitive. There can be no assurance
that we will be able to achieve the technological advances that may be necessary for us to remain
competitive. We are also subject to the risks generally associated with new product introductions and
applications, including lack of market acceptance, delays in product development and failure to operate
properly.
‚ If we are unable to recruit or retain skilled personnel, or if we lose the services of any of our key
management personnel, our business, operating results and financial condition could be materially
adversely affected.
Our future success depends on our continuing ability to attract, train, assimilate and retain highly
skilled personnel. Competition for these employees is intense. We may not be able to retain our current
key employees or attract, train, assimilate or retain other highly skilled personnel in the future. Our future
success also depends in large part on the continued service of key management personnel, particularly our
key executive officers. If we lose the services of one or more of these individuals or other key personnel, or
if we are unable to attract, train, assimilate and retain the highly skilled personnel we need, our business,
operating results and financial condition could be materially adversely affected.
‚ We have only limited protection for our proprietary rights in our intellectual property, which
makes it difficult to prevent third parties from infringing upon our rights.
Our success depends to a certain degree on our ability to protect our intellectual property and to
operate without infringing on the proprietary rights of third parties. While we have been issued patents and
have registered trademarks with respect to many of our products, our competitors could independently
develop similar or superior products or technologies, duplicate our designs, trademarks, processes or other
intellectual property or design around any processes or designs on which we have or may obtain patents or
trademark protection. In addition, it is possible that third parties may have or acquire licenses for other
technology or designs that we may use or desire to use, so that we may need to acquire licenses to, or to
contest the validity of, such patents or trademarks of third parties. Such licenses may not be made
available to us on acceptable terms, if at all, and we may not prevail in contesting the validity of third
party rights.
In addition to patent and trademark protection, we also protect trade secrets, know-how and other
confidential information against unauthorized use by others or disclosure by persons who have access to
26
them, such as our employees, through contractual arrangements. These arrangements may not provide
meaningful protection for our trade secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary
information. If we are unable to maintain the proprietary nature of our technologies, our revenues could be
materially adversely affected.
‚ Our products may be susceptible to claims by third parties that our products infringe upon their
proprietary rights.
As the number of products in our target markets increases and the functionality of these products
further overlaps, we may become increasingly subject to claims by a third party that our technology
infringes such party's proprietary rights. Regardless of their merit, any such claims could be time
consuming and expensive to defend, may divert management's attention and resources, could cause product
shipment delays and could require us to enter into costly royalty or licensing agreements. If successful, a
claim of infringement against us and our inability to license the infringed or similar technology and/or
product could have a material adverse effect on our business, operating results and financial condition.
‚ The market price of our common stock may be extremely volatile.
Our stock price has fluctuated since our initial public offering in August 2004. The trading price of
our common stock is subject to significant fluctuations in response to variations in quarterly operating
results, the gain or loss of significant orders, changes in earnings estimates by analysts, announcements of
technological innovations or new products by us or our competitors, general conditions in the commercial
vehicle industry and other events or factors. In addition, the equity markets in general have experienced
extreme price and volume fluctuations which have affected the market price for many companies in
industries similar or related to that of ours and which have been unrelated to the operating performance of
these companies. These market fluctuations may have affected and may continue to affect the market
price of our common stock.
‚ We may be subject to product liability claims, recalls or warranty claims, which could be
expensive, damage our reputation and result in a diversion of management resources.
As a supplier of products and systems to commercial vehicle OEMs, we face an inherent business risk
of exposure to product liability claims in the event that our products, or the equipment into which our
products are incorporated, malfunction and result in personal injury or death. Product liability claims could
result in significant losses as a result of expenses incurred in defending claims or the award of damages.
In addition, we may be required to participate in recalls involving systems or components sold by us if
any prove to be defective, or we may voluntarily initiate a recall or make payments related to such claims
as a result of various industry or business practices or the need to maintain good customer relationships.
Such a recall would result in a diversion of management resources. While we do maintain product liability
insurance, we cannot assure you that it will be sufficient to cover all product liability claims, that such
claims will not exceed our insurance coverage limits or that such insurance will continue to be available on
commercially reasonable terms, if at all. Any product liability claim brought against us could have a
material adverse effect on our results of operations.
Moreover, we warrant the workmanship and materials of many of our products under limited
warranties and have entered into warranty agreements with certain OEMs that warranty certain of our
products in the hands of these OEMs' customers, in some cases for as long as six years. Accordingly, we
are subject to risk of warranty claims in the event that our products do not conform to our customers'
specifications, or, in some cases in the event that our products do not conform with their customers'
expectations. It is possible for warranty claims to result in costly product recalls, significant repair costs
and damage to our reputation, all of which would adversely affect our results of operations.
27
‚ Equipment failures, delays in deliveries or catastrophic loss at any of our facilities could lead to
production or service curtailments or shutdowns.
We manufacture or assemble our products at facilities in North America, Europe, China and
Australia. An interruption in production or service capabilities at any of these facilities as a result of
equipment failure or other reasons could result in our inability to produce our products, which could
reduce our net revenues and earnings for the affected period. In the event of a stoppage in production at
any of our facilities, even if only temporary, or if we experience delays as a result of events that are
beyond our control, delivery times to our customers could be severely affected. Any significant delay in
deliveries to our customers could lead to increased returns or cancellations and cause us to lose future
revenues. Our facilities are also subject to the risk of catastrophic loss due to unanticipated events such as
fires, explosions or violent weather conditions. We may experience plant shutdowns or periods of reduced
production as a result of equipment failure, delays in deliveries or catastrophic loss, which could have a
material adverse effect on our business, results of operations or financial condition.
‚ Our indebtedness could adversely affect our financial condition and make it more difficult to
implement our business strategy.
The aggregate amount of our outstanding indebtedness was $191.0 million as of December 31, 2005.
Our substantial level of indebtedness increases the possibility that we may be unable to generate cash
sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our
indebtedness, including the notes. Our substantial indebtedness, combined with our lease and other
financial obligations and contractual commitments could have other important consequences to you as a
holder of the notes. For example, it could:
‚ make it more difficult for us to satisfy our obligations with respect to our indebtedness, including
the notes, and any failure to comply with the obligations of any of our debt instruments, including
financial and other restrictive covenants, could result in an event of default under the indenture
governing the notes and the agreements governing such other indebtedness;
‚ make us more vulnerable to adverse changes in general economic, industry and competitive
conditions and adverse changes in government regulation;
‚ require us to dedicate a substantial portion of our cash flow from operations to payments on our
indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital
expenditures, acquisitions and other general corporate purposes;
‚ limit our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate;
‚ place us at a competitive disadvantage compared to our competitors that have less debt; and
‚ limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions,
debt service requirements, execution of our business strategy or other purposes.
Any of the above listed factors could materially adversely affect our business, financial condition and
results of operations.
‚ The terms of our senior credit facility and the indenture governing the 8.0% senior notes due 2013
may restrict our current and future operations, particularly our ability to respond to changes in
our business or to take certain actions.
Our senior credit facility and the indenture governing the 8.0% senior notes due 2013 contain
covenants that, among other things, restricts our ability to:
‚ incur liens;
‚ incur or assume additional debt or guarantees or issue preferred stock;
‚ pay dividends, or make redemptions and repurchases, with respect to capital stock;
28
‚ prepay, or make redemptions and repurchases of, subordinated debt;
‚ make loans and investments;
‚ make capital expenditures;
‚ engage in mergers, acquisitions, asset sales, sale/leaseback transactions and transactions with
affiliates;
‚ change the business conducted by us or our subsidiaries; and
‚ amend the terms of subordinated debt.
Also, our senior credit facility requires us to maintain compliance with specified financial ratios and
satisfy certain financial condition tests (some of which become more restrictive over time). If we do not
comply with such covenants or satisfy such ratios, our lenders could declare a default under the senior
credit facility, and our indebtedness could be declared immediately due and payable. Our ability to comply
with the provisions of the senior credit facility may be affected by changes in economic or business
conditions beyond our control. In addition, these covenants could affect our ability to operate our business
and may limit our ability to take advantage of potential business opportunities as they arise.
‚ Our inability to successfully execute any planned cost reductions, restructuring initiatives or the
achievement of operational efficiencies could result in the incurrence of additional costs and
expenses that could adversely affect our reported earnings.
As part of our business strategy, we continuously seek ways to lower costs, improve manufacturing
efficiencies and increase productivity and intend to apply this strategy to those operations acquired through
the Mayflower, Monona and Cabarrus acquisitions. In this regard, we may incur restructuring charges in
the future and such charges could adversely affect our operating results and financial condition.
‚ Our earnings may be adversely affected by changes to the carrying values of our tangible and
intangible assets, including goodwill, as a result of recording any impairment charges deemed
necessary in conjunction with the execution of our periodic asset impairment assessment and
testing policy.
During 2002, we recorded an impairment charge of approximately $51.6 million to reduce the carrying
value of goodwill in our financial statements. At December 31, 2005, we had goodwill of approximately
$125.6 million and other intangible assets of approximately $84.6 million. We may identify additional
anticipated or unanticipated impairments in any of our tangible or intangible asset categories in future
testing periods and be required to record charges against earnings in the period in which the impairment is
identified. Specific indicators that give rise to asset impairment may include, but are not limited to,
changes in the general economic environment, changes or downturns in our industry as a whole,
termination of any of our customer contracts, restructuring efforts and general workforce reductions among
other factors.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate office is located in New Albany, Ohio. Several of our manufacturing facilities are
located near our OEM customers to reduce our distribution costs, reduce risk of interruptions in our
29
delivery schedule, further improve customer service and provide our customers with reliable delivery of
products and services. The following table provides selected information regarding our principal facilities:
Location
Norwalk, Ohio
Products Produced
Approximate
Square Footage
Ownership Interest
(3 facilities)(1)ÏÏÏÏÏÏÏÏÏÏÏ Cab, Sleeper Box, Interior Trim
359,980 sq. ft. Owned/Leased
Assembly and Ford GT Assembly
Vonore, Tennessee
(2 facilities)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Seats, Mirrors
Shadyside, Ohio(1) ÏÏÏÏÏÏÏÏÏ Stamping of Steel and Aluminum
Structural and Exposed Stamped
Components
Northampton, England ÏÏÏÏÏÏÏ Seats (office and commercial vehicle)
Kings Mountain, North
245,000 sq. ft. Owned/Leased
225,000 sq. ft.
Owned
210,000 sq. ft.
Leased
Carolina(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Cab, Sleeper Box, Interior Trim
180,000 sq. ft.
Owned
Assembly
Statesville, North Carolina
(2 facilities)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interior Trim, Seats
Seattle, Washington ÏÏÏÏÏÏÏÏÏ RIM Process, Interior Trim, Seats
Michigan City, Indiana ÏÏÏÏÏÏ Wipers, Switches
Canby, Oregon ÏÏÏÏÏÏÏÏÏÏÏÏÏ Roadwatch/Electronics Assembly
Dublin, VirginiaÏÏÏÏÏÏÏÏÏÏÏÏÏ
Vancouver, Washington (2
Interior Trim, Seats
Interior Trim
Interior Trim, Dash Assembly
facilities) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Chillicothe, OhioÏÏÏÏÏÏÏÏÏÏÏÏ
Shanghai, China ÏÏÏÏÏÏÏÏÏÏÏÏ Seats
Bellaire, Ohio(1) ÏÏÏÏÏÏÏÏÏÏÏ Warehouse Facility
Tacoma, Washington ÏÏÏÏÏÏÏÏ
Plain City, Ohio ÏÏÏÏÏÏÏÏÏÏÏÏ R&D, Lab
Seneffs (Brussels), Belgium ÏÏ Seat Assembly
Brisbane (HQ), Australia ÏÏÏÏ Seat Assembly
Farmington Hills, Michigan(1) R&D, Lab
Sodentalje (Stockholm),
Injection Molding
Sweden ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Seat Assembly
Dublin, Ohio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Administration
Naperville, Illinois(2)(4)ÏÏÏÏÏ Administration
Agua Prieta, Mexico
163,000 sq. ft.
156,000 sq. ft.
87,000 sq. ft.
4,116 sq. ft.
79,000 sq. ft.
63,000 sq. ft.
62,000 sq. ft.
50,000 sq. ft.
40,000 sq. ft.
25,000 sq. ft.
8,000 sq. ft.
35,000 sq. ft.
50,000 sq. ft.
25,000 sq. ft.
12,000 sq. ft.
14,000 sq. ft.
2,550 sq. ft.
Leased
Owned
Leased
Leased
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
(4 facilities)(2)ÏÏÏÏÏÏÏÏÏÏÏ Wire Harness Assembly
150,000 sq. ft.
Leased
Douglas, Arizona
(2 facilities)(2)ÏÏÏÏÏÏÏÏÏÏÏ Warehouse Facility
Monona, Iowa(2) ÏÏÏÏÏÏÏÏÏÏÏ Wire Harness/Panel Assembly
Edgewood, Iowa(2) ÏÏÏÏÏÏÏÏÏ Wire Harness/Assembly
Spring Green,
Wisconsin(2)(4)ÏÏÏÏÏÏÏÏÏÏ Wire Harness/Panel Assembly
Livingston, Wisconsin(2) ÏÏÏÏÏ Wire Harness/Panel Assembly
Redgranite, Wisconsin(2) ÏÏÏÏ Wire Harness Engineering Support
Dekalb, Illinois(2) ÏÏÏÏÏÏÏÏÏÏ Cab Assembly
Gahanna, Ohio ÏÏÏÏÏÏÏÏÏÏÏÏÏ R&D, Lab
Concord, North Carolina(3) ÏÏ
New Albany, Ohio ÏÏÏÏÏÏÏÏÏÏ Corporate Headquarters
Injection Molding
11,700 sq. ft.
62,000 sq. ft.
18,000 sq. ft.
38,000 sq. ft.
22,000 sq. ft.
2,000 sq. ft.
60,000 sq. ft.
28,500 sq. ft.
90,360 sq. ft.
16,000 sq. ft.
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
(1) This facility or lease was acquired through the Mayflower acquisition as described herein.
(2) This facility or lease was acquired through the Monona acquisition as described herein.
30
(3) This facility or lease was acquired through the Cabarrus acquisition as described herein.
(4) On March 8, 2006, we announced plans to relocate our Naperville, Illinois administrative office to our
corporate headquarters in New Albany, Ohio and our Spring Green, Wisconsin facility primarily to
our existing operations located in Edgewood, Iowa and Agua Prieta, Mexico.
We also have leased sales and service offices located in Australia and France.
Utilization of our facilities varies with North American and European commercial vehicle production
and general economic conditions in such regions. All locations are principally used for manufacturing,
except for our New Albany and Dublin, Ohio and Naperville, Illinois corporate and administrative offices,
our Plain City and Gahanna, Ohio, Farmington Hills, Michigan and Redgranite, Wisconsin research,
development and engineering facilities and our leased warehouse facilities in Douglas, Arizona and Bellaire
and Norwalk, Ohio.
Item 3. Legal Proceedings
From time to time, we are involved in a variety of legal proceedings, including, but not limited to,
customer and supplier disputes and product liability claims arising out of the conduct of our businesses.
We are not involved in any litigation at this time in which we expect that an unfavorable outcome of the
proceedings would have a material adverse effect on our financial position, results of operations or cash
flows.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of stockholders during the fourth quarter of 2005.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is traded on the Nasdaq National Market under the symbol ""CVGI.'' The
following table sets forth the high and low sale prices for our common stock, for the periods indicated as
regularly reported by the Nasdaq National Market:
High
Low
Fourth Quarter 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third Quarter 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second Quarter 2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
First Quarter 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$21.11
24.94
21.74
24.38
Fourth Quarter 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third Quarter 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
21.90
16.82
$17.30
17.70
16.51
18.25
14.50
12.95
As of February 28, 2006, there were 89 holders of record of our outstanding common stock.
We have not declared or paid any dividends to the holders of our common stock in the past and do
not anticipate paying dividends in the foreseeable future. Any future payment of dividends is within the
discretion of the Board of Directors and will depend upon, among other factors, the capital requirements,
operating results and financial condition of CVG. In addition, our ability to pay cash dividends is limited
under the terms of the credit agreement governing our senior credit facility.
We did not repurchase any of our common stock during the fourth quarter of 2005.
31
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data regarding our business and certain
industry information and should be read in conjunction with ""Management's Discussion and Analysis of
Financial Condition and Results of Operations,'' and our consolidated financial statements and notes
thereto included elsewhere in this Annual Report on Form 10-K.
2005
Years Ended December 31,
2002
2003
(In thousands, except per share data)
2004
2001
Statement of Operations Data:
Revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 754,481
620,031
$380,445
309,696
$287,579
237,884
$298,678
249,181
$271,226
229,593
Gross profit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative expenses
Noncash stock option compensation expense
Amortization expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
134,450
44,564
Ì
358
Ì
Operating income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
89,528
70,749
28,985
10,125
107
Ì
31,532
(Gain) loss on foreign currency forward
contracts and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on early extinguishment of debt ÏÏÏÏÏÏÏ
Income before income taxes and
cumulative effect of accounting change
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income (loss) before cumulative effect of
(3,741)
13,195
1,525
(1,247)
7,244
1,605
78,549
29,138
23,930
6,481
49,695
24,281
Ì
185
Ì
25,229
3,230
9,796
2,972
9,231
5,267
49,497
23,952
Ì
122
Ì
25,423
1,098
12,940
Ì
11,385
5,235
41,633
21,767
Ì
3,822
449
15,595
(2,347)
14,885
Ì
3,057
5,072
change in accounting principle ÏÏÏÏÏÏÏÏ
49,411
17,449
3,964
6,150
(2,015)
Cumulative effect of change in accounting
principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
Ì
(51,630)
Ì
Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
49,411
$ 17,449
$
3,964
$(45,480)
$ (2,015)
Earnings (loss) per share(1):
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
2.54
2.51
$
1.13
1.12
0.29
0.29
$
(3.29)
(3.26)
$ (0.15)
(0.15)
Weighted average common shares
outstanding:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balance Sheet Data (at end of each period):
Working capital (current assets less current
liabilities)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total liabilities, excluding debt ÏÏÏÏÏÏÏÏÏÏÏÏ
Total debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total stockholders' investment ÏÏÏÏÏÏÏÏÏÏÏÏ
Other Data:
EBITDA(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19,440
19,697
15,429
15,623
13,779
13,883
13,827
13,931
13,893
13,893
$ 119,104
543,883
150,797
191,009
202,077
$ 41,727
225,638
60,667
53,925
111,046
$ 28,216
210,495
48,215
127,474
34,806
$
8,809
204,217
49,990
127,202
27,025
$ 10,908
263,754
50,650
140,191
72,913
$ 101,592
$ 39,099
$ 33,335
$ 34,105
$ 28,428
32
2005
Years Ended December 31,
2002
2003
(In thousands, except per share data)
2004
2001
Net cash provided by (used in):
Operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital expenditures, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
North American Heavy-duty (Class 8) truck
production (units)(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
44,156
$
(188,569)
188,547
12,064
20,669
$ 34,177
(8,907)
(28,427)
7,567
8,907
$ 10,442
(5,967)
(2,761)
8,106
5,967
$ 18,172
(4,937)
(14,825)
8,682
4,937
$ 12,408
7,749
(24,792)
12,833
4,898
341,000
269,000
182,000
181,000
146,000
(1) Earnings (loss) per share has been calculated giving effect to the reclassification of our outstanding
classes of common stock into one class of common stock and, in connection therewith, a 38.991-to-
one stock split.
(2) ""EBITDA'' represents earnings before interest expense, income taxes and depreciation and
amortization, noncash gain (loss) on forward exchange contracts, loss on early extinguishment of debt
and an impairment charge associated with the adoption of Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. EBITDA does not represent and
should not be considered as an alternative to net income or cash flow from operations, as determined
by accounting principles generally accepted in the United States of America (US GAAP). We
present EBITDA because we believe that it is widely accepted that EBITDA provides useful
information regarding our operating results. We rely on EBITDA primarily as an operating
performance measure in order to review and assess our company and our management team. For
example, our management incentive plan is based upon the company achieving minimum EBITDA
targets for a given year. We also review EBITDA to compare our current operating results with
corresponding periods and with other companies in our industry. We believe that it is useful to
investors to provide disclosures of our operating results on the same basis as that used by our
management. We also believe that it can assist investors in comparing our performance to that of
other companies on a consistent basis without regard to depreciation, amortization, interest or taxes,
which do not directly affect our operating performance. EBITDA has limitations as an analytical tool,
and you should not consider it in isolation, or as a substitute for analysis of our results as reported
under US GAAP. Some of these limitations are:
‚ EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or
contractual commitments;
‚ EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
‚ EBITDA does not reflect the significant interest expense, or the cash requirements necessary to
service interest or principal payments, on our debts;
‚ Although depreciation and amortization are noncash charges, the assets being depreciated and
amortized will often have to be replaced in the future, and EBITDA does not reflect any cash
requirements for such replacements; and
‚ Other companies in our industry may calculate EBITDA differently than we do, limiting their
usefulness as a comparative measure.
Because of these limitations, EBITDA should not be considered a measure of discretionary cash
available to us to invest in the growth of our business. We compensate for these limitations by relying
primarily on our US GAAP results and using EBITDA only supplementally. See the Consolidated
33
Statements of Cash Flows in our consolidated financial statements in Item 15 of this Annual Report
on Form 10-K. The following is a reconciliation of EBITDA to net income (loss):
2005
Years Ended December 31,
2003
2002
2004
2001
EBITDA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Add (subtract):
Depreciation and amortizationÏÏÏÏÏÏ
Noncash gain (loss) on forward
exchange contracts ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on early extinguishment of debt
(Provision) for income taxes ÏÏÏÏÏÏÏ
Cumulative effect of change in
accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏ
$101,592
$39,099
$33,335
$ 34,105
$ 28,428
(12,064)
(7,567)
(8,106)
(8,682)
(12,833)
3,741
(13,195)
(1,525)
(29,138)
1,247
(7,244)
(1,605)
(6,481)
(3,230)
(9,796)
(2,972)
(5,267)
(1,098)
(12,940)
2,347
(14,885)
Ì
Ì
(5,235)
(5,072)
Ì
Ì
Ì
(51,630)
Ì
Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 49,411
$17,449
$ 3,964
$(45,480)
$ (2,015)
(3) Source: Americas Commercial Transportation Research Co. LLC and ACT Publications.
