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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
or
Form 10-K
¨ Transition report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2019
Commission file number:
001-34365
COMMERCIAL VEHICLE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State of Incorporation)
7800 Walton Parkway
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:
Title of Each Class
Common Stock, par value $.01 per share
Trading Symbol
CVGI
Name of exchange on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
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 ¨ No þ
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last
sold on June 30, 2019, was $239,933,394.
As of March 16, 2020, 31,327,663 shares of Common Stock of the Registrant were outstanding.
Documents Incorporated by Reference
Information required by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K is incorporated by reference from the Registrant’s Proxy Statement for
its annual meeting to be held May 14, 2020 (the “2020 Proxy Statement”).
Table of Contents
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
COMMERCIAL VEHICLE GROUP, INC.
Annual Report on Form 10-K
Table of Contents
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships, Related Transactions and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statements Schedules
SIGNATURES
PART IV
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CERTAIN DEFINITIONS
All references in this Annual Report on Form 10-K to the “Company”, “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,
and Section 27A of the Securities Act of 1933, as amended. For this purpose, any statements contained herein that are not statements of historical fact, including
without limitation, certain statements under “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and located elsewhere herein regarding industry outlook, financial covenant compliance, anticipated effects of acquisitions, production of new
products, plans for capital expenditures and our results of operations or financial position and liquidity, may be deemed to be forward-looking statements. Without
limiting the foregoing, the words “believe”, “anticipate”, “plan”, “expect”, “intend”, “will”, “should”, “could”, “would”, “project”, “continue”, “likely”, and
similar expressions, as they relate to us, are intended to identify forward-looking statements. The important factors discussed in “Item 1A - 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) a material
weakness in our internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements; (ii) future
financial restatements affecting the company; (iii) general economic or business conditions affecting the markets in which the Company serves; (iv) the Company's
ability to develop or successfully introduce new products; (v) risks associated with conducting business in foreign countries and currencies; (vi) increased
competition in the medium- and heavy-duty truck markets, construction, agriculture, aftermarket, military, bus and other markets; (vii) the Company’s failure to
complete or successfully integrate strategic acquisitions and the impact of such acquisitions on business relationships; (viii) the Company’s ability to recognize
synergies from the reorganization of the segments; (ix) the Company’s failure to successfully manage any divestitures; (x) the impact of changes in governmental
regulations on the Company's customers or on its business; (xi) the loss of business from a major customer, a collection of smaller customers or the discontinuation
of particular commercial vehicle platforms; (xii) the Company’s ability to obtain future financing due to changes in the lending markets or its financial position;
(xiii) the Company’s ability to comply with the financial covenants in its debt facilities; (xiv) fluctuation in interest rates or change in the reference interest rate
relating to the Company’s debt facilities; (xv) the Company’s ability to realize the benefits of its cost reduction and strategic initiatives and address rising labor and
material costs; (xvi) volatility and cyclicality in the commercial vehicle market adversely affecting us; (xvii) the geographic profile of our taxable income and
changes in valuation of our deferred tax assets and liabilities impacting our effective tax rate; (xviii) changes to domestic manufacturing initiatives; (xix)
implementation of tax or other changes, by the United States or other international jurisdictions, related to products manufactured in one or more jurisdictions
where the Company does business (xx) security breaches and other disruptions that could compromise our information systems; (xxi) the impact of disruptions in
our supply chain or delivery chains; (xxii) litigation against us; and (xxiii) the impact of health epidemics or widespread outbreak of contagious disease. Any
forward-looking statement that we make in this report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking
statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current
and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be
viewed as historical data.
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Item 1.
Business
COMPANY OVERVIEW
PART I
Commercial Vehicle Group, Inc. (through its subsidiaries) is a leading supplier of electrical wire harnesses, seating systems, and a full range of other cab related
products for the global commercial vehicle markets, including medium- and heavy-duty trucks ("MD/HD Truck") and medium- and heavy-construction vehicles.
We also supply electrical wire harnesses, control panels, electro-mechanical and cable assemblies, seating systems and other products to automotive, military, bus,
agriculture, transportation, mining, industrial and off-road recreational markets. References herein to the "Company", "CVG", "we", "our", or "us" refer to
Commercial Vehicle Group, Inc. and its subsidiaries.
We have manufacturing operations in the United States, Mexico, China, United Kingdom, Czech Republic, Ukraine, Thailand, India and Australia. Our products
are primarily sold in North America, Europe, and the Asia-Pacific region.
We are differentiated from automotive industry suppliers by our ability to manufacture low volume, customized products on a sequenced basis to meet the
requirements of our customers. We believe our products are used by a majority of the North American MD/HD Truck and many medium- and heavy-duty
construction vehicle original equipment manufacturers (“OEMs”), and to a lesser extent other makers of industrial equipment.
Our Long-term Strategy
Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
SEGMENTS
In the quarter ended December 31, 2018, we completed a strategic reorganization of our operations into two business segments, Electrical Systems and Global
Seating. The reorganization allows the Company to better focus its business along product lines, as opposed to end markets, which the Company believes enhances
the effectiveness of seeking out growth opportunities and shareholder value. As a result of the strategic reorganization, we restated prior period segment
information to conform to the current period segment presentation. See Note 12 of the Consolidated Financial Statements for more information.
Operating segments are defined as components of an enterprise that are evaluated regularly by the Company’s chief operating decision maker (“CODM”), which is
our President and Chief Executive Officer. Each of these segments consists of a number of manufacturing facilities. Certain of our facilities manufacture and sell
products through both of our segments. Each manufacturing facility that sells products through both segments is reflected in the financial results of the segment
that has the greatest amount of revenues from that manufacturing facility. Our segments are more specifically described below.
The Electrical Systems Segment manufactures and sells the following products:
•
Electrical wire harnesses, control panels, electro-mechanical and cable assemblies primarily for the construction, agricultural, industrial, automotive,
truck, mining, rail and military industries in North America, Europe and Asia-Pacific;
Trim systems and components ("Trim") primarily for the North America MD/HD Truck market;
•
• Mirrors, wipers and controls primarily for the truck, bus, agriculture, construction, rail and military markets in North America and Europe;
•
•
Cab structures for the North American MD/HD Truck market; and
Aftermarket components in North America.
The Global Seating Segment manufactures and sells the following products:
•
•
•
Seats and seating systems ("Seats") primarily to the MD/HD Truck, construction, agriculture and mining