34
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with the information set forth
under ""Item 6 Ì Selected Financial Data'' and our consolidated financial statements and the notes thereto
included in Item 15 in this Annual Report on Form 10-K. The statements in this discussion regarding
industry outlook, our expectations regarding our future performance, liquidity and capital resources and
other non-historical statements in this discussion are forward-looking statements. See ""Forward-Looking
Information'' on page ii of this Annual Report on Form 10-K. These forward-looking statements are
subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties
described under ""Item 1A Ì Risk Factors.'' Our actual results may differ materially from those contained
in or implied by any forward-looking statements.
Company Overview
We are a leading supplier of fully integrated system solutions for the global commercial vehicle
market, including the Heavy-duty (Class 8) truck market, the construction and agriculture market and the
specialty and military transportation markets. As a result of our strong leadership in cab-related products
and systems, we are positioned to benefit from the increased focus of our customers on cab design and
comfort and convenience features to better serve their end-user, the driver. Our products include
suspension seat systems, interior trim systems (including instrument panels, door panels, headliners,
cabinetry and floor systems), cab structures and components, mirrors, wiper systems, electronic wire
harness assemblies and controls and switches specifically designed for applications in commercial vehicles.
We are differentiated from suppliers to the automotive industry by our ability to manufacture low
volume customized products on a sequenced basis to meet the requirements of our customers. We believe
that we have the number one or two position in most of our major markets and that we are the only
supplier in the North American commercial vehicle market that can offer complete cab systems including
cab body assemblies, sleeper boxes, seats, interior trim, flooring, wire harnesses, panel assemblies and other
structural components. We believe our products are used by virtually every major North American
commercial vehicle OEM, which we believe creates an opportunity to cross-sell our products and offer a
fully integrated system solution.
Demand for our products is generally dependent on the number of new commercial vehicles
manufactured, which in turn is a function of general economic conditions, interest rates, changes in
governmental regulations, consumer spending, fuel costs and our customers' inventory levels and
production rates. New commercial vehicle demand has historically been cyclical and is particularly
sensitive to the industrial sector of the economy, which generates a significant portion of the freight
tonnage hauled by commercial vehicles. Production of commercial vehicles in North America peaked in
1999 and experienced a downturn from 2000 to 2003 that was due to a weak economy, an over supply of
new and used vehicle inventory and lower spending on commercial vehicles and equipment. Demand for
commercial vehicles improved in 2005 due to a variety of factors, including broad economic recovery in
North America, the need to replace aging truck fleets as a result of under-investment and increasing
freight volumes.
In 2005, approximately 62% of our revenue was generated from sales to North American heavy-duty
truck OEMs. Our remaining revenue in 2005 was primarily derived from sales to OEMs in the global
construction market, the aftermarket, OEM service organizations and other commercial vehicle and
specialty markets. Demand for our products is also driven to a significant degree by preferences of the
end-user of the commercial vehicle, particularly with respect to Heavy-duty (Class 8) trucks. Unlike the
automotive industry, commercial vehicle OEMs generally afford the ultimate end-user the ability to specify
many of the component parts that will be used to manufacture the commercial vehicle, including a wide
variety of cab interior styles and colors, the brand and type of seats, type of seat fabric and color and
specific mirror styling. In addition, certain of our products are only utilized in Heavy-duty (Class 8)
trucks, such as our storage systems, sleeper boxes, sleeper bunks and privacy curtains, and, as a result,
changes in demand for Heavy-duty (Class 8) trucks or the mix of options on a vehicle can have a greater
35
impact on our business than changes in the overall demand for commercial vehicles. To the extent that
demand increases for higher content vehicles, our revenues and gross profit will be positively impacted.
Along with North America, we have operations in Europe, Australia, Mexico and China. Our
operating results are, therefore, impacted by exchange rate fluctuations to the extent we are unable to
match revenues received in such currencies with costs incurred in such currencies. Strengthening of these
foreign currencies as compared to the U.S. dollar resulted in an approximate $1 million decrease in our
revenues in 2005 as compared to 2004 and an approximate $11 million increase in 2004 as compared to
2003. Because our costs were generally impacted to the same degree as our revenue, this exchange rate
fluctuation did not have a material impact on our net income in 2005 as compared to 2004 and 2004
compared to 2003.
In response to the downturn in the commercial vehicle market from 2000 to 2003, we implemented a
number of operating initiatives to improve our overall cost structure and operating efficiencies. These
include, but are not limited to, the following:
‚ eliminating excess production capacity through the closure and consolidation of four manufacturing
facilities, two design centers and two assembly facilities;
‚ implementing Lean Manufacturing and Total Quality Production System (""TQPS'') initiatives
throughout many of our U.S. manufacturing facilities to improve operating efficiency and product
quality;
‚ reducing headcount for both salaried and hourly employees; and
‚ improving our design capabilities and new product development efforts to focus on higher margin
product enhancements.
We continuously seek ways to lower costs, improve manufacturing efficiencies and increase product
throughput and intend to apply this philosophy to those operations recently acquired through the
Mayflower, Monona and Cabarrus acquisitions. We believe our ongoing cost saving initiatives and the
establishment of our sourcing efforts in China will enable us to continue to lower manufacturing costs.
Although OEM demand for our products is directly correlated with new vehicle production, we also
have the opportunity to grow through increasing our product content per vehicle through cross-selling and
bundling of products. We generally compete for new business at the beginning of the development of a
new vehicle platform and upon the redesign of existing programs. New platform development generally
begins at least one to three years before the marketing of such models by our customers. Contract
durations for commercial vehicle products generally extend for the entire life of the platform, which is
typically five to seven years.
In sourcing products for a specific platform, the customer generally develops a proposed production
timetable, including current volume and option mix estimates based on their own assumptions, and then
sources business with the supplier pursuant to written contracts, purchase orders or other firm
commitments in terms of price, quality, technology and delivery. In general, these contracts, purchase
orders and commitments provide that the customer can terminate if a supplier does not meet specified
quality and delivery requirements and, in many cases, they provide that the price will decrease over the
proposed production timetable. Awarded business generally covers the supply of all or a portion of a
customer's production and service requirements for a particular product program rather than the supply of
a specific quantity of products. Accordingly, in estimating awarded business over the life of a contract or
other commitment, a supplier must make various assumptions as to the estimated number of vehicles
expected to be produced, the timing of that production, mix of options on the vehicles produced and
pricing of the products being supplied. The actual production volumes and option mix of vehicles produced
by customers depend on a number of factors that are beyond a supplier's control.
36
Recent Acquisitions
On February 7, 2005, we acquired substantially all of the assets and liabilities related to Mayflower
Vehicle Systems' North American Commercial Vehicle Operations for $107.5 million, and Mayflower
became a wholly owned subsidiary of CVG. The Mayflower acquisition was funded through an increase
and amendment to our senior credit facility. Mayflower is the only non-captive producer of complete steel
and aluminum truck cabs for the commercial vehicle sector in North America. Mayflower serves the
North American commercial vehicle sector from three manufacturing locations, Norwalk, Ohio, Shadyside,
Ohio and Kings Mountain, North Carolina, supplying three major product lines: cab frames and
assemblies, sleeper boxes and other structural components. Through the Mayflower acquisition, we believe
we are the only supplier worldwide to offer complete cab systems in sequence, integrating interior trim and
seats with the cab structure. The acquisition gives us a leading position in North American cab structures
and complete cab assemblies, as well as full service cab and sleeper engineering and development
capabilities. Moreover, the Mayflower acquisition broadens our revenue base at International, Volvo/Mack,
Freightliner, PACCAR and Caterpillar and enhances our cross-selling opportunities. We anticipate that in
addition to new opportunities, the Mayflower acquisition will provide significant cost saving opportunities.
As we have complementary customers with Mayflower, this will also balance revenue distribution and
strengthen customer relationships. For the year ended December 31, 2004, Mayflower recorded revenues of
approximately $206.5 million and operating income of approximately $21.6 million. The operating results
of Mayflower have been included in our 2005 consolidated financial statements since the date of
acquisition.
On June 3, 2005, we acquired all of the stock of Monona Corporation, the parent of Monona Wire
Corporation, for $55.0 million, and Monona became a wholly owned subsidiary of CVG. The Monona
acquisition was funded through an increase and amendment to our senior credit facility. Monona is a
leading manufacturer of complex, electronic wire harnesses and related assemblies used in the global heavy
equipment, commercial vehicle, heavy-truck and specialty and military vehicle markets. It also produces
panel assemblies for commercial equipment markets and cab frame assemblies for Caterpillar. Monona's
wire harness assemblies are critical, complex products that are the primary electrical current carrying
devices within vehicle systems. Monona offers over approximately 4,500 different wire harness assemblies
for its customers, which include leading OEMs such as Caterpillar, Deere & Co. and Oshkosh Truck.
Monona operates from primary manufacturing operations in the U.S. and Mexico and we believe it is cost
competitive on a global basis. The Monona acquisition will enhance our ability to offer comprehensive cab
systems to our customers, expands our electronic assembly capabilities, adds Mexico manufacturing
capabilities and offers significant cross-selling opportunities over a more diversified base of customers. For
the fiscal year ended January 31, 2005, Monona recorded revenues of approximately $85.5 million and
operating income of approximately $9.6 million. The operating results of Monona have been included in
our 2005 consolidated financial statements since the date of acquisition.
On August 8, 2005, we acquired all of the stock of Cabarrus Plastics, Inc. for $12.1 million, and
Cabarrus became an indirect wholly owned subsidiary of CVG. Cabarrus is a manufacturer of custom
injection molded products primarily for the recreational vehicle market. For the year ended December 31,
2004, Cabarrus recorded revenues of approximately $14.2 million and operating income of approximately
$0.9 million. The Cabarrus acquisition was financed with cash on hand. The operating results of Cabarrus
have been included in our 2005 consolidated financial statements since the date of acquisition.
Restructuring and Reorganization Activities
During 2005, we completed our restructuring and reorganization activities pursuant to those initiated
in 2000. (See Note 6 to our consolidated financial statements in Item 15 in this Annual Report on
Form 10-K.)
During 2005, we recorded a $2.0 million restructuring charge as part of our integration efforts relating
to the Monona acquisition. (See Note 6 to our consolidated financial statements in Item 15 in this Annual
Report on Form 10-K.)
37
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in conformity with US GAAP. For a
comprehensive discussion of our accounting policies, see Note 2 to our consolidated financial statements in
Item 15 in this Annual Report on Form 10-K.
The preparation of our consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities and equity and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. These estimates and judgments, particularly relating to revenue recognition and sales
commitments, benefit or provision for income taxes, restructuring and impairment charges and litigation
and contingencies may have a material impact on our financial statements, and are discussed in detail
throughout our analysis of the results of operations as discussed below.
In addition to evaluating estimates relating to the items discussed above, we also consider other
estimates, including, but not limited to, those related to allowance for doubtful accounts, defined benefit
pension plan assumptions and goodwill and other intangible assets. We base our estimates on historical
experience and various other assumptions that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of assets, liabilities and
equity that are not readily apparent from other sources. Actual results and outcomes could differ from
these estimates and assumptions. See Item 1A Risk Factors for additional information regarding risk
factors that may impact our estimates.
We apply the following critical accounting polices in the preparation of our consolidated financial
statements.
Revenue Recognition and Sales Commitments. We recognize revenue in accordance with the SEC's
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, and
SAB No. 104, Revenue Recognition, and other authoritative accounting literature. In the case of any
arrangements which require significant production, modification or customization to our products, the
Company follows the guidance in the American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP) 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts, whereby we would apply percentage of completion or completed
contract accounting methods, as appropriate. These pronouncements generally require that we recognize
revenue when (1) delivery has occurred or services have been rendered, (2) persuasive evidence of an
arrangement exists, (3) there is a fixed or determinable price and (4) collectibility is reasonable assured.
Our products are generally shipped from our facilities to our customers, which is when legal title passes to
the customer for substantially all of our revenues. We enter into agreements with our customers at the
beginning of a given platform's life to supply products for that platform. Once we enter into such
agreements, fulfillment of our purchasing requirements is our obligation for the entire production life of
the platform, with terms generally ranging from five to seven years, and we have no provisions to terminate
such contracts.
Provisions for anticipated contract losses are recognized at the time they become evident. In that
regard, in certain instances, we may be committed under existing agreements to supply product to our
customers at selling prices that are not sufficient to cover the cost to produce such product. In such
situations, we record a provision for the estimated future amount of such losses. Such losses are recognized
at the time that the loss is probable and reasonably estimable and are recorded at the minimum amount
necessary to fulfill our obligations to our customers. The recorded amount of such losses was
approximately $0.1 million, $0.6 million and $1.5 million at December 31, 2005, 2004 and 2003,
respectively.
Warranties. We are subjected to warranty claims for products that fail to perform as expected due to
design or manufacturing deficiencies. Customers continue to require their outside suppliers to guarantee or
warrant their products and bear the cost of repair or replacement of such products. Depending on the
terms under which we supplied products to our customers, a customer may hold us responsible for some or
38
all of the repair or replacement costs of defective products, when the product supplied did not perform as
represented. Our policy is to reserve for estimated future customer warranty costs based on historical
trends and current economic factors. The amount of such estimates for warranty provisions was
approximately $7.1 million, $2.4 million and $2.4 million at December 31, 2005, 2004 and 2003,
respectively. The increase in estimate for 2005 is primarily the result of the Mayflower, Monona and
Cabarrus acquisitions.
Valuation of Goodwill and Intangible Assets.
Intangible assets include, but are not limited to,
trademarks, tradenames and customer relationships. In accordance with SFAS No. 142, Goodwill and
Other Intangible Assets, we perform impairment tests annually, during the second quarter, and whenever
events or circumstances occur indicating that goodwill or other intangible assets might be impaired.
We complete step one of the goodwill impairment test, using a combination of valuation techniques,
including the discounted cash flow approach and the market multiple approach, for each of our reporting
units. Under the valuation techniques and approach applied by us in our SFAS No. 142 analysis, a change
in certain key assumptions applied, such as the discount rate, projected future cash flows and mix of cash
flows by geographic region could significantly impact the results of our assessment. The estimates we used
are based upon reasonable and supportable assumptions and consider all available evidence. However,
there is inherent uncertainty in estimating future cash flows and termination values. Based upon the
Company's impairment assessments performed during 2005, 2004 and 2003, no new and/or additional
impairment of goodwill has been determined to have occurred.
Accounting for Income Taxes. As part of the process of preparing our consolidated financial
statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.
In addition, tax expense includes the impact of differing treatment of items for tax and accounting
purposes which result in deferred tax assets and liabilities which are included in our consolidated balance
sheet. To the extent that recovery of deferred tax assets is not likely, we must establish a valuation
allowance. Significant judgment is required in determining our provision for income taxes, deferred tax
assets and liabilities and any valuation allowance recorded against our net deferred tax assets. As of
December 31, 2003, we had recorded a valuation allowance of $3.8 million. As of December 31, 2004, we
determined that we no longer require a valuation allowance due to the likelihood of recovery in future
periods. In the event that our actual results differ from our estimates or we adjust these estimates in future
periods, the effects of these adjustments could materially impact our financial position and results of
operations. The net deferred tax asset as of December 31, 2005 was $3.8 million.
UK Defined Benefit/Contribution Plan. We sponsor a defined benefit/contribution pension plan that
covers certain of our hourly and salaried employees at our United Kingdom operations. Our policy is to
make annual contributions to this plan to fund the normal cost as required by local regulations. In
calculating obligation and expense, we are required to make certain actuarial assumptions. These
assumptions include discount rate, expected long-term rate of return on plan assets and rates of increase in
compensation. Our assumptions are determined based on current market conditions, historical information
and consultation with and input from our actuaries. We have historically used December 31 as our annual
measurement date. For 2005, we assumed a discount rate of 5.0% to determine our benefit obligations.
Holding other variables constant (such as expected return on plan assets and rate of compensation
increase), a one percentage point decrease in the discount rate would have increased our expense by
approximately $0.9 million and our benefit obligation by approximately $8.2 million.
We employ a building block approach in determining the expected long-term rate of return for plan
assets, based on historical markets, long-term historical relationships between equities and fixed income
investments and considering current market factors such as inflation and interest rates. Holding other
variables constant (such as discount rate and rate of compensation increase), a one percentage point
decrease in the expected long-term rate of return on plan assets would have increased our expense by
$0.3 million. We expect to contribute approximately $1.6 million to our pension plans in 2006.
We employ a total return investment approach in managing pension plan assets whereby a mix of
equities and fixed income investments are used to maximize the long-term return of plan assets for a
39
prudent level of risk. At December 31, 2005, our pension assets were comprised of 62% equity securities,
19% debt securities and 19% other investments.
Mayflower Defined Benefit Pension Plans and Postretirement Benefits. As part of the Mayflower
acquisition, we also sponsor three defined benefit plans and two postretirement benefit plans that cover
certain hourly and salaried Mayflower employees. Our policy is to make annual contributions to the
defined benefit plans to fund the normal cost as required by federal regulations. In calculating the
obligations and expenses for the plans, we are required to make certain actuarial assumptions. These
assumptions include discount rate, expected long-term rate of return on plan assets, rates of increase in
compensation, and rate of increase in the per capita cost of covered health care benefits. Our assumptions
are determined based on current market conditions, historical information and consultation with and input
from our actuaries. We have elected to use October 1 as the annual measurement date. For 2005,
Mayflower assumed a discount rate of 5.5% for the defined benefit pension plans and postretirement
benefit plans to determine the benefit obligation. Holding other variables constant for our defined benefit
pension plans (such as expected return on plan assets and rate of compensation increase), a one
percentage point decrease in the discount rate would have increased our expense by approximately
$0.5 million and our benefit obligation by approximately $5.0 million.
We employ a building block approach in determining the expected long-term rate of return for plan
assets, based on historical markets, long-term historical relationships between equities and fixed income
investments and considering current market factors such as inflation and interest rates. Holding other
variables constant for the Mayflower defined benefit pension plans (such as discount rate and rate of
compensation increase), a one percentage point decrease in the expected rate of return on plan assets
would have increased our expense by approximately $0.2 million. We expect to contribute approximately
$0.7 million to the Mayflower pension plans in 2006.
We employ a total return investment approach in managing the Mayflower pension plan assets
whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan
assets for a prudent level of risk. At December 31, 2005, the Mayflower pension assets were comprised of
56% in equity securities, 41% in debt securities and 3% other investments.
During 2005, we elected to freeze the pension plan for Mayflower salaried employees. This action was
undertaken by us in an effort to minimize future liabilities and as part of the integration process.
During 2005, we also elected to terminate the Mayflower medical and dental postretirement plan.
This action was undertaken by us in an effort to minimize future liabilities and as part of the integration
process. As a result of this action, we recorded a curtailment gain of approximately $3.1 million which is
included in the consolidated financial statements of operations for the year ending December 31, 2005.
National Seating Postretirement Benefits. We sponsor a postretirement benefit plan that covers
certain former National Seating employees. The cost associated with this plan did not have a material
impact on our continuing operations during 2005.
While any negative impact of these Critical Accounting Policies and Estimates would generally result
in noncash charges to earnings, the severity of any charge and its impact on stockholders' investment could
adversely affect our borrowing agreements, cost of capital and ability to raise external capital. Our senior
management has reviewed these Critical Accounting Policies and Estimates with the audit committee of
our board of directors, and the audit committee has reviewed the disclosure in this management discussion
and analysis.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements in Item 15 in this Annual Report on Form 10-K
for a full description of recently adopted accounting pronouncements or accounting standards to be
adopted in the future.
40
Basis of Presentation
Onex, Hidden Creek and certain other investors acquired Trim Systems in 1997 and each of
Commercial Vehicle Systems (CVS) and National/KAB Seating in 2000. Each of these companies was
initially owned through separate holding companies. The operations of CVS and National/KAB Seating
were formally combined under a single holding company, now known as Commercial Vehicle Group, Inc.,
on March 28, 2003. In connection with our initial public offering, Trim Systems became a wholly owned
subsidiary of CVG on August 2, 2004. Because these businesses were under common control since their
respective dates of acquisition, their respective historical results of operations have been combined for the
periods in which they were under common control based on their respective historical basis of accounting.
Our results of operations include the results of Mayflower, Monona and Cabarrus since the date of their
respective acquisitions.
Results of Operations
The table below sets forth certain operating data expressed as a percentage of revenues for the periods
indicated:
2005
2004
2003
Revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
100.0% 100.0% 100.0%
81.4
82.2
82.7
Gross profit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Noncash option chargeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (income) expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on early extinguishment of debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
17.8
5.9
0.0
0.0
11.9
(0.5)
1.7
0.2
10.5
3.9
18.6
7.6
2.7
0.0
8.3
(0.3)
1.9
0.4
6.3
1.7
17.3
8.4
0.0
0.1
8.8
1.1
3.4
1.0
3.3
1.9
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6.6%
4.6%
1.4%
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Revenues. Revenues increased $374.1 million, or 98.3%, to $754.5 million for the year ended
December 31, 2005 from $380.4 million for the year ended December 31, 2004. We believe this increase
resulted primarily from:
‚ acquisition related revenue of approximately $315 million;
‚ a 27% increase in North American Heavy-duty (Class 8) truck production, fluctuations in
production levels for other North American end markets and net new business awards resulted in
approximately $49 million of increased revenues;
‚ an increase in production levels, fluctuations in content and net new business awards for our
European, Australian and Asian markets of approximately $11 million;
‚ unfavorable foreign exchange fluctuations of approximately $1 million.
Gross Profit. Gross profit increased $63.7 million, or 90%, to $134.5 million for the year ended
December 31, 2005 from $70.8 million for the year ended December 31, 2004. As a percentage of
revenues, gross profit decreased to 17.8% for the year ended December 31, 2005 from 18.6% for the year
ended December 31, 2004. We believe this decrease resulted primarily from the acquisitions of Mayflower,
41
Monona and Cabarrus, which experienced lower margins than those we achieved in the prior year. We
continued to seek material cost reductions, labor efficiencies and general operating cost reductions to
generate additional profits and to offset incremental costs of raw materials and petroleum related products
and services experienced during the year ended December 31, 2005. We expect to achieve synergies with
respect to the acquisitions via material cost savings and cross-selling initiatives.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased
$15.6 million, or 53.7%, to $44.6 million for the year ended December 31, 2005 from $29.0 million for the
year ended December 31, 2004. We believe this increase resulted principally from the acquisitions of
Mayflower, Monona and Cabarrus during the year as well as increases in wages and the cost of additional
resources to accommodate product innovation and growth in the commercial vehicle sector as well as cost
associated with being a public company.
Noncash Stock Option Compensation Expense. To reward our senior management team for its
success in reducing operating costs, integrating businesses and improving processes through cyclical
periods, we granted options to purchase an aggregate of 910,869 shares of our common stock to 16
members of our management team in May 2004. The exercise price for such options is $5.54 per share. As
modified, such options have a ten-year term with 100% of such options being currently exercisable. We
incurred a noncash compensation charge of $10.1 million in the second quarter of 2004 as a result of the
grant of these options. This noncash compensation charge equaled the difference between $5.54 and the
fair market value of our common stock as of the grant date of these options.
Amortization Expense. Amortization expense increased to approximately $358,000 for the year
ended December 31, 2005 from approximately $107,000 for the year ended December 31, 2004. This
increase was primarily the result of the increase in deferred financing costs from the prior year period, due
to fees related to the issuance of our 8.0% senior notes due 2013 during the year.
Other (Income) Expense. We use forward exchange contracts to hedge foreign currency transaction
exposures of our United Kingdom operations. We estimate our projected revenues and purchases in certain
foreign currencies or locations and will hedge a portion of the anticipated long or short position. We have
not designated any of our forward exchange contracts as cash flow hedges, electing instead to mark-to-
market the contracts and record the fair value of the contracts on our balance sheet, with the offsetting
noncash gain or loss recorded in our statement of operations. The $3.7 million gain for the year ended
December 31, 2005 and the $1.2 million gain for the year ended December 31, 2004 are primarily related
to the noncash change in value of the forward exchange contracts in existence at the end of each period.
Interest Expense.
Interest expense increased $6.0 million, or 83.3%, to $13.2 million for the year
ended December 31, 2005 from $7.2 million for the year ended December 31, 2004. This increase was
primarily the result of an increase in total debt due to the acquisitions made during the year.
Loss on Early Extinguishment of Debt. As part of our August 2004 initial public offering, we wrote
off capitalized debt financing costs which approximated $1.6 million. As part of our 2005 issuance of
8.0% senior notes due 2013 and amendment of our existing credit agreement, we wrote off approximately
$1.5 million of deferred fees.
Provision for Income Taxes. Our effective tax rate during the year ended December 31, 2005 was
37.1% compared to 27.1% for 2004. Provision for income taxes increased $22.6 million to $29.1 million for
the year ended December 31, 2005, compared to an income tax provision of $6.5 million for the year
ended December 31, 2004. The increase in effective rate year over year can be primarily attributed to the
reversal of the existing valuation allowance in 2004 after consideration of the future profitability of the
company.
Net Income. Net income increased $31.9 million to $49.4 million for the year ended December 31,
2005, compared to $17.5 million for the year ended December 31, 2004, primarily as a result of the factors
discussed above.
42
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Revenues. Revenues increased $92.9 million, or 32.3%, to $380.4 million for the year ended
December 31, 2004 from $287.6 million for the year ended December 31, 2003. We believe this increase
resulted primarily from:
‚ a 48% increase in North American Heavy-duty (Class 8) truck production, fluctuations in content
and production levels for our other North American end markets as well as net new business
awards resulted in approximately $72 million;
‚ an increase in production levels, fluctuations in content and net new business awards for our
European, Australian and Asian markets of approximately $10 million;
‚ favorable foreign exchange fluctuations of approximately $11 million.
Gross Profit. Gross profit increased $21.1 million, or 42.4%, to $70.8 million for the year ended
December 31, 2004 from $49.7 million for the year ended December 31, 2003. As a percentage of
revenues, gross profit increased to 18.6% for the year ended December 31, 2004 from 17.3% for the year
ended December 31, 2003. We believe this increase resulted primarily from the revenue increases
discussed above and our ability to convert on the revenue increases at an overall incremental margin of
25% without having to incur additional fixed costs to support the increased revenues. In addition, we
continued to seek material cost reductions, reductions in packaging costs and labor efficiencies to generate
additional profits during the year ended December 31, 2004.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased
$4.7 million, or 19.4%, to $29.0 million for the year ended December 31, 2004 from $24.3 million for the
year ended December 31, 2003. We believe this increase resulted principally from increases in wages and
the cost of additional resources to accommodate product innovation and growth in the commercial vehicle
sector as well as cost associated with being a public company.
Noncash Stock Option Compensation Expense. To reward our senior management team for its
success in reducing operating costs, integrating businesses and improving processes through cyclical
periods, we granted options to purchase an aggregate of 910,869 shares of our common stock to 16
members of our management team in May 2004. The exercise price for such options is $5.54 per share. As
modified, such options have a ten-year term with 100% of such options being currently exercisable. We
incurred a noncash compensation charge of $10.1 million in the second quarter of 2004 as a result of the
grant of these options. This noncash compensation charge equaled the difference between $5.54 and the
fair market value of our common stock as of the grant date of these options.
Amortization Expense. Amortization expense decreased 42.2%, to $107,000 for the year ended
December 31, 2004 from $185,000 for the year ended December 31, 2003. This reduction was primarily
the result of the decrease in deferred financing costs from the prior year period.
Other (Income) Expense. We use forward exchange contracts to hedge foreign currency transaction
exposures of our United Kingdom operations. We estimate our projected revenues and purchases in certain
foreign currencies or locations and will hedge a portion of the anticipated long or short position. We have
not designated any of our forward exchange contracts as cash flow hedges, electing instead to mark-to-
market the contracts and record the fair value of the contracts on our balance sheet, with the offsetting
noncash gain or loss recorded in our statement of operations. The $1.2 million gain for the year ended
December 31, 2004 and the $3.2 million loss for the year ended December 31, 2003 represent the noncash
change in value of the forward exchange contracts in existence at the end of each period.
Interest Expense.
Interest expense decreased $2.6 million, or 26.1%, to $7.2 million for the year
ended December 31, 2004 from $9.8 million for the year ended December 31, 2003. This decrease reflects
a reduction in total debt of $73.5 million.
Loss on Early Extinguishment of Debt. As part of our August 2004 initial public offering, we wrote-
off capitalized debt financing costs which approximated $1.6 million. As part of the combination of CVS
43
and National/KAB Seating during March 2003, we wrote-off capitalized debt financing costs as well as
certain costs incurred in connection with a credit agreement amendment. Total capitalized costs written-off
and amendment costs expensed during the twelve months ended December 31, 2003 approximated
$3.0 million.
Provision for Income Taxes. Our effective tax rate during the year ended December 31, 2004 was
27.1% compared to 57.1% for 2003. Provision for income taxes increased $1.2 million to $6.5 million for
the year ended December 31, 2004, compared to an income tax provision of $5.3 million for the year
ended December 31, 2003. The decrease in effective rate is due to the reversal of the existing valuation
allowance after consideration of the future profitability of the company.
Net Income. Net income increased $13.5 million to $17.4 million for the year ended December 31,
2004, compared to $4.0 million for the year ended December 31, 2003, primarily as a result of the factors
discussed above.
Liquidity and Capital Resources
Cash Flows
For the year ended December 31, 2005, cash provided by operations was $44.2 million compared to
$34.2 million in the year ended December 31, 2004, primarily as a result of the increase in operating
earnings and the Mayflower, Monona and Cabarrus acquisitions. Cash provided by operations during the
year ended December 31, 2003 was $10.4 million.
Net cash used in investing activities was $188.6 million for the year ended December 31, 2005
compared to $8.9 million in the year ended December 31, 2004 and $6.0 million in the year ended
December 31, 2003. The amounts used in the year ended December 31, 2005 reflect both capital
expenditure purchases and the Mayflower, Monona and Cabarrus acquisitions. During 2004 and 2003, all
net cash used in investing activities was for capital expenditures, primarily for equipment and tooling
purchases related to new or replacement programs and current equipment upgrades.
Net cash provided by financing activities totaled $188.5 million for the year ended December 31,
2005, compared to net cash used of $28.4 million in the year ended December 31, 2004 and $2.8 million
in the year ended December 31, 2003. The net cash from financing activities in the year ended
December 31, 2005 was principally related to additional borrowings related to the acquisitions of
Mayflower and Monona, the use of cash on hand for the acquisition of Cabarrus, the amendments to our
senior credit facility and issuance of common stock. The net cash used during the years ended
December 31, 2004 and 2003 was principally related to repayments of outstanding borrowings under our
senior credit facility, net of common stock issuance in 2004.
Debt and Credit Facilities
As of December 31, 2005, we had an aggregate of $191.0 million of outstanding indebtedness
excluding $1.5 million of outstanding letters of credit under various financing arrangements. We were in
compliance with all of our respective financial covenants under our debt and senior credit facility as of
December 31, 2005. The indebtedness consisted of the following:
‚ $3.4 million under our revolving credit facility, $37.1 million under our term loan facility and
$0.4 million of capital lease obligations. The weighted average rate on these borrowings, for the year
ended December 31, 2005, ranged from approximately 6.6% with respect to the revolving
borrowings to approximately 6.3% for the term loan borrowings and;
‚ $150 million of 8.0% senior notes due 2013.
In August 2004, in connection with our initial public offering, we entered into the senior credit
facility, consisting of a $65.0 million term loan and a $40.0 million revolving line of credit. We used
borrowings under the term loan, together with proceeds of the offering to repay all of our existing
44
borrowings under our then-existing senior credit facility and to repay all of our then existing subordinated
indebtedness.
In February 2005, in connection with the Mayflower acquisition, we amended our senior credit facility
to increase the revolving credit facility from $40.0 million to $75.0 million and the term loans from
$65.0 million to $145.0 million. We used borrowings of approximately $106.4 million under our amended
senior credit facility to fund substantially all of the purchase price for the Mayflower acquisition.
On June 3, 2005, in connection with the Monona acquisition, we amended our senior credit facility to
increase the revolving credit facility from $75.0 million to $100.0 million. In addition, the amendment
increased certain baskets in the lien, investments and asset disposition covenants to reflect our increased
size as a result of the Mayflower and Monona acquisitions. We used revolving credit borrowings of
approximately $58.0 million under our amended senior credit facility to fund substantially all of the
purchase price for the Monona acquisition.
On July 6, 2005, we completed a secondary equity offering and the offering of the 8.0% senior notes
due 2013. We used the net proceeds of these offerings of approximately $190.8 million primarily to repay a
portion of the borrowings under our senior credit facility. In connection with the offering of the
8.0% senior notes due 2013, we entered into an additional amendment to our senior credit facility which
provides for, among other things, the incurrence of debt in connection with the offering of the 8.0% senior
notes due 2013 and the application of the net proceeds therefrom.
On December 30, 2005, we entered into an additional amendment to our senior credit facility to
increase our annual capital expenditure limit from $25.0 million per year to $40.0 million per year.
The revolving credit facility is available until January 31, 2010 and the term loans are due and
payable on December 31, 2010. Based on the provisions of the AICPA's Emerging Issues Task Force
(EITF) 96-19, Debtor's Accounting for a Modification or Exchange of Debt Instruments, approximately
$6.0 million third party fees relating to the credit agreement and 8.0% senior notes due 2013 were
capitalized at December 31, 2005 and are being amortized over the life of the senior credit facility.
Under the terms of our senior credit facility, availability under the revolving credit facility is subject
to the lesser of (i) a borrowing base that is equal to the sum of (a) 80% of eligible accounts receivable
plus (b) 50% of eligible inventory; or (ii) $100.0 million. Borrowings under the senior credit facility bear
interest at a floating rate which can be either the prime rate or LIBOR plus the applicable margin to the
prime rate and LIBOR borrowings based on our leverage ratio. The senior credit facility contains various
financial covenants, including a minimum fixed charge coverage ratio of not less than 1.30, and a
minimum ratio of EBITDA to cash interest expense of not less than 2.50, in each case for the twelve
month period ending on December 31 of each year, a limitation on the amount of capital expenditures of
not more than $40.0 million in any fiscal year and a maximum ratio of total indebtedness to EBITDA as
of the last day of each fiscal quarter as set forth below:
Quarter(s) Ending
Maximum
Total Leverage
Ratio
12/31/05 through 9/30/06ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
12/31/06 and each fiscal quarter thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2.75 to 1.00
2.50 to 1.00
The senior credit facility also contains covenants restricting certain corporate actions, including asset
dispositions, acquisitions, dividends, changes of control, incurring indebtedness, making loans and
investments and transactions with affiliates. If we do not comply with such covenants or satisfy such ratios,
our lenders could declare a default under the senior credit facility, and our indebtedness thereunder could
be declared immediately due and payable. The senior credit facility is collateralized by substantially all of
our assets. The senior credit facility also contains customary events of default.
The 8.0% senior notes due 2013 are senior unsecured obligations and rank pari passu in right of
payment to all of our existing and future senior indebtedness and are effectively subordinated to our
45
existing and future secured obligations. The 8.0% senior notes due 2013 are guaranteed by all of our
domestic subsidiaries.
The indenture governing the 8.0% senior notes due 2013 contain covenants that limit, among other
things, additional indebtedness, issuance of preferred stock, dividends, repurchases of capital stock or
subordinated indebtedness, investments, liens, restrictions on the ability of our subsidiaries to pay dividends
to us, sales of assets, sale/leaseback transactions, mergers and transactions with affiliates. Upon a change
of control, each holder shall have the right to require that we purchase such holder's securities at a
purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest to
the date of repurchase. The indenture governing the 8.0% senior notes due 2013 also contains customary
events of default.
In addition, prior to May 2, 2005, we also had $6.5 million of indebtedness from borrowings financed
through the issuance of industrial development bonds relating to our Vonore, Tennessee facility. These
borrowings had a final maturity of August 1, 2006 and bore interest at a variable rate which was adjusted
on a weekly basis by the placement agent such that the interest rate on the bonds was sufficient to cause
the market value of the bonds to be equal to, as nearly as practicable, 100% of their principal amount. On
May 2, 2005 we redeemed these bonds for approximately $6.5 million.
We believe that cash flow from operating activities together with available borrowings under our
senior credit facility will be sufficient to fund currently anticipated working capital, planned capital
spending and debt service requirements for at least the next twelve months. Capital expenditures for 2006
are expected to be approximately $24.0 million.
Contractual Obligations and Commercial Commitments
The following tables reflect our contractual obligations as of December 31, 2005:
Payments Due by Period
Total
Less than
1 Year
Long-term debt obligations ÏÏÏÏÏÏÏÏÏÏÏ
Estimated interest payments ÏÏÏÏÏÏÏÏÏÏ
Operating lease obligations ÏÏÏÏÏÏÏÏÏÏÏ
Pension & post retirement funding ÏÏÏÏ
$190,598
46,925
26,715
33,626
$ 5,309
14,420
5,822
2,032
1-3 Years
(In thousands)
$13,774
13,813
8,221
4,621
3-5 Years
More than
5 Years
$21,515
12,690
5,456
5,893
$150,000
6,002
7,216
21,081
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$297,864
$27,583
$40,429
$45,554
$184,299
Since December 31, 2005, there have been no material changes outside the ordinary course of
business to our contractual obligations as set forth above.
In addition to the obligations noted above, we have obligations reported as other long-term liabilities
that consist principally of facility closure and consolidation costs, forward contracts, loss contracts and
other items. We also enter into agreements with our customers at the beginning of a given platform's life
to supply products for the entire life of that vehicle platform, which is typically five to seven years. These
agreements generally provide for the supply of a customer's production requirements for a particular
platform, rather than for the purchase of a specific quantity of products. Accordingly, our obligations under
these agreements are not reflected in the contractual obligations table above.
As of December 31, 2005, we were not party to significant purchase obligations for goods or services.
Off-Balance Sheet Arrangements
We use standby letters of credit to guarantee our performance under various contracts and
arrangements, principally in connection with our workers' compensation liabilities and for leases on
equipment and facilities. These letter of credit contracts are usually extended on a year-to-year basis. As of
46
December 31, 2005, we had outstanding letters of credit of $1.5 million. We do not believe that these
letters of credit will be required to be drawn.
We currently have no non-consolidated special purpose entity arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to various market risks, including changes in foreign currency exchange rates and
interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices,
such as foreign currency exchange and interest rates. We do not enter into derivatives or other financial
instruments for trading or speculative purposes. We do enter into financial instruments, from time to time,
to manage and reduce the impact of changes in foreign currency exchange rates and interest rates and to
hedge a portion of future anticipated currency transactions. The counterparties are primarily major
financial institutions.
We manage our interest rate risk by balancing the amount of our fixed rate and variable rate debt.
For fixed rate debt, interest rate changes affect the fair market value of such debt but do not impact
earnings or cash flows. Conversely for variable rate debt, interest rate changes generally do not affect the
fair market value of such debt, but do impact future earnings and cash flows, assuming other factors are
held constant. Approximately $40.6 million and $53.9 million of our debt was variable rate debt at
December 31, 2005 and 2004, respectively. Holding other variables constant (such as foreign exchange
rates and debt levels), a one percentage point change in interest rates would be expected to have an
impact on pre-tax earnings and cash flows for the next year of approximately $0.4 million and $0.5 million,
respectively. The impact on the fair market value of our debt at December 31, 2005 and 2004 would have
been insignificant.
Foreign Currency Risk
Foreign currency risk is the risk that we will incur economic losses due to adverse changes in foreign
currency exchange rates. We use forward exchange contracts to hedge foreign currency translation
exposures of our United Kingdom operations. We estimate our projected revenues and purchases in certain
foreign currencies or locations, and will hedge a portion or all of the anticipated long or short position. The
contracts typically run from three months up to three years. These contracts are marked-to-market and the
fair value is included in assets (liabilities) in our balance sheets, with the offsetting noncash gain or loss
included in our statements of operations. We do not hold or issue foreign exchange options or forward
contracts for trading purposes.
Outstanding foreign currency forward exchange contracts at December 31, 2005 are more fully
described in the notes to our consolidated financial statements in Item 15 of this Annual Report on
Form 10-K. The fair value of these contracts at December 31, 2005 and 2004 amounted to a net asset of
$4.3 million and $0.5 million, respectively, which is reflected in other assets in our consolidated
December 31, 2005 balance sheet. None of these contracts have been designated as cash flow hedges;
thus, the change in fair value at each reporting date is reflected as a noncash charge (income) in our
statement of operations. We may designate future forward exchange contracts as cash flow hedges.
Our primary exposures to foreign currency exchange fluctuations are pound sterling/Eurodollar and
pound sterling/Japanese yen. At December 31, 2005, the potential reduction in earnings from a
hypothetical instantaneous 10% adverse change in quoted foreign currency spot rates applied to foreign
currency sensitive instruments is limited by the assumption that all of the foreign currencies to which we
are exposed would simultaneously decrease by 10% because such synchronized changes are unlikely to
occur. The effects of the forward exchange contracts have been included in the above analysis; however,
the sensitivity model does not include the inherent risks associated with the anticipated future transactions
denominated in foreign currency.
47
Foreign Currency Transactions
A portion of our revenues during the year ended December 31, 2005 were derived from manufacturing
operations outside of the United States. The results of operations and the financial position of our
operations in these other countries are principally measured in their respective currency and translated into
U.S. dollars. A portion of the expenses generated in these countries is in currencies different from which
revenue is generated. As discussed above, from time to time, we enter into forward exchange contracts to
mitigate a portion of this currency risk. The reported income of these operations will be higher or lower
depending on a weakening or strengthening of the U.S. dollar against the respective foreign currency.
A portion of our assets at December 31, 2005 are based in our foreign operations and are translated
into U.S. dollars at foreign currency exchange rates in effect as of the end of each period, with the effect
of such translation reflected as a separate component of stockholders' investment. Accordingly, our
stockholders' investment will fluctuate depending upon the weakening or strengthening of the U.S. dollar
against the respective foreign currency.
Effects of Inflation
Inflation potentially affects us in two principal ways. First, a portion of our debt is tied to prevailing
short-term interest rates that may change as a result of inflation rates, translating into changes in interest
expense. Second, general inflation can impact material purchases, labor and other costs. In many cases, we
have limited ability to pass through inflation-related cost increases due to the competitive nature of the
markets that we serve. In the past few years, however, inflation has not been a significant factor.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements, together with the related notes and the report of independent
registered public accounting firm, are set forth on the pages indicated in Item 15 in this Annual Report on
Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no changes in or disagreements with accountants on accounting and financial disclosure.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of December 31, 2005, our chief executive officer and chief
financial officer have concluded that our disclosure controls and procedures are designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SEC's rules and
forms and were effective.
48
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f)
promulgated under the Exchange Act as a process designed by, or under the supervision of our principal
executive and principal financial officers and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting
principles in the United States. Such internal control includes those policies and procedures that:
‚ Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the company;
‚ Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and
‚ Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the company's assets that could have a material effect on the financial
statements.
Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2005. In making this assessment, it used the criteria set forth in Internal Control Ì
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on this assessment, management has determined that, as of December 31, 2005, our
internal control over financial reporting is effective based on those criteria.
Management's assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2005 has been audited by Deloitte and Touche LLP, an independent registered public
accounting firm, as stated in their report which appears in this Annual Report on Form 10-K.
/s/ MERVIN DUNN
Mervin Dunn
Chief Executive Officer
March 10, 2006
/s/ CHAD M. UTRUP
Chad M. Utrup
Chief Financial Officer
49
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Commercial Vehicle Group, Inc.
We have audited management's assessment, included in the accompanying Management's Report on
Internal Control Over Financial Reporting, that Commercial Vehicle Group, Inc. and subsidiaries (the
""Company'') maintained effective internal control over financial reporting as of December 31, 2005, based
on the criteria established in Internal Control Ì Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the ""COSO Framework''). The Company's
management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express
an opinion on management's assessment and an opinion on the effectiveness of the Company's internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial
reporting, evaluating management's assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the
supervision of, the company's principal executive and principal financial officers, or persons performing
similar functions, and effected by the company's board of directors, management, and other personnel to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company's
internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility
of collusion or improper management override of controls, material misstatements due to error or fraud
may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness
of the internal control over financial reporting to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over
financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria
established in the COSO Framework. Also, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria
established in the COSO Framework.
50
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and financial statement schedule as of and
for the year ended December 31, 2005 of the Company and our report dated March 10, 2006, expressed
an unqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
March 10, 2006
51
Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2005 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 10. Directors and Executive Officers of the Registrant
A. Directors of the Registrant
PART III
The information required by Item 10 with respect to the directors is incorporated herein by reference
to the section labeled ""Election of Directors'' which appears in our 2006 Proxy Statement.
B. Executive Officers
The following table sets forth certain information with respect to our current directors and executive
officers as of December 31, 2005:
Name
Age
Principal Position(s)
Scott D. Rued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mervin DunnÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Chad M. Utrup ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gerald L. Armstrong ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
W. Gordon BoydÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
James F. Williams ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Scott C. ArvesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David R. BoveeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Robert C. Griffin ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
S.A. Johnson ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Richard A. Snell ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
49 Chairman and Director
52 President, Chief Executive Officer and Director
33 Chief Financial Officer
44 President Ì CVG Americas
58 President Ì CVG International
59 Vice President of Human Resources
49 Director
56 Director
57 Director
65 Director
64 Director
The following biographies describe the business experience of our directors and executive officers.
Scott D. Rued has served as a Director since February 2001 and Chairman since April 2002. Since
September 2003, Mr. Rued has served as a Managing Partner of Thayer Capital Partners (""Thayer'').
Prior to joining Thayer, Mr. Rued served as President and Chief Executive Officer of Hidden Creek
Industries (""Hidden Creek'') from May 2000 to August 2003. From January 1994 through April 2000,
Mr. Rued served as Executive Vice President and Chief Financial Officer of Hidden Creek.
Mervin Dunn has served as our President and Chief Executive Officer since June 2002, and prior
thereto served as the President of Trim Systems, commencing upon his joining us in October 1999. From
1998 to 1999, Mr. Dunn served as the President and Chief Executive Officer of Bliss Technologies, a
heavy metal stamping company. From 1988 to 1998, Mr. Dunn served in a number of key leadership roles
at Arvin Industries, including Vice President of Operating Systems (Arvin North America), Vice
President of Quality, and President of Arvin Ride Control. From 1985 to 1988, Mr. Dunn held several key
management positions in engineering and quality assurance at Johnson Controls Automotive Group, an
automotive trim company, including Division Quality Manager. From 1980 to 1985, Mr. Dunn served in a
number of management positions for engineering and quality departments of Hyster Corporation, a
manufacturer of heavy lift trucks.
52
Chad M. Utrup has served as the Chief Financial Officer since January 2003, and prior thereto served
as the Vice President of Finance at Trim Systems since 2000. Prior to joining us in February 1998,
Mr. Utrup served as a project management group member at Electronic Data Systems. While with
Electronic Data Systems, Mr. Utrup's responsibilities included financial support and implementing cost
recovery and efficiency programs at various Delphi Automotive Systems support locations.
Gerald L. Armstrong has served as the President Ì CVG Americas since April 2004. From July 2002
to April 2004, Mr. Armstrong served as Vice President and General Manager of National Seating and
KAB North America. Prior to joining us, Mr. Armstrong served from 1995 to 2000 and from 2000 to July
2002 as Vice President and General Manager, respectively, of Gabriel Ride Control Products, a
manufacturer of shock absorbers and related ride control products for the automotive and light truck
markets, and a wholly owned subsidiary of ArvinMeritor Inc. Mr. Armstrong began his service with
ArvinMeritor Inc., a manufacturer of automotive and commercial vehicle components, modules and
systems in 1987, and served in various positions of increasing responsibility within its light vehicle original
equipment and aftermarket divisions before starting at Gabriel Ride Control Products. Prior to 1987,
Mr. Armstrong held various positions of increasing responsibility including Quality Engineer and Senior
Quality Supervisor and Quality Manager with Schlumberger Industries and Hyster Corporation.
W. Gordon Boyd has served as President Ì CVG International since June 2005 and prior thereto
served as our President Ì Mayflower Vehicle Systems from the time we completed the acquisition of
Mayflower in February 2005. Mr. Boyd joined Mayflower Vehicle Systems U.K. as Manufacturing
Director in 1993. In 2002, Mr. Boyd became President and Chief Executive Officer of MVS, Inc.
James F. Williams has served as the Vice President of Human Resources since August 1999. Prior to
joining us, Mr. Williams served as Corporate Vice President of Human Resources and Administration for
SPECO Corporation from January 1996 to August 1999. From April 1984 to January 1996, Mr. Williams
served in various key human resource management positions in General Electric's Turbine, Lighting and
Semi Conductor business. In addition, Mr. Williams served as Manager of Labor Relations and Personnel
Services at Mack Trucks' Allentown Corporate location from 1976 to 1984.
Scott C. Arves has served as a Director since July 2005. Mr. Arves has served since 1979 in positions
of increasing responsibility with Schneider National, Inc., a provider of transportation, logistics and related
services, including most recently as its President of Transportation since May 2000.
David R. Bovee has served as a Director since October 2004. Mr. Bovee served as Vice President and
Chief Financial Officer of Dura Automotive Systems, Inc. (""Dura'') from January 2001 to March 2005
and from November 1990 to May 1997. From May 1997 until January 2001, Mr. Bovee served as Vice
President of Business Development for Dura. Mr. Bovee also served as Dura's Assistant Secretary for
Dura. Prior to joining Dura, Mr. Bovee served as Vice President at Wickes Manufacturing Company in its
Automotive Group from 1987 to 1990.
Robert C. Griffin has served as a Director since July 2005. Mr. Griffin has held numerous positions of
responsibility in the financial sector, including Head of Investment Banking, Americas for Barclay's
Capital from 2000 to 2002, and prior to that as the Global Head of Financial Sponsor Coverage for Bank
of America Securities from 1998 to 2002 and Group Executive Vice President of Bank of America from
1997 to 1998. Mr. Griffin also currently serves as a Director of Builders FirstSource, Inc.
Sankey A. (""Tony'') Johnson has served as a Director since September 2000. Mr. Johnson served as
the Chairman of Hidden Creek from May 2001 to May 2004 and from 1989 to May 2001 was its Chief
Executive Officer and President. Prior to forming Hidden Creek, Mr. Johnson served from 1985 to 1989 as
Chief Operating Officer of Pentair, Inc., a diversified industrial company. Mr. Johnson also currently
serves as Chairman and a Director of Tower Automotive, Inc. and Cooper-Standard Automotive, Inc.
Richard A. Snell has served as a Director since August 2004. Mr. Snell has served as Chairman and
Chief Executive Officer of Qualitor, Inc. since May 2005 and as an Operating Partner at Thayer Capital
Partners since 2003. Prior to joining Thayer, Mr. Snell was a consultant from 2000 to 2003 and prior
thereto, served as Chairman and Chief Executive Officer of Federal-Mogul Corporation, an automotive
53
parts manufacturer, from 1996 to 2000. In October 2001, when Mr. Snell was no longer affiliated with that
company, Federal Mogul Corporation filed a voluntary petition for reorganization under the federal
bankruptcy laws. Prior to joining Federal Mogul Corporation, Mr. Snell served as Chief Executive Officer
at Tenneco Automotive, also an automotive parts manufacturer. Mr. Snell also currently serves as a
Director of Schneider National, Inc.
There are no family relationships between any of our directors or executive officers.
C. Section 16(a) Beneficial Ownership Reporting Compliance
The information required by Item 10 with respect to compliance with reporting requirements is
incorporated herein by reference to the section labeled ""Section 16(a) Beneficial Ownership Reporting
Compliance'' which appears in CVG's 2006 Proxy Statement.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by reference to the sections labeled
""Director Compensation'' and ""Executive Compensation and Other Matters'' which appear in CVG's 2006
Proxy Statement excluding information under the headings ""Report of the Compensation Committee on
Executive Compensation'' and ""Performance Graph.''
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Options to purchase common shares of our common stock have been granted to certain of our
executives and key employees under our amended and restated equity incentive plan and our management
stock option plan. The following table summarizes the number of stock options issued and shares of
restricted stock granted, net of forfeitures and sales, the weighted-average exercise price of such stock
options and the number of securities remaining to be issued under all outstanding equity compensation
plans as of December 31, 2005:
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options,
Warrants and
Rights(1)
Weighted-
average Exercise
Price of
Outstanding
Options,
Warrants and
Rights
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans
Equity compensation plans approved by security
holders:
Amended and Restated Equity Incentive Plan
Stock Options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted Stock(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Management Stock Option Plan ÏÏÏÏÏÏÏÏÏÏÏÏ
Equity compensation plans not approved by
569,784
167,300
619,892
stockholders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,356,976
$15.84
Ì
$ 5.54
Ì
$10.47
(3)
(3)
Ì
Ì
262,916
(1) In connection with our merger with Trim Systems, Inc., options to purchase shares of Trim Systems,
Inc.'s common stock were converted into options to purchase shares of our common stock. Of these,
options to purchase an aggregate of 28,951 shares at a weighted-average exercise price of $9.43 per
share were outstanding at December 31, 2005. These options are not included in the table.
(2) 167,300 shares of restricted stock were issued under our Amended and Restated Equity Incentive
Plan. These shares of restricted stock vest in three equal annual installments commencing on
October 20, 2006.
54
(3) 262,916 shares are available for future issuance under our Amended and Restated Equity Incentive
Plan.
The information required by Item 12 is incorporated herein by reference to the sections labeled
""Security Ownership of Certain Beneficial Owners and Management'' and ""Employee Benefit Plans,''
which appear in CVG's 2006 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated herein by reference to the section labeled
""Certain Relationships and Related Transactions'' which appears in CVG's 2006 Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by Item 14 is incorporated herein by reference to the section labeled
""Principal Accountant Fees and Services'' which appears in CVG's 2006 Proxy Statement.
55
PART IV
Item 15. Consolidated Financial Statements, Financial Statement Schedule and Exhibits
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Documents Filed as Part of this Annual Report on Form 10-K
Report of Independent Registered Public Accounting Firm ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheets as of December 31, 2005 and 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003 ÏÏÏÏ
Consolidated Statements of Stockholders' Investment for the years ended December 31, 2005, 2004
and 2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Cash Flows for the years ended December 2005, 2004 and 2003 ÏÏÏÏÏÏÏ
Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Financial Statement Schedule:
Page
57
58
59
60
61
62
Schedule II Ì Valuation and Qualifying Account ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
95
(b) Exhibits: See ""Exhibit Index''
We hereby file as part of this Annual Report on Form 10-K the exhibits listed in the Index to
Exhibits.
All other items included in an Annual Report on Form 10-K are omitted because they are not
applicable or the answers thereto are none.
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Commercial Vehicle Group, Inc.
We have audited the accompanying consolidated balance sheets of Commercial Vehicle Group, Inc.
and subsidiaries (the ""Company'') (formerly Bostrom Holding, Inc., a Delaware corporation) as of
December 31, 2005 and 2004 and the related consolidated statements of operations, stockholders'
investment, and cash flows for each of the three years in the period ended December 31, 2005. Our audits
also included the financial statement schedule listed in the Index to Item 15. These consolidated financial
statements and financial statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the
financial position of Commercial Vehicle Group, Inc. and subsidiaries as of December 31, 2005 and 2004
and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2005, in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information
set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Company's internal control over financial reporting as of
December 31, 2005, based on the criteria established in Internal Control Ì Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 10, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the
Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
March 10, 2006
57
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
2005
2004
(In thousands)
CURRENT ASSETS:
ASSETS
Cash and cash equivalentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts receivable, net of reserve for doubtful accounts of $6,087 and $2,681, respectively
Inventories, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expenses and other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 40,641
114,116
69,053
4,724
12,571
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
241,105
$
1,396
46,267
36,936
6,081
8,201
98,881
PROPERTY, PLANT AND EQUIPMENT:
Land and buildingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Construction in progress ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less accumulated depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property, plant and equipment, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GOODWILL ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
INTANGIBLE ASSETS, net of accumulated amortization of $450 and $125, respectively ÏÏ
DEFERRED INCOME TAXES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
OTHER ASSETS, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
27,310
93,912
15,827
(56,634)
80,415
125,607
84,577
Ì
12,179
12,949
64,205
3,764
(47,953)
32,965
84,715
313
5,901
2,863
TOTAL ASSETS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$543,883
$225,638
CURRENT LIABILITIES:
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current maturities of long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
5,309
73,709
42,983
$
Total current liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
122,001
LONG-TERM DEBT, net of current maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DEFERRED TAX LIABILITIES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
OTHER LONG-TERM LIABILITIES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
185,700
8,802
25,303
4,884
33,846
18,424
57,154
49,041
Ì
8,397
Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
341,806
114,592
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' INVESTMENT:
Preferred stock $.01 par value; 5,000,000 shares authorized; no shares issued and outstanding
Common stock $.01 par value; 30,000,000 shares authorized; 21,145,954 and
17,987,497 shares issued and outstanding, respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earnings (accumulated deficit) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock subscription receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive (loss) income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
211
172,514
33,957
(3,262)
Ì
(1,343)
180
123,660
(15,454)
Ì
(175)
2,835
Total stockholders' investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
202,077
111,046
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$543,883
$225,638
The accompanying notes are an integral part of these consolidated financial statements.
58
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2005, 2004 and 2003
REVENUES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
COST OF REVENUES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005
2003
2004
(In thousands, except per share data)
$380,445
309,696
$754,481
620,031
$287,579
237,884
Gross profit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ÏÏÏ
NONCASH STOCK OPTION COMPENSATION EXPENSE ÏÏÏÏ
AMORTIZATION EXPENSE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
134,450
44,564
Ì
358
Operating income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
89,528
(GAIN) LOSS ON FOREIGN CURRENCY FORWARD
EXCHANGE CONTRACTS AND OTHER ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
INTEREST EXPENSE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
LOSS ON EARLY EXTINGUISHMENT OF DEBT ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PROVISION FOR INCOME TAXES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(3,741)
13,195
1,525
78,549
29,138
70,749
28,985
10,125
107
31,532
(1,247)
7,244
1,605
23,930
6,481
NET INCOME ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
49,411
$ 17,449
BASIC EARNINGS PER SHARE:ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DILUTED EARNINGS PER SHARE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
2.54
2.51
$
$
1.13
1.12
49,695
24,281
Ì
185
25,229
3,230
9,796
2,972
9,231
5,267
3,964
0.29
0.29
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
59
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
Years Ended December 31, 2005, 2004 and 2003
Common Stock
Shares
Amount
Stock
Subscription
Receivable
Additional
Paid-In
Capital
Retained
Earnings
(Accumulated
Deficit)
Deferred
Compensation
Accumulated
Other
Comprehensive
Income
(Loss)
Total
(In thousands, except per share data)
13,778,599
$138
$(430)
$ 76,803
$(46,992)
$ Ì
$(2,494)
$ 27,025
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
3,964
Ì
Ì
Ì
13,778,599
4,072,875
Ì
138
41
Ì
(430)
Ì
255
76,803
46,393
Ì
136,023
Ì
Ì
Ì
Ì
1
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
464
Ì
Ì
Ì
Ì
17,987,497
2,671,229
180
26
(175)
Ì
123,660
43,710
319,928
167,300
Ì
Ì
Ì
Ì
3
2
Ì
Ì
Ì
Ì
Ì
Ì
175
Ì
Ì
Ì
1,882
3,262
Ì
Ì
Ì
Ì
(43,028)
Ì
Ì
Ì
10,125
17,449
Ì
Ì
(15,454)
Ì
Ì
Ì
Ì
49,411
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(3,262)
Ì
Ì
Ì
Ì
Ì
2,819
529
469
1,323
Ì
Ì
Ì
Ì
Ì
3,964
2,819
529
469
7,781
34,806
46,434
255
465
10,125
17,449
2,056
2,056
(544)
(544)
18,961
2,835
Ì
111,046
43,736
Ì
Ì
Ì
Ì
1,885
2
175
49,411
(3,645)
(3,645)
(533)
(533)
45,233
BALANCE Ì December 31,
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign currency translation
adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair value of derivative
instruments ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minimum pension liability
adjustments, net of taxes ÏÏ
Total comprehensive income ÏÏÏ
BALANCE Ì December 31,
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of common stockÏÏÏ
Stock subscriptions received
Exercise of stock purchase
warrants in connection with
initial public offering ÏÏÏÏÏ
Stock option compensation
expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign currency translation
adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minimum pension liability
adjustments, net of taxes ÏÏ
Total comprehensive income ÏÏÏ
BALANCE Ì December 31,
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of common stockÏÏÏ
Issuance of common stock
under stock option and
equity incentive plans ÏÏÏÏÏ
Issuance of restricted stock ÏÏ
Stock subscriptions received
Comprehensive income:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign currency translation
adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minimum pension liability
adjustments, net of taxes ÏÏ
Total comprehensive income ÏÏÏ
BALANCE Ì December 31,
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
21,145,954
$211
$ Ì $172,514
$ 33,957
$(3,262)
$(1,343)
$202,077
The accompanying notes are an integral part of these consolidated financial statements.
60
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004 and 2003
2005
2004
(In thousands)
2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
49,411
$
17,449
$
3,964
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Noncash amortization of debt financing costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Noncash stock option compensation expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on early extinguishment of debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income tax provision ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Noncash (gain) loss on forward exchange contracts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Noncash interest expense on subordinated debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in other operating items:
Accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expenses and other current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable and accrued liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets and liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
12,064
848
Ì
1,525
7,248
(3,793)
Ì
(22,013)
(11,571)
9,958
10,145
(9,666)
Net cash provided by operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
44,156
7,567
522
10,125
1,031
1,340
(1,291)
481
(4,744)
(6,243)
(2,360)
11,383
(1,083)
34,177
8,106
498
Ì
2,151
1,299
3,230
756
(9,215)
1,205
185
(5,278)
3,541
10,442
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payment for acquisitions, net of cash received ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets and liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(15,957)
(170,851)
(1,761)
(8,907)
(5,967)
Ì
Ì
Ì
Ì
Net cash used in investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(188,569)
(8,907)
(5,967)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from issuance of common stock under stock option and equity incentive plans ÏÏÏ
Repayment of revolving credit facility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Borrowings under revolving credit facility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Repayments of long-term borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from issuance (repayment) of subordinated debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from issuance of 8.0% senior notesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments on capital leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Debt issuance costs and other, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
43,914
1,887
(207,449)
206,778
227,459
(238,336)
Ì
150,000
(46)
4,340
46,640
465
(80,575)
58,092
66,061
(116,031)
(3,112)
Ì
(15)
48
Ì
Ì
(75,308)
79,335
Ì
(6,768)
Ì
Ì
(20)
Ì
Net cash provided by (used in) financing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
188,547
(28,427)
(2,761)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ÏÏÏÏÏÏÏÏÏÏÏ
CASH AND CASH EQUIVALENTS:
(4,889)
39,245
1,067
(2,090)
Beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,396
End of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
40,641
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash paid for income taxes, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unpaid purchases of property and equipment included in accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
6,340
24,603
4,712
$
$
$
$
135
1,849
1,637
$
3,486
3,486
1,396
7,564
2,767
$
$
Ì $
8,533
157
Ì
The accompanying notes are an integral part of these consolidated financial statements.
61
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005, 2004 and 2003
1. Organization and Background
Commercial Vehicle Group, Inc. and its subsidiaries (""CVG'' or the ""Company'') design and
manufacture suspension seat systems, interior trim systems (including instrument and door panels,
headliners, cabinetry, molded products and floor systems), cab structures and components, mirrors, wiper
systems, electronic wiring harness assemblies and controls and switches for the global commercial vehicle
market, including the heavy-duty truck market, the construction and agriculture market and the specialty
and military transportation markets. The Company has operations located in the United States in Arizona,
Indiana, Illinois, Iowa, North Carolina, Ohio, Oregon, Tennessee, Texas, Virginia, Washington and
Wisconsin and outside of the United States in Australia, Belgium, China, Mexico, Sweden and the United
Kingdom.
2. Significant Accounting Policies
Principles of Consolidation Ì The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates Ì The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The more significant estimates are used for such items as allowance for
doubtful accounts, inventory reserves, warranty, pension and post retirement benefit liabilities, contingent
liabilities, goodwill and intangible assets impairment and depreciable lives of property and equipment.
Ultimate results could differ from those estimates.
Cash and Cash Equivalents Ì Cash and cash equivalents consist of highly liquid investments with an
original maturity of three months or less. Cash equivalents are stated at cost, which approximates fair
value.
Inventories Ì The Company maintains its inventory primarily for the manufacture of goods for sale to
its customers. Inventory is composed of three categories: Raw Materials, Work in Process, and Finished
Goods. These categories are generally defined as follows: Raw Materials consist of materials that have
been acquired and are available for the production cycle; Work in Process is composed of materials that
have been moved into the production process and have some measurable amount of labor and overhead
added; Finished Goods are materials with added labor and overhead that have completed the production
cycle and are awaiting sale and delivery to customers.
Inventories are valued at the lower of first-in, first-out (""FIFO'') cost or market. Cost includes
applicable material, labor and overhead. The Company values its finished goods inventory at a standard
cost that is periodically adjusted to approximate actual cost. Inventory quantities on-hand are regularly
reviewed, and where necessary, provisions for excess and obsolete inventory are recorded based primarily
on the Company's estimated production requirements driven by current market volumes. Excess and
obsolete provisions may vary by product depending upon future potential use of the product.
62
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Property, Plant and Equipment Ì Property, plant and equipment are stated at cost, net of
accumulated depreciation. For financial reporting purposes, depreciation is computed using the straight-line
method over the following estimated useful lives:
Buildings and improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tools and dies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Computer hardware and softwareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
15 to 40 years
3 to 20 years
5 years
3 years
Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for major
betterments and renewals that extend the useful lives of property, plant and equipment are capitalized and
depreciated over the remaining useful lives of the asset. When assets are retired or sold, the cost and
related accumulated depreciation are removed from the accounts and any resulting gain or loss is
recognized in the results of operations. Leasehold improvements are amortized using the straight-line
method over the estimated useful lives of the improvements or the term of the lease, whichever is shorter.
Accelerated depreciation methods are used for tax reporting purposes.
The Company follows the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which provides a single accounting model for impairment of long-lived assets. The
Company had no impairments during 2005, 2004, or 2003.
Other Assets Ì Other assets principally consist of debt financing costs of approximately $6.0 million
at December 31, 2005 and approximately $2.0 million at December 31, 2004, which are being amortized
over the term of the related obligations.
Goodwill and Intangible Assets Ì Goodwill represents the excess of the cost of acquired businesses
over the fair value of identifiable tangible net assets and identifiable intangible assets purchased. Intangible
assets include, but are not limited to, trademarks, tradenames or customer relationships. Intangible assets
(excluding goodwill) totaled $84.6 million and $0.3 million, as of December 31, 2005 and 2004,
respectively. These intangible assets (excluding goodwill) were primarily comprised of trademarks or
tradenames, subject to amortization up to thirty (30) years, of $9.8 million and $0.3 million, as of
December 31, 2005 and 2004, respectively, and customer relationships, not subject to amortization, of
$74.8 million and $0, as of December 31, 2005 and 2004, respectively. For the years ended December 31,
2005, 2004 and 2003, the recorded amortization expense on intangible assets of $358,000, $107,000 and
$185,000, respectively. Based upon the Company's impairment assessments performed during 2005, 2004
and 2003, no new and/or additional impairment of goodwill has been determined to have occurred.
The change in the carrying amount of goodwill for the years ended December 31, 2005, 2004 and
2003, for the Company's reporting units, are as follows (in thousands):
North
America
Balance Ì December 31, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 60,294
Ì
Balance Ì December 31, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Acquisitions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
60,294
43,464
Ì
All Other
Countries
$22,578
1,843
24,421
Ì
(2,572)
Total
$ 82,872
1,843
84,715
43,464
(2,572)
Balance Ì December 31, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$103,758
$21,849
$125,607
Revenue Recognition Ì Product revenue is derived from sales of the Company's various manufactured
products. The Company's revenue recognition policies are in accordance with the SEC's Staff Accounting
63
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Bulletin (""SAB'') No. 101, Revenue Recognition in Financial Statements, SAB No. 104, Revenue
Recognition, and other authoritative accounting literature. In the case of arrangements which require
significant production, modification or customization of products, the Company follows the guidance in the
AICPA Statement of Position (""SOP'') 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts, whereby we apply percentage of completion, completed contract, or
other specified accounting methods, as deemed appropriate.
In accordance with the provisions of such authoritative accounting literature, the Company recognizes
revenue when 1) delivery has occurred or services have been rendered, 2) persuasive evidence of an
arrangement exists, 3) there is a fixed or determinable price, and 4) collectibility is reasonably assured.
Our products are generally shipped from our facilities to our customers, which is when title passes to the
customer for substantially all of our revenues.
Provisions for anticipated contract losses are recognized at the time they become evident. In that
regard, in certain instances, we may be committed under existing agreements to supply product to our
customers at selling prices that are not sufficient to cover the cost to produce such product. In such
situations, we record a provision for the estimated future amount of such losses. Such losses are recognized
at the time that the loss is probable and reasonably estimable and are recorded at the minimum amount
necessary to fulfill our obligations to our customers. The recorded amount of such losses was
approximately $0.1 million, $0.6 million and $1.5 million at December 31, 2005, 2004 and 2003,
respectively. These amounts, as they relate to the years ended December 31, 2005 and 2004 are included
within accrued liabilities and other long-term liabilities in the accompanying consolidated balance sheets.
Warranty Ì The Company is subject to warranty claims for products that fail to perform as expected
due to design or manufacturing deficiencies. Customers continue to require their outside suppliers to
guarantee or warrant their products and bear the cost of repair or replacement of such products.
Depending on the terms under which the Company supplies products to its customers, a customer may
hold the Company responsible for some or all of the repair or replacement costs of defective products,
when the product supplied did not perform as represented. The Company's policy is to record provisions
for estimated future customer warranty costs based on historical trends and current economic factors.
These amounts, as they relate to the years ended December 31, 2005 and 2004 are included within
accrued expenses in the accompanying consolidated balance sheets. The following presents a summary of
the warranty provision for the years ended December 31 (in thousands):
2005
2004
Balance Ì Beginning of the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase due to acquisitions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional provisions recorded ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deduction for payments made ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2,408
5,183
2,074
(2,515)
(33)
$ 1,999
Ì
1,813
(1,433)
29
Balance Ì End of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 7,117
$ 2,408
64
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Other Long-term Liabilities Ì Other long-term liabilities consisted of the following as of December 31
(in thousands):
2005
2004
Pension liability (see Note 13) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Facility closure and consolidation costs (see Note 6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Postretirement medical benefit plan (see Note 13)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss contractsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$16,333
725
4,288
Ì
3,957
$4,662
423
538
75
2,699
$25,303
$8,397
Income Taxes Ì The Company accounts for income taxes following the provisions of SFAS No. 109,
Accounting for Income Taxes, which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the Company's financial statements
or tax returns. Under this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and liabilities using enacted tax laws and
rates.
Comprehensive Income (Loss) Ì The Company follows the provisions of SFAS No. 130, Reporting
Comprehensive Income, which established standards for reporting and display of comprehensive income
and its components. Comprehensive income reflects the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner sources. For the Company,
comprehensive income (loss) represents net income adjusted for foreign currency translation adjustments,
minimum pension liability and the deferred gain (loss) on certain derivative instruments utilized to hedge
certain of the Company's interest rate exposures. In accordance with SFAS No. 130, the Company has
chosen to disclose comprehensive income (loss) in the consolidated statements of stockholders' investment.
The components of accumulated other comprehensive income (loss) consisted of the following as of
December 31 (in thousands):
2005
2004
Foreign currency translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minimum pension liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,583
(2,926)
$ 5,228
(2,393)
$(1,343)
$ 2,835
Fair Value of Financial Instruments Ì At December 31, 2005, the Company's financial instruments
consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and long-
term debt, unless otherwise noted. The carrying value of these instruments approximates fair value as a
result of the short duration of such instruments or due to the variability of the interest cost associated with
such instruments.
Concentrations of Credit Risk Ì Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable. The
Company places its cash equivalents with high credit-quality financial institutions. The Company sells
products to various companies throughout the world in the ordinary course of business. The Company
routinely assesses the financial strength of its customers and maintains allowances for anticipated losses.
65
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Customers that accounted for a significant portion of consolidated revenues for each of the three years
ended December 31 were as follows:
2005
2004
2003
International ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PACCAR ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Freightliner ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Volvo/Mack ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Caterpillar ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19%
17
16
14
7
9%
28
17
6
5
8%
26
18
4
6
As of December 31, 2005 and 2004, receivables from these customers represented approximately 72%
and 55% of total receivables, respectively.
Stock-Based Compensation Ì Pursuant to Statements of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, the Company applied the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, to our stock options and other stock-based compensation plans.
In accordance with APB Opinion No. 25, cost for stock-based compensation is recognized as expense
over the requisite vesting period based on the excess, if any, of the quoted market price of the stock at the
grant date of the award or other measurement date over the amount an employee must pay to acquire the
stock. The exercise price for stock options granted to employees equals the fair market value of the
Company's common stock at the date of grant, thereby resulting in no recognition of compensation
expense by the Company. However, from time to time, we have elected to modify the terms of the original
grant. These modified grants have been accounted for as a new award and measured using the intrinsic
value method under APB Opinion No. 25, resulting in the inclusion of compensation expense in our
consolidated statement of income. Restricted stock awards are recorded as compensation cost over the
requisite vesting periods based on the market value on the date of the grant.
The following table illustrates the effect on income and earnings per share for the years ended
December 31 had we applied the fair value recognition provision of SFAS No. 123 to stock-based
compensation. The fair value of stock options was estimated on the date of grant using the Black-Scholes
option pricing model.
Net income, as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Less): Stock-based compensation expense determined under the fair-value
2005
2004
(In thousands, except
per share data)
$49,411
$17,449
based method for all awards, net of related tax effects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(390)
(69)
Pro forma net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$49,021
$17,380
Basic net earnings (loss) per share:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted net earnings per share:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
$
2.54
2.52
2.51
2.49
$
$
$
$
1.13
1.13
1.12
1.11
66
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The pro forma amounts shown above are not indicative of the pro forma effect in future years since
the fair value of options is amortized to expense over the vesting period, and the number of options
granted varies from year to year.
The weighted average fair values and the assumptions used in calculating such values were as follows
during each of the following fiscal years:
Weighted average fair value of grants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Risk-free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected life in months ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock
Option
Plans
2004
$ 3.34
4.50%
23.12%
36
Foreign Currency Translation Ì The functional currency of the Company is the local currency.
Accordingly, all assets and liabilities of the Company's foreign subsidiaries are translated using exchange
rates in effect at the end of the period and revenue and costs are translated using average exchange rates
for the period. The related translation adjustments are reported in accumulated other comprehensive
income in stockholders' investment. Translation gains and losses arising from transactions denominated in a
currency other than the functional currency of the entity involved are included in the results of operations.
Foreign Currency Forward Exchange Contracts Ì The Company uses forward exchange contracts to
hedge certain of its foreign currency transaction exposures of its United Kingdom operations. The
Company estimates its projected revenues and purchases in certain foreign currencies or locations, and will
hedge a portion or all of the anticipated long or short position. The contract duration is typically between
three months and three years. These contracts are marked-to-market and the fair value is included in
assets or liabilities in the accompanying consolidated balance sheets, with the offsetting noncash gain or
loss included in the accompanying consolidated statements of operations. The Company does not hold or
issue foreign exchange options or forward contracts for trading purposes. The following table summarizes
the notional amount of the Company's open foreign exchange contracts at December 31, 2005 (in
thousands):
Local
Currency
Amount
U.S. $
Equivalent
U.S. $
Equivalent
Fair Value
Commitments to sell currencies:
U.S. dollar ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eurodollar ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Swedish krona ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Japanese yen ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Australian dollar ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
806
44,247
10,330
3,728,800
5,650
$
817
54,524
1,326
36,530
4,052
$
807
53,265
1,306
33,485
4,118
The difference between the U.S. $ equivalent and U.S. $ equivalent fair value of approximately
$4.3 million and $0.5 million is included in other assets in the consolidated balance sheet at December 31,
2005 and 2004.
Recently Issued Accounting Pronouncements Ì In December 2004, the FASB revised SFAS No. 123,
Share Based Payment (SFAS No. 123R). SFAS No. 123R supersedes Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, which resulted in no stock-based
employee compensation cost related to stock options if the options granted had an exercise price equal to
the market value of the underlying common stock on the date of grant. SFAS No. 123R requires
67
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
recognition of employee services provided in exchange for a share-based payment based on the grant date
fair market value. The Company is required to adopt SFAS No. 123R as of January 1, 2006. As of the
effective date, SFAS No. 123R applies to all new awards issued as well as awards modified, repurchased,
or cancelled. Additionally, for stock-based awards issued prior to the effective date, compensation cost
attributable to future services will be recognized as the remaining service is rendered. In addition, the
Company will reclassify any remaining unearned compensation on non-vested share awards to additional
paid in capital. The Company estimates that compensation expense related to stock options and restricted
share grants for fiscal 2006 is expected to be approximately $2.1 million.
On March 29, 2005, the SEC issued SAB No. 107 which expresses the view of the SEC regarding
the interaction between SFAS No. 123R and certain SEC rules and regulations and provides the SEC's
views regarding the valuation of share-based payment arrangements for public companies. In particular,
SAB No. 107 provides guidance related to share-based payment transactions with non-employees, the
transition from nonpublic to public entity status, valuation methods (including assumptions such as
expected volatility and expected term), the accounting for certain redeemable financial instrument issues
under shares-based payment arrangements, the classification of compensation expense, non-GAAP
financial measures, first-time adoption of SFAS No. 123R in an interim period, capitalization of
compensation costs related to shares-based payment arrangements, the accounting for income tax effects of
share-based payment arrangements, the accounting for income tax effects of share-based payment
arrangements upon adoption of SFAS No. 123R, the modification of employee share options prior to
adoption of SFAS No. 123R, and disclosures in Management's Discussion and Analysis of Financial
Condition and Results of Operations subsequent to adoption of SFAS No. 123R.
In May 2005, the FASB issued SFAS No. 154, ""Accounting Changes and Error Corrections.''
SFAS No. 154 establishes new standards on accounting for changes in accounting principles. All such
changes must be accounted for by retrospective application to the financial statements of prior periods
unless it is impracticable to do so. SFAS No. 154 replaces APB No. 20, ""Accounting Changes,'' and
SFAS No. 3, ""Reporting Accounting Changes in Interim Periods.'' However, it carries forward the
guidance in those pronouncements with respect to accounting for changes in estimates, changes in the
reporting entity and the correction of errors. SFAS No. 154 is effective for accounting changes and error
corrections made in fiscal years beginning after December 15, 2005, with early adoption permitted for
changes and corrections made in years beginning after June 1, 2005. The application of SFAS No. 154
does not affect the transition provisions of any existing pronouncements, including those that are in the
transition phase as of the effective date of SFAS No. 154. We do not expect the adoption of
SFAS No. 154 to have a material effect on our consolidated financial position or results of operations.
In October 2005, the FASB issued FSP FAS 123(R)-2, Practical Accommodation to the Application
of Grant Date as Defined in FAS 123(R), (FSP 123(R)-2). FSP 123(R)-2 provides guidance on the
application of grant date as defined in SFAS No. 123(R). In accordance with this standard a grant date of
an award exists if a) the award is a unilateral grant and b) the key terms and conditions of the award are
expected to be communicated to an individual recipient within a relatively short time period from the date
of approval. We will adopt this standard in conjunction with the adoption of SFAS No. 123(R) on
January 1, 2006.
In November 2005, the FASB issued FSP FAS 123(R)-3, ""Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment Awards'' (""FSP 123(R)-3''). FSP 123(R)-3
provides an elective alternative method that establishes a computational component to arrive at the
beginning balance of the accumulated paid-in capital pool related to employee compensation and a
simplified method to determine the subsequent impact on the accumulated paid-in capital pool of
employee awards that are fully vested and outstanding upon the adoption of SFAS No. 123(R). We are
evaluating this transition method in conjunction with the adoption of SFAS No. 123(R) on January 1, 2006.
68
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
3. Business Combinations
On February 7, 2005, the Company acquired substantially all of the assets and liabilities related to
Mayflower Vehicle Systems' North American Commercial Vehicle Operations for $107.5 million, and
Mayflower became a wholly owned subsidiary of the Company. The Mayflower acquisition was funded
through an increase and amendment to our senior credit facility. Mayflower is the only non-captive
producer of complete steel and aluminum truck cabs for the commercial vehicle sector in North America.
Mayflower serves the North American commercial vehicle sector from three manufacturing locations,
Norwalk, Ohio, Shadyside, Ohio and Kings Mountain, North Carolina, supplying three major product
lines: cab frames and assemblies, sleeper boxes and other structural components. For the year ended
December 31, 2004, Mayflower recorded revenues of $206.5 million and operating income of $21.6 million.
The operating results of Mayflower have been included in our 2005 consolidated financial statements since
the date of acquisition. On a pro forma basis, had the Mayflower acquisition been included in the
Company's consolidated financial statements for the full year 2005, the Company's revenues would have
increased by approximately $24.0 million and operating income would have increased by approximately
$1.7 million.
The Mayflower acquisition was accounted for by the purchase method of accounting. Under purchase
accounting, the preliminary purchase price has been allocated to the tangible and intangible assets and
liabilities of Mayflower based upon their respective fair values. The preliminary purchase price and costs
associated with the Mayflower acquisition exceeded the preliminary fair value of the net assets acquired by
approximately $15.0 million. In connection with the allocation of the preliminary purchase price and
intangible asset valuation, goodwill of $15.0 million and an intangible asset not subject to amortization of
$45.9 million were recorded. The intangible asset is the customer relationship with an indefinite life. The
valuation of goodwill at December 31, 2005 is as follows (in thousands):
Contract Purchase price ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Working capital and other adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$107,500
(4,188)
Preliminary purchase price (cash consideration) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
103,312
Transaction costs and other adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net assets of Mayflower at historical cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,951
(92,306)
Excess of purchase price over net assets acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 14,957
Under the purchase method of accounting in accordance with SFAS No. 141, Business Combinations,
the preliminary purchase price as shown above was allocated to Mayflower's tangible and intangible assets
and liabilities based on their estimated fair values as of the date of the acquisition. The preliminary
purchase price allocation as of December 31, 2005 was as follows (in thousands):
Accounts ReceivableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Current Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property, Plant & Equipment, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill and Other Intangibles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Long Term Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current LiabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Long Term Liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 34,433
12,855
5,062
32,676
67,357
6,227
(38,109)
(17,189)
Net Assets AcquiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$103,312
69
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Subsequent to the acquisition date, an independent appraisal of certain tangible and intangible assets
was completed as well as the completion of other transaction adjustments resulting in changes to the
preliminary purchase price allocation at the date of acquisition. As a result of these subsequent changes,
Goodwill and Other Intangibles as of December 31, 2005 was approximately $67.4 million, which is
comprised of approximately $6.5 million of trademarks, trade-names or copyrights acquired, to be
amortized up to 30 years, Goodwill of approximately $15.0 million and intangible assets related to
customer relationships not subject to amortization of approximately $45.9 million.
On June 3, 2005, the Company acquired all of the stock of Monona Corporation, the parent of
Monona Wire Corporation (Monona), for $55.0 million, and Monona became a wholly owned subsidiary
of the Company. The Monona acquisition was funded through an increase and amendment to the
Company's senior credit facility. Monona is a leading manufacturer of complex, electronic wire harnesses
and related assemblies used in the global heavy equipment, commercial vehicle, heavy-truck and specialty
and military vehicle markets. It also produces panel assemblies for commercial equipment markets and cab
frame assemblies for Caterpillar. Monona's wire harness assemblies are critical, complex products that are
the primary electrical current carrying devices within vehicle systems. Monona offers approximately 4,500
different wire harness assemblies for its customers, which include leading OEMs such as Caterpillar,
Deere & Co. and Oshkosh Truck. Monona operates from primary manufacturing operations in the U.S.
and Mexico. For the fiscal year ended January 31, 2005, Monona recorded revenues of $85.5 million and
operating income of $9.6 million. The operating results of Monona have been included in the Company's
2005 consolidated financial statements since the date of acquisition. On a pro forma basis, had the
Monona acquisition been included in the Company's consolidated financial statements for the full year
2005, the Company's revenues would have increased by approximately $41.9 million and operating income
would have increased by approximately $6.2 million.
The Monona acquisition was also accounted for by the purchase method of accounting. Under
purchase accounting, the preliminary purchase price will be allocated to the tangible and intangible assets
and liabilities of Monona based upon their respective fair values. The preliminary purchase price and costs
associated with the Monona acquisition exceeded the preliminary fair value of the net assets acquired by
approximately $20.9 million. In connection with the allocation of the preliminary purchase price and
intangible asset valuation, goodwill of $20.9 million and an intangible asset not subject to amortization of
$28.9 million were recorded. The intangible asset is the customer relationship with an indefinite life.
Approximately $1.6 million of the acquired goodwill is deductible for income tax purposes. Our valuation
of goodwill as of December 31, 2005 is as follows (in thousands):
Contract Purchase price ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Working capital and other adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 55,000
985
Preliminary purchase price (cash consideration) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
55,985
Transaction costs and other adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net assets of Mayflower at historical cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,125
(36,189)
Excess of purchase price over net assets acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 20,921
Under the purchase method of accounting in accordance with SFAS No. 141, Business Combinations,
the preliminary purchase price as shown above is allocated to Monona's tangible and intangible assets and
70
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
liabilities based on their estimated fair values as of the date of the acquisition. The preliminary purchase
price allocation as of December 31, 2005 was as follows (in thousands):
Accounts ReceivableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Current Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property, Plant & Equipment, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill and Other Intangibles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current LiabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Long Term Liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 11,095
8,130
1,373
7,542
53,111
(11,686)
(13,580)
Net Assets AcquiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 55,985
Subsequent to the acquisition date, a preliminary independent appraisal of certain tangible and
intangible assets has been completed as well as the completion of other transaction adjustments resulting
in changes to the preliminary purchase price allocation at the date of acquisition. As a result of these
subsequent changes, Goodwill and Other Intangibles as of December 31, 2005 was approximately
$53.1 million, which is comprised of approximately $3.3 million of trademarks, trade-names or copyrights
acquired, to be amortized up to 30 years, Goodwill of approximately $20.9 million and intangible assets
related to customer relationships not subject to amortization of approximately $28.9 million.
On August 8, 2005, the Company acquired all of the stock of Cabarrus Plastics, Inc. for
$12.1 million, and Cabarrus became an indirect wholly owned subsidiary of CVG. Cabarrus is a
manufacturer of custom injection molded products primarily for the recreational vehicle market. For the
year ended December 31, 2004, Cabarrus recorded revenues of approximately $14.2 million and operating
income of approximately $0.9 million. The Cabarrus acquisition was financed with cash on hand. The
operating results of Cabarrus have been included in the Company's 2005 consolidated financial statements
since the date of acquisition. On a pro forma basis, had the Cabarrus acquisition been included in the
Company's consolidated financial statements for the full year 2005, the Company's revenues would have
increased by approximately $10.0 million and operating income would have increased by approximately
$1.0 million.
The Cabarrus acquisition was also accounted for by the purchase method of accounting. Under
purchase accounting, the preliminary purchase price will be allocated to the tangible and intangible assets
and liabilities of Cabarrus based upon their respective fair values. The preliminary purchase price and costs
associated with the Cabarrus acquisition exceeded the preliminary fair value of the net assets acquired by
approximately $7.6 million. Our valuation of goodwill as of December 31, 2005 is as follows (in
thousands):
Contract Purchase price ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Working capital and other adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$12,100
(546)
Preliminary purchase price (cash consideration) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
11,554
Transaction costs and other adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net assets of Mayflower at historical cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
223
(4,191)
Excess of purchase price over net assets acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 7,586
Under the purchase method of accounting in accordance with SFAS No. 141, Business Combinations,
the preliminary purchase price as shown above is allocated to Cabarrus' tangible and intangible assets and
71
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
liabilities based on their estimated fair values as of the date of the acquisition. The preliminary purchase
price allocation as of December 31, 2005 was as follows (in thousands):
Accounts ReceivableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Current Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property, Plant & Equipment, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill and Other Intangibles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current LiabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Long Term Liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2,221
1,251
90
2,933
7,586
(2,072)
(455)
Net Assets AcquiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$11,554
The following pro forma information presents the result of operations of the Company as if the
Mayflower, Monona and Cabarrus acquisitions had taken place at the beginning of each period presented
below. The pro forma results are not necessarily indicative of the financial position or result of operations
of the Company had the acquisitions taken place on the dates indicated. In addition, the pro forma results
are not necessarily indicative of the future financial or operating results of the Company.
2005
(Unaudited)
(In thousands, except per
share data)
2004
(Unaudited)
Revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$830,281
98,429
53,112
$685,158
61,518
27,921
Earnings Per Share:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
2.73
2.70
$
$
1.81
1.79
4.
Inventories, net
Inventories consisted of the following as of December 31 (in thousands):
2005
2004
Raw materialsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Work in process ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Finished goods ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less excess and obsolete ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$46,218
12,571
13,655
(3,391)
$30,759
2,111
7,180
(3,114)
$69,053
$36,936
72
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
5. Accrued Liabilities
Accrued liabilities consisted of the following as of December 31 (in thousands):
2005
2004
Compensation and benefits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Warranty costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Product liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income and other taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Facility closure and consolidation costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FreightÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss contractsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$17,753
7,117
286
5,974
490
1,605
312
130
9,316
$ 8,041
2,408
340
202
2,215
278
412
486
4,042
$42,983
$18,424
6. Restructuring and Integration
Restructuring Ì In 2000, the Company recorded a $5.6 million restructuring charge as part of its cost
and efficiency initiatives, closing two manufacturing facilities, two administrative centers, and reorganizing
its manufacturing and administrative functions. Approximately $1.7 million of the charge was related to
employee severance and associated benefits for the 225 terminated employees, approximately $2.6 million
related to lease and other contractual commitments associated with the facilities, and approximately
$1.3 million of asset impairments related to the write-down of assets. All employees were terminated by
2001. The contractual commitments continued through mid-2005.
In 2001, the Company continued its cost and efficiency initiatives and closed a third manufacturing
facility. Of the total $0.4 million restructuring charge, approximately $0.1 million related to employee
severance and associated benefits for 77 employees and approximately $0.3 million related to lease and
other contractual commitments associated with the facility. All employees were terminated by 2002. The
contractual commitments continue through 2008. As of December 31, 2005, we completed our
restructuring activities as described above.
A summary of these restructuring activities for the years ended December 31, 2005 is as follows (in
thousands):
Facility
Exit and
Other
Contractual
Costs
Total
Employee
Costs
Balance Ì December 31, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Usage/cash paymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Balance Ì December 31, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Usage/cash paymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balance Ì December 31, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Ì
Ì
Ì
Ì
$ 787
$ 787
(509)
278
(278)
(509)
278
(278)
$ Ì
$ Ì
Integration Ì In connection with the acquisitions of Bostrom plc and the predecessor to CVS, facility
consolidation plans were designed and implemented to reduce the cost structure of the Company and to
better integrate the acquired operations. Purchase liabilities recorded as part of the acquisitions included
73
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
approximately $3.3 million for costs associated with the shutdown and consolidation of certain acquired
facilities and severance and other contractual costs. At December 31, 2005, the Company had principally
completed its actions under these plans, other than certain contractual commitments, which continue
through 2008. Summarized below is the activity related to these actions (in thousands):
Facility
Exit and
Other
Contractual
Costs
Total
Employee
Costs
Balance Ì December 31, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Usage/cash paymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Balance Ì December 31, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Usage/cash paymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balance Ì December 31, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Ì
Ì
Ì
Ì
Ì
$ 620
$ 620
(197)
423
(106)
(197)
423
(106)
$ 317
$ 317
In connection with the June 8, 2005 acquisition of Monona, plans were established to realign certain
operations in an effort to achieve synergies between the Company and Monona. The plan calls for the
closure of its Spring Green, Wisconsin operations as well as an administrative office located in Naperville,
Illinois. Purchase liabilities recorded as part of the acquisition include approximately $0.9 million related to
employee severance and associated benefits for approximately 100 employees and approximately
$1.1 million related to facility exit, transition and other estimated costs. These activities are expected to be
substantially complete by December 31, 2006. Summarized below are the estimated activity costs related
to these actions (in thousands):
Facility
Exit and
Other
Contractual
Costs
$ Ì
1,067
$1,067
Employee
Costs
$ Ì
946
$946
Total
$ Ì
2,013
$2,013
Balance Ì December 31, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional reserves ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balance Ì December 31, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
7. Debt
Debt consisted of the following at December 31 (in thousands):
Revolving credit facilities bore interest at a weighted average of 6.6% as of
December 31, 2005 and 7.0% as of December 31, 2004 due 2010 ÏÏÏÏÏÏ
Term loans, with principal and interest payable quarterly, bore interest at a
weighted average rate of 6.3% as of December 31, 2005 and 6.5% as of
December 31, 2004 due 2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8.0% senior notes due 2013ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less current maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005
2004
$
3,446
$ 4,566
37,152
150,000
411
191,009
5,309
42,857
Ì
6,502
53,925
4,884
$185,700
$49,041
74
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Future maturities of debt as of December 31, 2005 are as follows (in thousands):
Year Ending December 31
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
5,309
6,528
7,576
8,688
12,908
150,000
Credit Agreement Ì In connection with the February 7, 2005 acquisition of Mayflower, the Company
amended its senior credit facility to increase the revolving credit facility from $40.0 million to
$75.0 million and the term loans from $65.0 million to $145.0 million. The revolving credit facility is
available until January 31, 2010 and the term loans are due and payable on December 31, 2010.
Borrowings bear interest at various rates plus a margin based on certain financial ratios of the Company.
The senior credit agreement contain various restrictive covenants, including limiting indebtedness, rental
obligations, investments and cash dividends, and also requires the maintenance of certain financial ratios,
including fixed charge coverage and funded debt to EBITDA.
In connection with the June 3, 2005 acquisition of Monona, the Company amended its senior credit
facility to increase the revolving credit facility from $75.0 million to $100.0 million. The revolving credit
facility is available until January 31, 2010 and the term loans are due and payable on December 31, 2010.
Borrowings bear interest at various rates plus a margin based on certain financial ratios of the Company.
In addition, the amendment increased certain baskets in the lien, investments and asset disposition
covenants to reflect the Company's increased size as a result of the Mayflower and Monona acquisitions.
In connection with the July 2005 stock and senior notes offerings, the Company entered into
additional amendments to the senior credit facility which provided for, among other things, the occurrence
of these offerings. In connection with these offerings, net proceeds of approximately $190.8 million were
primarily used to repay indebtedness under the senior credit facility.
The senior credit agreement contains various restrictive covenants, including limiting indebtedness,
rental obligations, investments and cash dividends, and also requires the maintenance of certain financial
ratios, including fixed charge coverage and funded debt to EBITDA. Compliance with respect to these
covenants as of December 31, 2005 was achieved. Borrowings under the senior credit facility are secured
by specifically identified assets of the Company, comprising, in total, substantially all assets of the
Company. In addition, at December 31, 2005 the Company had outstanding letters of credit of
approximately $1.5 million.
The credit facility provides the Company with the ability to denominate a portion of its borrowings in
foreign currencies. As of December 31, 2005, none of the revolving credit facility borrowings and
$26.6 million of the term loans were denominated in U.S. dollars and $3.4 million of the revolving credit
facility borrowings and $10.6 million of the term loans were denominated in British pounds sterling.
Prior to May 2, 2005, the Company also had $6.5 million of indebtedness from borrowings financed
through the issuance of industrial development bonds relating to its Vonore, Tennessee facility. These
borrowings had a final maturity of August 1, 2006 and bore interest at a variable rate which was adjusted
on a weekly basis by the placement agent such that the interest rate on the bonds was sufficient to cause
the market value of the bonds to be equal to, as nearly as practicable, 100% of their principal amount. On
May 2, 2005 the Company redeemed these bonds for approximately $6.5 million.
75
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
On July 6, 2005, the Company completed a private offering of $150.0 million aggregate principal
amount of 8.0% senior notes due 2013. The Company used the proceeds to reduce outstanding
indebtedness under the senior credit facility and for general corporate purposes.
On December 30, 2005, the Company amended its credit agreement to increase its annual capital
expenditure limit from $25 million per annum to $40 million per annum in connection with the Company's
growth and development strategy.
8. Subordinated Debt
In June 2001, Onex Corporation, the controlling stockholder of the Company, and its affiliates
(""Onex'') loaned the Company $7 million pursuant to a five-year promissory note. Interest, which was
deferred in 2002 and 2003 and through August 10, 2004, was prime plus 1.25%. The promissory was
collateralized by all assets of the Company and its subsidiaries and was subject to an intercreditor
agreement between the Company, certain of its lenders, and Onex. This loan plus accrued interest was
repaid on August 10, 2004 with proceeds from the Company's initial public offering.
In September 2002, the Company issued subordinated debt in the amount of $2.5 million to its
principal stockholders, including Onex. The debt bore interest at 12.0% and would have matured on
September 30, 2006. Accrued interest over the term of the obligation was payable in kind (""PIK'') at
maturity. Interest accrued during 2004 and added to principal was approximately $0.2 million. This debt
plus PIK interest was repaid on August 10, 2004 with proceeds from the Company's initial public offering.
9.
Income Taxes
Pretax income consisted of the following for the years ended December 31 (in thousands):
2005
2004
2003
Domestic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$70,673
7,876
$17,996
5,934
$3,966
5,265
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$78,549
$23,930
$9,231
A reconciliation of income taxes computed at the statutory rates to the reported income tax provision
for the years ended December 31 is as follows (in thousands):
2005
2004
2003
Federal provision at statutory rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
U.S. tax on foreign income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign provision in excess (less) than U.S. tax rate ÏÏÏÏÏÏÏÏÏÏÏÏ
State taxes, net of federal benefit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
R&D tax credit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$27,492
702
(242)
1,625
439
Ì
(878)
$ 8,136
779
(20)
1,087
307
(3,808)
Ì
$3,139
1,411
563
304
(150)
Ì
Ì
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$29,138
$ 6,481
$5,267
76
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The provision for income taxes for the years ended December 31 is as follows (in thousands):
2005
2004
2003
CurrentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$21,890
7,248
$5,141
1,340
$3,968
1,299
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$29,138
$6,481
$5,267
A summary of deferred income tax assets and liabilities is as follows as of December 31 (in
thousands):
Current deferred tax assets:
2005
2004
Accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Warranty costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign exchange contractsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued benefits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other accruals not currently deductible for tax purposes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
1,690
1,913
3,465
(1,509)
2,412
2,639
1,961
$
457
1,731
677
439
3,442
658
797
Net current deferred assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 12,571
$ 8,201
Noncurrent deferred tax liabilities:
Amortization and fixed assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net operating loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign tax credit carryforwardsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other accruals not currently deductible for tax purposes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(19,506)
6,160
2,511
1,928
105
$(1,837)
1,906
3,730
1,694
408
Net noncurrent deferred tax (liabilities) asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (8,802)
$ 5,901
As of December 31, 2005, the Company had approximately $4.7 million of federal and $22.7 million
of state net operating loss carryforwards related to the Company's U.S. operations. Utilization of these
losses is subject to the tax laws of the applicable tax jurisdiction and the Company's legal organizational
structure, and may be limited by the ability of certain subsidiaries to generate taxable income in the
associated tax jurisdiction. The Company's net operating loss carryforwards expire beginning in 2016 and
continue through 2025. In 2004, it was determined that the valuation allowance in place pertaining to net
operating losses at December 31, 2003 was no longer necessary due to the likelihood of future recovery.
The deferred income tax provision consists of the change in the deferred income tax assets, adjusted for
the impact of the tax benefit on the cumulative effect of the change in accounting and the tax impact of
certain of the other comprehensive income (loss) items. Deferred taxes have not been provided on
unremitted earnings of certain foreign subsidiaries that arose in fiscal years ending on or before
December 31, 2005. It is not practical to determine the additional tax, if any, that would result from the
remittance of these amounts.
The Company operates in multiple jurisdictions and is routinely under audit by federal, state, and
international tax authorities. Exposures exist related to various filing positions which may require an
extended period of time to resolve and may result in income tax adjustments by the taxing authorities.
Reserves for these potential exposures have been established which represent management's best estimate
of the probable adjustments. On a quarterly basis, management evaluates the reserve amounts in light of
any additional information and adjusts the reserve balances as necessary to reflect the best estimate of the
77
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
probable outcomes. Management believes that the Company has established the appropriate reserve for
these estimated exposures. However, actual results may differ from these estimates. The resolution of these
matters in a particular future period could have an impact on the Company's consolidated statement of
operations and provision for income taxes.
10. Segment Reporting
In accordance with the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, the Company's operating components constitute a single operating segment due to
the manner in which our key decisions are made as well as the manner in which our operating components
collectively support similar markets, support similar customers, utilize similar manufacturing and assembly
processes and utilize the same centralized network of personnel.
The following table presents revenues and long-lived assets for each of the geographic areas in which
the Company operates (in thousands):
2005
Revenues
North AmericaÏÏÏÏÏÏÏÏÏ
All other countriesÏÏÏÏÏÏ
$636,448
118,033
Years Ended December 31,
2004
Revenues
$272,460
107,985
Long-lived
Assets
$26,918
6,047
Long-lived
Assets
$74,633
5,782
2003
Revenues
$201,132
86,447
Long-lived
Assets
$28,787
4,705
$754,481
$80,415
$380,445
$32,965
$287,579
$33,492
Revenues are attributed to geographic locations based on the location of product production.
The following is a summary composition by product category of the Company's revenues (dollars in
thousands):
2005
Years Ended December 31,
2004
2003
Revenues
%
Revenues
%
Revenues
%
Cab structures, sleeper boxes, body
panels and structural components ÏÏÏÏ
Seats and seating systems ÏÏÏÏÏÏÏÏÏÏÏÏ
Trim systems and components ÏÏÏÏÏÏÏÏ
Mirrors, wipers and controls ÏÏÏÏÏÏÏÏÏÏ
Electronic wire harnesses and panel
$252,090
237,965
133,591
75,869
assemblies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
54,966
33
32
18
10
7
$
Ì
202,469
106,172
71,804
Ì $
53
28
19
Ì
148,916
76,864
61,799
Ì
Ì
Ì
Ì
52
27
21
Ì
$754,481
100
$380,445
100
$287,579
100
The significant change in the 2005 product categories is primarily the result of the acquisitions of
Mayflower, Monona and Cabarrus.
11. Commitments and Contingencies
Leases Ì The Company leases office and manufacturing space and certain equipment under operating
lease agreements that require it to pay maintenance, insurance, taxes and other expenses in addition to
annual rentals. Of these lease rentals, approximately $0.4 million are included in the facility closure and
consolidation cost reserve (see Note 6). The anticipated future lease costs are based in part on certain
assumptions and the Company will continue to monitor these costs to determine if the estimates need to
78
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
be revised in the future. Lease expense was approximately $8.4 million, $5.6 million and $5.1 million in
2005, 2004 and 2003, respectively. Future minimum annual rental commitments at December 31, 2005
under these leases are as follows (in thousands):
Year Ending December 31
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$5,822
4,548
3,673
2,997
2,459
7,216
Litigation Ì The Company is subject to various legal actions and claims incidental to its business,
including those arising out of alleged defects, product warranties, employment-related matters and
environmental matters. Management believes that the Company maintains adequate insurance to cover
these claims. The Company has established reserves for issues that are probable and estimatable in
amounts management believes are adequate to cover reasonable adverse judgments not covered by
insurance. Based upon the information available to management and discussions with legal counsel, it is
the opinion of management that the ultimate outcome of the various legal actions and claims that are
incidental to the Company's business will not have a material adverse impact on the consolidated financial
position, results of operations or cash flows of the Company; however, such matters are subject to many
uncertainties, and the outcomes of individual matters are not predictable with assurance.
12. Stockholders' Investment and Stock Option and Equity Incentive Plans
Common Stock Ì The authorized capital stock of the Company consists of 30,000,000 shares of
common stock with a par value of $0.01 per share. In August, 2004, the Company reclassified all of its
existing classes of common stock, which effectively resulted in a 38.991-to-one stock split. The stock split
has been reflected as of the beginning of all periods presented.
Preferred Stock Ì The authorized capital stock of the Company consists of 5,000,000 shares of
preferred stock with a par value of $0.01 per share, with no shares outstanding as of December 31, 2005.
Earnings Per Share Ì In accordance with SFAS No. 128, Earnings per Share, basic earnings (loss)
per share is determined by dividing net income by the weighted average number of common shares
outstanding during the year. Diluted earnings per share, and all other diluted per share amounts presented,
is determined by dividing net income by the weighted average number of common shares and potential
common shares outstanding during the period Potential common shares are included in the diluted
earnings per share calculation when dilutive. Diluted earnings per share for 2005, 2004 and 2003 includes
the effects of potential common shares consisting of common stock issuable upon exercise of outstanding
79
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
stock options and warrants computed using the treasury stock method (in thousands, except per share
amounts):
2005
2004
2003
Net income applicable to common stockholders Ì basic and
diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$49,411
$17,449
$ 3,964
Weighted average number of common shares outstandingÏÏÏÏÏÏÏ
Dilutive effect of outstanding stock options after application of
19,440
15,429
13,779
the treasury stock method ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
257
194
104
Dilutive shares outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19,697
15,623
13,883
Basic earnings per shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earning per shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
2.54
2.51
$
$
1.13
1.12
$
$
0.29
0.29
Stock Options and Warrants Ì In 1998, the Company issued options to purchase 57,902 shares of
common stock at $9.43 per share, which are exercisable through December 2008. As of December 31,
2005, 28,951 of the initially granted options have been exercised. The options were granted at exercise
prices determined to be at or above fair value on the date of grant. In addition, the Company had
outstanding warrants to purchase 136,023 shares of common stock at $3.42 per share, which were
exercised in conjunction with the Company's initial public offering in August 2004.
In May 2004, the Company granted options to purchase 910,869 shares of common stock at $5.54 per
share. These options have a ten year term, with 50% of such options being immediately exercisable and
the remaining 50% becoming exercisable ratably on June 30, 2005 and June 30, 2006. During June 2004,
the Company modified the terms of these options to be 100% vested immediately. The Company recorded
a noncash compensation charge of $10.1 million, equal to the difference between $5.54 and the estimated
fair market value.
In October 2004, the Company granted options to purchase 598,950 shares of common stock at
$15.84 per share. These options have a ten year term and vest equally over a three year period.
In November 2005, 168,700 shares of restricted stock were awarded by our compensation committee
under our Amended and Restated Equity Incentive Plan. Restricted stock is a grant of shares of common
stock that may not be sold, encumbered or disposed of, and that may be forfeited in the event of certain
terminations of employment, prior to the end of a restricted period set by the compensation committee.
The shares of restricted stock granted in November 2005 vest in three equal annual installments
commencing on October 20, 2006. As of December 31, 2005, there was approximately $3.2 million of
unearned compensation related to non-vested share-based compensation arrangements granted under the
amended and restated equity incentive plan. A participant granted restricted stock generally has all of the
rights of a stockholder, unless the compensation committee determines otherwise.
80
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
A summary of the status of the Company's stock option and warrant plans as of December 31, 2005,
2004 and 2003 and changes during the years ending on those dates is presented below:
2005
2004
2003
Outstanding at beginning of year
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares
(000's)
1,568
Ì
(320)
(29)
Outstanding at end of year ÏÏÏÏÏÏ
1,219
Weighted-
Average
Exercise
Price
$ 9.62
Ì
5.89
15.84
$10.45
Shares
(000's)
58
1,510
Ì
Ì
1,568
Weighted-
Average
Exercise
Price
$ 9.43
9.63
Ì
Ì
$ 9.62
Options exercisable at year-end ÏÏ
Weighted-average fair value of
options granted during the year
839
$ 8.01
969
$ 5.77
Ì
$12.20
Weighted-
Average
Exercise
Price
Shares
(000's)
58
Ì
Ì
Ì
58
58
$9.43
Ì
Ì
Ì
$9.43
$9.43
Ì
The following table summarizes information about the stock options outstanding at December 31,
2005:
Exercise Prices
$5.54
$9.43
$15.84
$5.54 to $15.84
1,219
Shares
Outstanding
at 12/3/05
(000's)
Options Outstanding
Remaining
Contractual
Life
(Years)
Options Exercisable
Weighted-
Average
Exercise Price
Shares
Exercisable
at 12/31/05
(000's)
Weighted-
Average
Exercise Price
620
29
570
8.4
3.0
8.8
$ 5.54
9.43
15.84
$10.45
620
29
190
839
$ 5.54
9.43
15.84
$ 8.01
Repurchase of Common Stock Ì In addition, during 2004, the Company repurchased 50,874 shares of
common stock from certain stockholders at an average price of $4.78 per share. During 2005, the
Company did not repurchase any shares of common stock.
Dividends Ì The Company has not declared or paid any cash dividends in the past. The terms of the
Company's credit agreement restricts the payment or distribution of the Company's cash or other assets,
including cash dividend payments.
13. Defined Contribution Plans, Defined Benefit Plans and Postretirement Benefits
401(k) Plans Ì The Company sponsors various 401(k) employee savings plans covering all eligible
employees, as defined. Eligible employees can contribute on a pretax basis to the plan. In accordance with
the terms of the 401(k) plans, the Company elects to match a certain percentage of the participants'
contributions to the plans, as defined. The Company recognized expense associated with these plans of
approximately $1.2 million, $463,000 and $291,000 in 2005, 2004 and 2003, respectively.
Defined Benefit and Postretirement Plans Ì The Company sponsors defined benefit plans that cover
certain hourly and salaried employees in the United States and United Kingdom. The Company's policy is
to make annual contributions to the plans to fund the normal cost as required by local regulations.
In addition, the Company has a postretirement medical benefit plan for certain U.S. operations,
retirees and their dependents and has recorded a liability for its estimated obligation under this plan.
81
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The change in benefit obligation, plan assets and funded status as of and for the years ended
December 31, 2005 and 2004 consisted of the following (in thousands):
U.S. Defined
Benefit Plans
2005
2004
Non-U.S. Defined
Benefit Plans
2005
2004
Post-Retirement
Benefit Plans
2005
2004
Change in benefit obligation:
$
Benefit obligation Ì Beginning of year ÏÏÏ
Service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Plan participants' contributions ÏÏÏÏÏÏÏÏÏ
Plan amendments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Curtailment (gain) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Acquisitions/divestitures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Benefits paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actuarial (gain) or loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exchange rate changes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì $Ì $ 37,576
991
952
1,862
1,439
605
Ì
Ì
61
Ì
Ì
Ì
29,567
(1,140)
3,914
(3,958)
Ì
Ì
Ì
Ì
Ì
Ì
(538) Ì
(817) Ì
Ì
Ì
$29,897
1,213
1,879
514
Ì
Ì
Ì
(996)
2,628
2,441
$
687
233
362
Ì
(447)
(3,097)
6,454
(211)
417
Ì
$ 834
Ì
39
Ì
Ì
Ì
Ì
(58)
(128)
Ì
Benefit obligation at end of year ÏÏÏÏÏÏ
30,664
Ì
39,850
37,576
4,398
687
Change in plan assets:
Fair value of plan assets Ì Beginning of
year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actual return on plan assetsÏÏÏÏÏÏÏÏÏÏÏÏ
Acquisitions/divestitures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employer contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Plan participants' contributions ÏÏÏÏÏÏÏÏÏ
Benefits paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Risk benefit insurance premium ÏÏÏÏÏÏÏÏ
Exchange rate changes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
489
18,832
939
Ì
Ì
Ì
Ì
Ì
Ì
(538) Ì
Ì
Ì
Ì
Ì
28,397
3,728
Ì
1,437
605
(1,140)
(191)
(2,992)
22,841
2,973
Ì
1,200
514
(996)
Ì
1,865
Fair value of plan assets at end of year
19,722
Ì
29,844
28,397
Ì
Ì
Ì
211
Ì
(211)
Ì
Ì
Ì
Ì
Ì
Ì
58
Ì
(58)
Ì
Ì
Ì
Funded statusÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrecognized net (gain) loss ÏÏÏÏÏÏÏÏÏÏÏ
Unrecognized prior service cost ÏÏÏÏÏÏÏÏÏ
(10,942) Ì
(81) Ì
Ì
Ì
(10,006)
9,341
138
(9,179)
8,234
173
(4,398)
55
Ì
(687)
86
Ì
Net (accrued) amount recognized ÏÏÏÏÏÏÏÏ
$(11,023)
$Ì $
(527)
$ (772)
$(4,343)
$(601)
At December 31, 2005 and 2004, the Company was required to record a minimum pension liability of
approximately $5.3 million and $4.7 million, respectively, which is included in other long-term liabilities
and accumulated other comprehensive loss, net of tax, in the consolidated financial statements.
During 2005, we also elected to terminate the Mayflower medical and dental postretirement plan.
This action was undertaken by us in an effort to minimize future liabilities and as part of the integration
process. As a result of this action, we recorded a curtailment gain of approximately $3.1 million which is
included in the consolidated financial statements of operations for the year ending December 31, 2005.
82
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Amounts recognized in the consolidated balance sheets at December 31 consist of (in thousands):
U.S. Defined
Benefit Plans
2005
2004
Non-U.S. Defined
Benefit Plans
2005
2004
Post-Retirement
Benefit Plans
2005
2004
Accrued benefit costÏÏÏÏÏÏÏÏÏÏ
Additional minimum liabilityÏÏÏ
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other
comprehensive income ÏÏÏÏÏÏ
$(11,023)
Ì
Ì
Ì
$ Ì $ (527)
(4,782)
138
Ì
Ì
$ (772)
(4,662)
173
Ì
4,644
4,489
$(4,343)
Ì
Ì
Ì
$(601)
Ì
Ì
Ì
Net amount recognized ÏÏÏÏÏÏÏ
$(11,023)
$ Ì $ (527)
$ (772)
$(4,343)
$(601)
Defined benefits plans with a projected benefit obligation and accumulated benefit obligation in excess
of plan assets at December 31 are as follows (in thousands):
U.S. Defined
Benefit Plans
2005
2004
Non-U.S. Defined
Benefit Plans
2005
2004
Projected benefit obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated benefit obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair value of plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$30,664
$28,516
$19,722
$Ì $39,850
$Ì $35,154
$Ì $29,844
$37,576
$33,831
$28,397
The components of net periodic benefit cost for the years ended December 31 are as follows (in
thousands):
U.S. Defined
Benefit Plans
2005
2004
Non-U.S. Defined Benefit Plans
2004
2003
2005
Post-Retirement Benefit
Plans
2005
2004
2003
Service cost ÏÏÏÏÏÏÏÏÏÏ
Interest cost ÏÏÏÏÏÏÏÏÏÏ
Expected return on plan
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of prior
service cost ÏÏÏÏÏÏÏÏÏ
Recognized actuarial
loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net periodic benefit
$
952
1,439
$ Ì $
Ì
991
1,862
$ 1,213
1,879
$ 1,134
1,640
$233
362
$Ì $ Ì
48
39
(1,419)
Ì (1,931)
(1,879)
(1,451) Ì Ì
Ì
Ì
Ì
Ì
17
334
19
266
Ì
Ì Ì
385
2 Ì
Ì
Ì
Ì
cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
972
$ Ì $ 1,273
$ 1,498
$ 1,708
$597
$39
$
48
Weighted-average assumptions used to determine benefit obligations at December 31 are as follows:
U.S. Defined
Benefit Plans
2004
2005
Non-U.S. Defined Benefit
Plans
2004
2003
2005
Post-Retirement Benefit Plans
2005
2004
2003
Discount rate ÏÏÏÏÏÏ
Rate of
compensation
increase ÏÏÏÏÏÏÏÏÏ
5.50% Ì
5.00%
5.50%
5.75% 5.50-5.75% 5.75%
6.25%
3.50% Ì
3.30%
3.20%
3.00%
Ì
Ì
Ì
83
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Weighted-average assumptions used to determine net periodic benefit cost at December 31 are as
follows:
U.S. Defined
Benefit Plans
2004
2005
Non-U.S. Defined
Benefit Plans
2004
2003
2005
Post-Retirement
Benefit Plans
2005
2004
2003
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected long-term return on
plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rate of compensation increase ÏÏ
5.66% Ì 5.50% 5.75% 5.75% 5.66-5.75% 6.25% 6.00%
8.50% Ì 7.50% 7.50% 7.50%
3.50% Ì 3.20% 3.00% 3.00%
Ì
Ì
Ì
Ì
Ì
Ì
For measurement purposes, a 10% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2006. The rate was assumed to decrease gradually to 5.5% through 2011 and
remain constant thereafter. Assumed health care cost trend rates can have a significant effect on the
amounts reported for postretirement medical benefit plans. A one percentage-point change in assumed
health care cost trend rates would have a $0.5 million impact on total service and interest cost components
in the postretirement benefit obligation.
The weighted-average asset allocations of the Company's pension assets for the years ended
December 31, by asset category, are as follows:
Pension
Benefits
2005
2004
Equity securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Debt securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
59% 52%
28
13
25
23
We employ a total return investment approach whereby a mix of equities and fixed income
investments are used to maximize the long-term return of plan assets for a prudent level of risk. The intent
of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk
tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate
financial condition. The investment portfolio contains a diversified blend of equity and fixed income
investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks as well as
growth, value, and small and large capitalizations. Other assets such as real estate, private equity, and
hedge funds are used judiciously to enhance long-term returns while improving portfolio diversification.
Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives
may not be used to leverage the portfolio beyond the market value of the underlying investments.
Investment risk is measured and monitored on an ongoing basis through annual liability measurements,
periodic asset/liability studies, and quarterly investment portfolio reviews. We expect to contribute
$2.3 million to our pension plans and $0.3 million to our post-retirement medical benefit plans in 2006.
The following table summarizes our expected future benefit payments for our defined benefit and
other post retirement benefit plans (in thousands):
Year
Pension
Post-Retirement
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2011 to 2015 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,751
1,902
2,116
2,591
2,554
19,075
$ 281
282
321
353
395
2,006
84
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
14. Related Party Transactions
In addition to the items discussed in Note 8, the following related party transactions occurred during
the three years ended December 31, 2005:
‚ We made payments of $1.0 million and $1.6 million to Hidden Creek Industries, an affiliate of the
Company, for financing and acquisition-related services in 2004 and 2003, respectively. These
services are included in selling, general and administrative expenses in the consolidated statements
of operations. No payments were made during 2005. In connection with the sale of stock during
2005, Hidden Creek Industries was no longer a related party as of December 31, 2005.
‚ In 2001, Onex acquired a one-third interest in the Company's $66.0 million senior credit facility.
Total interest expense related to the portion of this senior credit facility owned by Onex was
approximately $0.5 million and $0.9 million for the years ended December 31, 2004 and 2003,
respectively. No payments were made during 2005. In connection with the sale of stock during
2005, Onex was no longer a related party as of December 31, 2005.
‚ On May 1, 2004, we entered into a Product Sourcing Assistance Agreement with Baird Asia
Limited (""BAL''), an affiliate of Baird Capital Partners III L.P. Pursuant to the Agreement, BAL
assisted us in procuring materials and parts from Asia, including the countries of China, Malaysia,
Hong Kong and Taiwan. BAL received as compensation a percentage of the price of the materials
and parts supplied to us, of at least 2% of the price but not exceeding 10% of the price, to be
determined on a case by case basis. We incurred expenses of approximately $3.1 million during
2005 and $0.2 million during 2004 for the value of goods and services purchased under the
Agreement. In connection with the sale of stock during 2005, BAL was no longer a related party as
of December 31, 2005.
15. Consolidating Guarantor and Non-Guarantor Financial Information
The following consolidating financial information presents balance sheets, statements of operations and
cash flow information related to the Company's business. Each Guarantor, as defined, is a direct or
indirect wholly owned subsidiary of the Company and has fully and unconditionally guaranteed the
Subordinated Notes issued by the Company, on a joint and several basis. Separate financial statements
and other disclosures concerning the Guarantors have not been presented because management believes
that such information is not material to investors.
The Parent Company includes all of the wholly owned subsidiaries accounted for under the equity
method. The guarantor and non-guarantor companies include the consolidated financial results of their
wholly owned subsidiaries accounted for under the equity method. All applicable corporate expenses have
been allocated appropriately among the guarantor and non-guarantor subsidiaries.
85
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2005
CURRENT ASSETS:
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏ
Accounts receivable, net ÏÏÏÏÏÏÏÏÏÏÏ
Inventories, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expenses and other current
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏ
PROPERTY, PLANT AND
EQUIPMENT, NET ÏÏÏÏÏÏÏÏÏÏÏÏÏ
INVESTMENT IN SUBSIDIARIES
GOODWILL ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
INTANGIBLE ASSETS, NET ÏÏÏÏÏÏ
DEFERRED INCOME TAXES ÏÏÏÏÏ
OTHER ASSETS, NET ÏÏÏÏÏÏÏÏÏÏÏÏ
Parent
Company
Guarantor
Companies
Non-Guarantor
Companies
(In thousands)
ASSETS
Elimination
Consolidated
$
Ì $ 39,153
144,793
Ì
50,953
Ì
$ 1,488
25,657
18,179
$
Ì $ 40,641
114,116
69,053
(56,334)
(79)
Ì
Ì
Ì
Ì
328,815
Ì
Ì
Ì
Ì
(540)
13,551
2,484
(980)
2,780
Ì
4,724
12,571
247,910
46,828
(53,633)
241,105
74,633
752
103,758
84,577
10,837
7,692
5,782
1,715
21,849
Ì
1,818
4,487
Ì
(331,282)
Ì
Ì
(12,655)
Ì
80,415
Ì
125,607
84,577
Ì
12,179
$328,815
$530,159
$82,479
$(397,570)
$543,883
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Ì $
Ì
Ì
5,309
115,704
37,124
Total current liabilities ÏÏÏÏÏÏÏÏÏÏ
LONG-TERM DEBT, NET ÏÏÏÏÏÏÏÏÏ
DEFERRED TAX LIABILITY ÏÏÏÏÏÏ
OTHER LONG-TERM
LIABILITIES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
Ì
Ì
Ì
158,137
171,693
22,273
19,994
372,097
STOCKHOLDERS' INVESTMENT
328,815
158,062
$ Ì
14,339
3,079
17,418
14,007
(816)
5,309
35,918
46,561
$
Ì $
(56,334)
2,780
(53,554)
Ì
(12,655)
5,309
73,709
42,983
122,001
185,700
8,802
Ì
25,303
(66,209)
341,806
(331,361)
202,077
$328,815
$530,159
$82,479
$(397,570)
$543,883
86
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
REVENUES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
COST OF REVENUES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$Ì
Ì
Gross profit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ÏÏÏ
AMORTIZATION EXPENSE ÏÏÏÏÏÏÏÏ
Operating income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NONCASH (GAIN) ON FOREIGN
CURRENCY FORWARD
EXCHANGE CONTRACTS AND
OTHER ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
INTEREST EXPENSE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
LOSS ON EARLY
EXTINGUISHMENT OF DEBT ÏÏÏÏ
Income Before Provision for Income
Taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PROVISION FOR INCOME TAXES
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Parent
Company
Guarantor
Companies
Non-Guarantor
Companies
(In thousands)
$124,751
103,366
Elimination
Consolidated
$(3,995)
(3,544)
$754,481
620,031
21,385
(451)
134,450
12,027
Ì
9,358
(372)
Ì
(79)
44,564
358
89,528
$633,725
520,209
113,516
32,909
358
80,249
(6)
11,742
(3,735)
1,453
1,525
Ì
66,988
25,199
11,640
3,939
Ì
Ì
Ì
(79)
Ì
(3,741)
13,195
1,525
78,549
29,138
Net Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$Ì
$ 41,789
$
7,701
$
(79)
$ 49,411
87
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2005
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏ
Noncash amortization of debt financing
costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on early extinguishment of debtÏÏÏÏÏ
Deferred income tax provisionÏÏÏÏÏÏÏÏÏÏÏ
Noncash (gain) on forward exchange
contracts and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in other operating items ÏÏÏÏÏÏÏÏÏ
Net cash provided by operating
activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payment for asset acquisition, net of cash
received ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets and liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash used in investing activitiesÏÏÏÏ
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on capital leasesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Repayments of revolving credit facility ÏÏÏÏÏ
Borrowings under revolving credit facility ÏÏÏ
Repayments of long-term borrowings ÏÏÏÏÏÏÏ
Long-term borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from issuance of common stock ÏÏÏ
Proceeds from issuance of 8.0% senior notes
Other, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by (used in)
financing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH
EQUIVALENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NET INCREASE IN CASH AND CASH
EQUIVALENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CASH AND CASH EQUIVALENTS:
Beginning of periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CASH AND CASH EQUIVALENTS:
Parent
Company
Guarantor
Companies
Non-
Guarantor
Companies
(In thousands)
Elimination
Consolidated
$Ì
$
41,789
$ 7,701
$(79)
$ 49,411
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
10,300
750
1,354
5,134
Ì
3,125
1,764
98
171
2,114
(3,793)
(26,351)
62,452
(18,296)
(13,892)
(2,065)
(171,076)
(1,761)
(186,729)
225
Ì
(1,840)
(46)
(187,068)
187,068
(237,008)
227,459
45,801
150,000
(17,714)
Ì
(20,381)
19,710
(1,328)
Ì
Ì
Ì
22,054
168,492
20,055
(5,456)
38,759
567
486
394
1,002
Ì
Ì
Ì
Ì
Ì
79
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
12,064
848
1,525
7,248
(3,793)
(23,147)
44,156
(15,957)
(170,851)
(1,761)
(188,569)
(46)
(207,449)
206,778
(238,336)
227,459
45,801
150,000
4,340
188,547
(4,889)
39,245
1,396
End of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$Ì
$
39,153
$
1,488
$ Ì
$ 40,641
88
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2004
Parent
Company
Guarantor
Companies
ASSETS
Non-
Guarantor
Companies
(In thousands)
Elimination
Consolidated
CURRENT ASSETS:
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts receivable, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expenses and other current assets
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Ì $
Ì
Ì
Ì
Ì
394
74,506
22,346
3,585
6,913
$ 1,002
17,844
14,590
2,496
1,288
$
Ì $
(46,083)
Ì
Ì
Ì
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PROPERTY, PLANT AND
EQUIPMENT, NET ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
Investment in subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GOODWILLÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DEFERRED INCOME TAXES ÏÏÏÏÏÏÏÏÏ
OTHER ASSETS, NET ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
192,920
Ì
Ì
Ì
107,744
37,220
(46,083)
26,918
750
60,293
4,645
1,869
6,047
18,088
24,422
1,256
1,307
Ì
(211,758)
Ì
Ì
Ì
1,396
46,267
36,936
6,081
8,201
98,881
32,965
Ì
84,715
5,901
3,176
$192,920
$202,219
$88,340
$(257,841)
$225,638
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt ÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Ì $
Ì
Ì
4,884
52,382
15,374
Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
LONG-TERM DEBT, net of current
maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
OTHER LONG-TERM LIABILITIES ÏÏÏ
Total liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
Ì
Ì
72,640
31,258
4,552
108,450
STOCKHOLDERS' INVESTMENT ÏÏÏÏÏ
192,920
93,769
$ Ì $
Ì $
27,547
3,050
30,597
17,783
3,845
52,225
36,115
(46,083)
Ì
(46,083)
Ì
Ì
4,884
33,846
18,424
57,154
49,041
8,397
(46,083)
114,592
(211,758)
111,046
$192,920
$202,219
$88,340
$(257,841)
$225,638
89
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
Parent
Company
Guarantor
Companies
REVENUES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
COST OF REVENUES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$Ì
Ì
$273,518
222,079
Non-
Guarantor
Companies
(In thousands)
$107,985
88,675
Gross profit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ÏÏÏÏÏÏ
NONCASH OPTION ISSUANCE
CHARGE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
AMORTIZATION EXPENSE ÏÏÏÏÏÏÏÏÏÏÏ
Operating income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NONCASH (GAIN) LOSS ON
FOREIGN CURRENCY FORWARD
EXCHANGE CONTRACTS AND
OTHER ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
INTEREST EXPENSE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
LOSS ON EARLY EXTINGUISHMENT
OF DEBT ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before provision for income taxes
PROVISION (BENEFIT) FOR INCOME
TAXES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Elimination
$(1,058)
(1,058)
Ì
Ì
Ì
Ì
Ì
51,439
19,310
17,748
11,237
10,125
107
23,459
Ì
Ì
8,073
(1,457)
4,879
(1,290)
2,365
1,500
Ì
1,605
18,432
Ì
Ì
6,998
(1,500)
Consolidated
$380,445
309,696
70,749
28,985
10,125
107
31,532
(1,247)
7,244
1,605
23,930
6,383
98
Ì
6,481
Net Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$Ì
$ 12,049
$
6,900
$(1,500)
$ 17,449
90
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2004
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortizationÏÏÏÏÏÏÏÏ
Noncash amortization of debt financing
costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Noncash option issuance charge ÏÏÏÏÏÏ
Loss on early extinguishment of debt ÏÏ
Deferred income tax provision ÏÏÏÏÏÏÏÏ
Noncash (gain) on forward exchange
contracts and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Noncash interest expense on
subordinated debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in other operating items ÏÏÏÏÏÏ
Net cash provided by operating
activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash used in investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock, net ÏÏÏÏÏÏÏÏÏ
Repayment of revolving credit facility ÏÏÏ
Borrowings under revolving credit facility
Long-term borrowingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Repayments of long-term borrowings ÏÏÏÏ
Proceeds from issuance (repayment) of
subordinated debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments on capital leasesÏÏÏÏÏÏÏÏÏÏÏÏÏ
Debt issuance costs and other, net ÏÏÏÏÏÏ
Net cash used in financing activities
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH
EQUIVALENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTSÏÏ
CASH AND CASH EQUIVALENTS:
Parent
Company
Guarantor
Companies
Non-
Guarantor
Companies
(In thousands)
Elimination
Consolidated
$Ì
$
12,049
$
6,900
$(1,500)
$
17,449
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
6,086
1,481
478
10,125
1,031
1,643
44
Ì
Ì
(303)
Ì
(1,291)
481
(3,889)
Ì
842
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
7,567
522
10,125
1,031
1,340
(1,291)
481
(3,047)
28,004
7,673
(1,500)
34,177
(6,392)
(6,392)
(2,515)
(2,515)
47,105
(62,125)
45,775
52,000
(100,781)
(3,112)
(15)
(2,202)
(23,355)
Ì
(18,450)
12,317
14,061
(15,250)
Ì
Ì
750
(6,572)
112
955
(1,631)
(459)
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
1,500
1,500
Ì
Ì
(8,907)
(8,907)
47,105
(80,575)
58,092
66,061
(116,031)
(3,112)
(15)
48
(28,427)
1,067
(2,090)
Beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
End of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
$Ì
2,025
394
1,461
1,002
$
$
Ì
$ Ì $
3,486
1,396
91
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
Parent
Company
Guarantor
Companies
REVENUES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
COST OF REVENUESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$Ì
Ì
$201,132
167,072
Elimination
Non-
Guarantor
Companies
(In thousands)
$86,447
70,812
Gross profit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ÏÏÏÏÏÏ
AMORTIZATION EXPENSEÏÏÏÏÏÏÏÏÏÏÏÏ
Operating income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NONCASH LOSS ON FOREIGN
CURRENCY FORWARD EXCHANGE
CONTRACTS AND OTHER ÏÏÏÏÏÏÏÏÏÏ
INTEREST EXPENSE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
LOSS ON EARLY EXTINGUISHMENT
OF DEBT ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before provision for income taxesÏÏ
PROVISION FOR INCOME TAXES ÏÏÏÏÏ
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
34,060
15,635
16,018
185
17,857
Ì
7,164
2,972
7,721
4,095
8,263
Ì
7,372
3,230
2,632
Ì
1,510
1,172
Consolidated
$287,579
237,884
49,695
24,281
185
25,229
3,230
9,796
2,972
9,231
5,267
$Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Net IncomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$Ì
$
3,626
$
338
$Ì
$
3,964
92
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2003
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortizationÏÏÏÏÏÏ
Noncash amortization of debt
financing costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on early extinguishment of debt
Deferred income tax provisionÏÏÏÏÏÏ
Noncash loss on forward exchange
contracts and other ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Noncash interest expense on
subordinated debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in other operating items ÏÏÏÏ
Net cash provided by operating
activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash used in investing
activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayments of revolving credit facility
Borrowings under revolving credit
facilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Repayments of long-term borrowings ÏÏ
Payments on capital leasesÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by (used in)
financing activitiesÏÏÏÏÏÏÏÏÏÏÏÏ
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH
EQUIVALENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NET INCREASE IN CASH AND
CASH EQUIVALENTSÏÏÏÏÏÏÏÏÏÏÏÏ
CASH AND CASH EQUIVALENTS:
Beginning of periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CASH AND CASH EQUIVALENTS:
Parent
Company
Guarantor
Companies
Non-Guarantor
Companies
(In thousands)
Elimination
Consolidated
$Ì
$
3,626
$
338
$Ì
$
3,964
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
6,906
498
2,151
2,591
1,200
Ì
Ì
(1,292)
Ì
3,230
756
(5,515)
Ì
(4,047)
11,013
(571)
(3,553)
(2,414)
(3,553)
(2,414)
(63,404)
(11,904)
63,475
(6,302)
(20)
15,860
(466)
Ì
(6,251)
3,490
Ì
1,209
817
135
640
820
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
8,106
498
2,151
1,299
3,230
756
(9,562)
10,442
(5,967)
(5,967)
(75,308)
79,335
(6,768)
(20)
(2,761)
135
1,849
1,637
End of periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$Ì
$
2,026
$
1,460
$Ì
$
3,486
93
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
16. Quarterly Financial Data (Unaudited):
The following is a condensed summary of actual quarterly results of operations for 2005 and 2004 (in
thousands, except per share amounts):
Revenues
Gross Profit
Operating
Income
(Loss)
Net
Income
(Loss)
Basic
Earnings
(Loss) Per
Share
Diluted
Earnings
(Loss) Per
Share(a)
2005:
First ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004:
First ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$152,415
196,091
205,859
200,116
$ 85,989
94,491
98,713
101,252
$26,252
36,142
36,495
35,561
$15,487
16,855
18,229
20,178
$16,679
25,830
24,566
22,453
$10,886
14,185
11,898
12,442
$ 0.61
0.79
0.58
0.59
$ 0.59
0.78
0.57
0.58
$ 7,954
$ 5,549
$ 0.40
$ 0.40
(164)
11,289
12,453
(877)
6,846
5,931
(0.06)
0.42
0.33
(0.06)(b)
0.42
0.32
(a) See Note 12 for discussion on the computation of diluted shares outstanding.
(b) Includes $10,125 noncash compensation charge related to modification of vesting of options issued in
May 2004.
The sum of the per share amounts for the quarters does not equal the total for the year due to the
application of the treasury stock methods.
94
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
December 31, 2005, 2004, and 2003
Allowance for Doubtful Accounts:
The transactions in the allowance for doubtful account for the years ended December 31 were as
follows (in thousands):
2005
2004
2003
Balance Ì Beginning of the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Acquisition recorded ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UtilizationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2,681
1,524
4,287
(2,194)
(211)
$ 2,530
Ì
2,448
(2,390)
93
$ 2,309
Ì
1,529
(1,424)
116
Balance Ì End of the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 6,087
$ 2,681
$ 2,530
Additional Purchase Liabilities Recorded in Conjunction with Acquisitions:
The transactions in the purchase liabilities account recorded in conjunction with acquisitions for the
years ended December 31 were as follows (in thousands):
2005
2004
2003
Balance Ì Beginning of the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Utilizations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 423
Ì
(106)
$ 620
Ì
(197)
$ 690
Ì
(70)
Balance Ì End of the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 317
$ 423
$ 620
Facility Closure and Consolidation Costs:
The transactions in the facility closure and consolidation costs account for the years ended
December 31 were as follows (in thousands):
Balance Ì Beginning of the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Utilizations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 278
2,013
(278)
$ 787
Ì
(509)
$1,275
Ì
(488)
Balance End of the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,013
$ 278
$ 787
2005
2004
2003
95
Exhibit No.
2.1
2.2
2.3
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
EXHIBIT INDEX
Description
Agreement of Purchase and Sale, dated February 7, 2004, by and among, CVG Acquisition
LLC, Mayflower Vehicle Systems, Inc., Mayflower Vehicle Systems Michigan, Inc., Wayne
Stamping and Assembly LLC and Wayne-Orrville Investments LLC (incorporated by
reference to the Company's annual report on Form 10-K (File No. 000-50890), filed on
March 15, 2005).
Stock Purchase Agreement, dated as of June 3, 2005, by and between Monona Holdings LLC
and Commercial Vehicle Group, Inc. (incorporated by reference to the Company's current
report on Form 8-K (File No. 000-50890), filed on June 8, 2005).
Stock Purchase Agreement, dated as of August 8, 2005, by and between Trim Systems, Inc.
Cabarrus Plastics, Inc. and the Shareholders listed therein (incorporated by reference to the
Company's current report on Form 8-K (File No. 000-50890) filed on August 12, 2005).
Amended and Restated Certificate of Incorporation of Commercial Vehicle Group, Inc.
(incorporated by reference to the Company's quarterly report on Form 10-Q (File No. 000-
50890), filed on September 17, 2004).
Amended and Restated By-laws of Commercial Vehicle Group, Inc. (incorporated by
reference to the Company's quarterly report on Form 10-Q (File No. 000-50890), filed on
September 17, 2004).
Indenture, dated July 6, 2005, among Commercial Vehicle Group, Inc., the subsidiary
guarantors party thereto and U.S. Bank National Association, as Trustee, with respect to
8.0% senior notes due 2013 (incorporated herein by reference to the Company's Current
Report on Form 8-K (File No. 000-50890), filed on July 8, 2005).
Supplemental Indenture, dated as of August 10, 2005, by and among Commercial Vehicle
Group, Inc. Cabarrus Plastics, Inc. and U.S. Bank National Association (incorporated by
reference to the Company's current report on Form 8-K (File No. 000-50890) filed on
August 12, 2005).
Registration Rights Agreement, dated July 6, 2005, among the Company, the subsidiary
guarantors party thereto and the purchasers named therein (incorporated herein by reference
to the Company's Current Report on Form 8-K (File No. 000-50890), filed on July 8, 2005).
Form of senior note (attached as exhibit to Exhibit 4.1).
Amended and Restated Credit Agreement, dated as of March 28, 2003, by and among
Commercial Vehicle Systems Limited, KAB Seating Limited, National Seating Company,
Commercial Vehicle Systems, Inc., CVS Holdings, Inc., Bostrom Holding, Inc., the several
financial institutions from time to time party to this agreement (the ""Lenders''), Fleet
National Bank, as an Issuer and Bank of America, N.A., as administrative agent for the
Lenders, Collateral Agent, Swing Line Lender and an Issuer (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 333-15708), filed on May 21, 2004).
Revolving Credit and Term Loan Agreement, dated as of October 29, 1998, by and among
Trim Systems Operating Corp, Tempress, Inc., Trim Systems, LLC, the financial institutions
from time to time signatory thereto (the ""Banks'') and Comerica Bank, as agent for the Banks
(incorporated by reference to the Company's registration statement on Form S-1 (File
No. 333-15708), filed on May 21, 2004).
Amendment No. 1 to Revolving Credit and Term Loan Agreement, dated as of December 31,
1998, by and among the lenders signatory thereto, Comerica Bank as agent for the Banks,
Trim Systems Operating Corp., Tempress, Inc. and Trim Systems LLC (incorporated by
reference to the Company's registration statement on Form S-1 (File No. 333-15708), filed on
May 21, 2004).
Amendment No. 2 to Revolving Credit and Term Loan Agreement and Waiver, dated as of
November 22, 1999, by and among U.S. Bank National Association, as co-agent, Bank One,
N.A., as co-agent, Comerica Bank as agent for the Banks, Trim Systems Operating Corp.,
Tempress, Inc. and Trim Systems LLC (incorporated by reference to the Company's
registration statement on Form S-1 (File No. 333-15708), filed on May 21, 2004).
96
Exhibit No.
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Description
Amendment No. 3 to Revolving Credit and Term Loan Agreement and Waiver, dated as of
June 28, 2001, by and among the lenders signatory thereto, Comerica Bank as agent for the
Banks, Trim Systems Operating Corp., Tempress, Inc. and Trim Systems LLC (incorporated
by reference to the Company's registration statement on Form S-1 (File No. 333-15708), filed
on May 21, 2004).
Assignment and Waiver Agreement, dated as of June 28, 2001, by and among Trim Systems
Operating Corp, Tempress, Inc., Trim Systems, LLC, U.S. Bank National Association, Bank
One, NA, Comerica Bank, 1363880 Ontario Inc. and J2R Partners II-B, LLC (is incorporated
by reference to the Company's registration statement on Form S-1 (File No. 333-15708), filed
on May 21, 2004).
Amendment No. 4 to Revolving Credit and Term Loan Agreement, dated as of November 13,
2002, by and among the lenders signatory thereto, Comerica Bank as agent for the Banks,
Trim Systems Operating Corp., Tempress, Inc. and Trim Systems LLC (incorporated by
reference to the Company's registration statement on Form S-1 (File No. 333-15708), filed on
May 21, 2004).
Amendment No. 5 to Revolving Credit and Term Loan Agreement and Waiver dated as of
February 2004, by and among the lenders signatory thereto, Comerica Bank as agent for the
Banks, Trim Systems Operating Corp., Tempress, Inc. and Trim Systems LLC (incorporated
by reference to the Company's registration statement on Form S-1 (File No. 333-15708), filed
on May 21, 2004).
Revolving Credit and Term Loan Agreement, dated as of August 10, 2004, by and among
Commercial Vehicle Group, Inc., the subsidiary borrowers from time to time parties thereto,
the foreign currency borrowers from time to time parties thereto, the banks from time to time
parties hereto, U.S. Bank National Association, one of the banks, as administrative agent for
the banks and Comerica Bank, one of the banks, as syndication agent for the banks
(incorporated by reference to the Company's quarterly report on Form 10-Q (File No. 000-
50890), filed on September 17, 2004).
First Amendment to Revolving Credit and Term Loan Agreement, dated as of September 16,
2004, by and among Commercial Vehicle Group, Inc., the subsidiary borrowers from time to
time parties thereto, the foreign currency borrowers from time to time parties thereto, the
banks from time to time parties hereto, U.S. Bank National Association, one of the banks, as
administrative agent for the banks and Comerica Bank, one of the banks, as syndication agent
for the banks (incorporated by reference to the Company's annual report on Form 10-K (File
No. 000-50890), filed on March 15, 2005).
Second Amendment to Revolving Credit and Term Loan Agreement, dated as of February 7,
2005, by and among Commercial Vehicle Group, Inc., the subsidiary borrowers from time to
time parties thereto, the foreign currency borrowers from time to time parties thereto, the
banks from time to time parties hereto, U.S. Bank National Association, one of the banks, as
administrative agent for the banks and Comerica Bank, one of the banks, as syndication agent
for the banks (incorporated by reference to the Company's annual report on Form 10-K (File
No. 000-50890), filed on March 15, 2005).
Third Amendment to Revolving Credit and Term Loan Agreement, dated as of June 3, 2005,
by and among Commercial Vehicle Group, Inc., the subsidiary borrowers from time to time
parties thereto, the foreign currency borrowers from time to time parties thereto, the banks
from time to time parties thereto, U.S. Bank National Association, one of the banks, as
administrative agent for the banks and Comerica Bank, one of the banks, as syndication agent
for the banks (incorporated by reference to the Company's current report on Form 8-K (File
No. 000-50890), filed on June 8, 2005).
97
Exhibit No.
10.13
10.14
10.15
10.16
10.17
10.18
Description
Fourth Amendment to Revolving Credit and Term Loan Agreement, dated as of June 29,
2005, by and among Commercial Vehicle Group, Inc., the subsidiary borrowers from time to
time parties thereto, the foreign currency borrowers from time to time parties thereto, the
banks from time to time parties thereto, U.S. Bank National Association, one of the banks, as
administrative agent for the banks and Comerica Bank, one of the banks, as syndication agent
for the banks (incorporated by reference to the Company's current report on Form 8-K (File
No. 000-50890), filed on July 6, 2005).
Fifth Amendment to Revolving Credit and Term Loan Agreement, dated as of July 12, 2005,
by and among Commercial Vehicle Group, Inc., the subsidiary borrowers from time to time
parties thereto, the foreign currency borrowers from time to time parties thereto, the banks
from time to time parties thereto, U.S. Bank National Association, one of the banks, as
administrative agent for the banks, and Comerica Bank, one of the banks, as syndication agent
for the banks (incorporated by reference to the Company's current report on Form 8-K (File
No. 000-50890), filed on July 14, 2005).
Sixth Amendment to Revolving Credit and Term Loan Agreement, dated as of December 30,
2005, by and among Commercial Vehicle Group, Inc., the subsidiary borrowers from time to
time parties thereto, the foreign currency borrowers from time to time parties thereto, the
banks from time to time parties thereto, U.S. Bank National Association, one of the banks, as
administrative agent for the banks, and Comerica Bank, one of the banks, as syndication agent
for the banks (incorporated by reference to the Company's current report on Form 8-K (File
No. 000-50890), filed on January 1, 2006).
Investor Stockholders Agreement, dated October 5, 2000, by and among Bostrom Holding,
Inc., Onex American Holdings LLC, J2R Partners VII and the stockholders listed on the
signature pages thereto (incorporated by reference to the Company's registration statement on
Form S-1 (File No. 333-15708), filed on May 21, 2004).
Investor Stockholders Joinder Agreement, dated as of March 28, 2003, by and among Bostrom
Holding, Inc. and J2R Partners VI, CVS Partners, LP and CVS Executive Investco LLC
(incorporated by reference to the Company's registration statement on Form S-1 (File No.
333-15708), filed on May 21, 2004).
Joinder to the Investor Stockholders Agreement by and among Bostrom Holding, Inc. and the
prior stockholders of Trim Systems (incorporated by reference to the Company's registration
statement on Form S-1 (File No. 333-15708), filed on May 21, 2004).
10.19 Management Stockholders Agreement, dated as of August 9, 2004, by and among Commercial
Vehicle Group, Inc., Onex American Holdings II LLC and the individuals named on Schedule
I thereto (incorporated by reference to the Company's quarterly report on Form 10-Q (File
No. 000-50890), filed on September 17, 2004).
10.21
10.20 Note Purchase Agreement, dated September 30, 2002, by and among Bostrom Holding, Inc.,
Baird Capital Partners II Limited, BCP II Affiliates Fund Limited Partnership, Baird
Capital II Limited Partnership, Baird Capital Partners III Limited Partnership, BCP III
Special Affiliates Limited Partnership, BCP III Affiliates Fund Limited Partnership, Norwest
Equity Partners VII, LP and Hidden Creek Industries (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 333-15708), filed on May 21, 2004).
Form of Subordinated Promissory Note issued by Bostrom Holding, Inc. in favor of each of
BCP II Affiliates Fund Limited Partnership, Baird Capital II Limited Partnership, Baird
Capital Partners III Limited Partnership, BCP III Special Affiliates Limited Partnership
BCP III Affiliates Fund Limited Partnership, Norwest Equity Partners VII, LP and Hidden
Creek Industries (incorporated by reference to the Company's registration statement on
Form S-1 (File No. 333-15708), filed on May 21, 2004).
Promissory Note, dated as of June 28, 2001, issued by Trim Systems Operating Corp. in favor
of 1363880 Ontario Inc., in the amount of $6,850,000 (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 333-15708), filed on May 21, 2004).
10.22
98
Exhibit No.
10.23
Promissory Note, dated as of June 28, 2001, issued by Trim Systems Operating Corp. in favor
of J2R Partners II-B, LLC, in the amount of $150,000 (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 333-15708), filed on May 21, 2004).
Description
10.24* Bostrom Holding, Inc. Management Stock Option Plan (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 333-15708), filed on May 21, 2004).
10.25* Form of Grant of Nonqualified Stock Option pursuant to the Bostrom Holding, Inc.
Management Stock Option Plan (incorporated by reference to the Company's registration
statement on Form S-1 (File No. 333-15708), filed on May 21, 2004).
10.26* Commercial Vehicle Group, Inc. Amended and Restated Equity Incentive Plan (incorporated
by reference to the Company's quarterly report on Form 10-Q (File No. 000-59890), filed on
May 11, 2005).
10.27* Form of Grant of Nonqualified Stock Option pursuant to the Commercial Vehicle Group, Inc.
Amended and Restated Equity Incentive Plan (incorporated by reference to the Company's
annual report on Form 10-K (File No. 000-50890), filed on March 15, 2005).
10.30
10.29
10.31
10.28* Employment agreement, dated as of May 16, 1997, with Donald P. Lorraine (incorporated by
reference to the Company's registration statement on Form S-1 (File No. 333-15708), filed on
May 21, 2004).
Recapitalization Agreement, dated as of August 4, 2004, by and among Commercial Vehicle
Group, Inc. and the stockholders listed on the signature pages thereto (incorporated by
reference to the Company's quarterly report on Form 10-Q (File No. 000-50890), filed on
September 17, 2004).
Form of Non-Competition Agreement (incorporated by reference to the Company's
registration statement on Form S-1 (File No. 333-15708), filed on May 21, 2004).
Registration Agreement, dated October 5, 2000, by and among Bostrom Holding, Inc. and the
investors listed on Schedule A attached thereto (incorporated by reference to the Company's
registration statement on Form S-1 (File No. 333-15708), filed on May 21, 2004).
Joinder to Registration Agreement, dated as of March 28, 2003, by and among Bostrom
Holding, Inc. and J2R Partners VI, CVS Partners, LP and CVS Executive Investco LLC
(incorporated by reference to the Company's registration statement on Form S-1 (File
No. 333-15708), filed on May 21, 2004).
Joinder to the Registration Agreement, dated as of May 20, 2004, by and among Commercial
Vehicle Group, Inc. and the prior stockholders of Trim Systems (incorporated by reference to
the Company's quarterly report on Form 10-Q (File No. 000-50890), filed on September 17,
2004).
10.32
10.33
10.34* Commercial Vehicle Group, Inc. 2005 Bonus Plan (incorporated by reference to the
Company's current report on Form 8-K (File No. 000-50890), filed on February 7, 2005).
10.35* Service Agreement, dated March 1, 1993, between Motor Panels (Coventry) Plc and William
Gordon Boyd (incorporated by reference to the Company's registration statement on Form S-1
(File No. 333-125626), filed on June 8, 2005).
10.36* Assignment and Assumption Agreement, dated as of June 1, 2004, between Mayflower Vehicle
Systems PLC and Mayflower Vehicle Systems, Inc. (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 333-125626), filed on June 8, 2005).
10.37* Form of Restricted Stock Agreement pursuant to the Commercial Vehicle Group, Inc.
Amended and Restated Equity Incentive Plan (incorporated by reference to amendment no. 1
to the Company's registration statement on Form S-4 (File No. 333-129368), filed on
December 1, 2005).
Computation of ratio of earnings to fixed charges.
Subsidiaries of Commercial Vehicle Group, Inc. (incorporated by reference to the Company's
registration statement on Form S-4 (File No. 333-129368), filed on November 1, 2005).
Consent of Deloitte & Touche LLP.
Certification by Mervin Dunn, President and Chief Executive Officer.
12.1
21.1
23.1
31.1
99
Exhibit No.
31.2
32.1
32.2
Description
Certification by Chad M. Utrup, Chief Financial Officer.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley
Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley
Act of 2002.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this
report on Form 10-K.
100
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
COMMERCIAL VEHICLE GROUP, INC.
By: /s/ SCOTT D. RUED
Scott D. Rued,
Chairman
Date: March 10, 2006
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ SCOTT D. RUED
Scott D. Rued
/s/ MERVIN DUNN
Mervin Dunn
/s/ SCOTT C. ARVES
Scott C. Arves
/s/ DAVID R. BOVEE
David R. Bovee
/s/ ROBERT C. GRIFFIN
Robert C. Griffin
/s/ S.A. JOHNSON
S.A. Johnson
Chairman and Director
March 10, 2006
President, Chief Executive Officer
(Principal Executive Officer)
and Director
March 10, 2006
Director
March 10, 2006
Director
March 10, 2006
Director
March 10, 2006
Director
March 10, 2006
101
Signature
/s/ RICHARD A. SNELL
Richard A. Snell
/s/ CHAD M. UTRUP
Chad M. Utrup
Title
Director
Date
March 10, 2006
Chief Financial Officer (Principal
Financial and Accounting Officer)
March 10, 2006
102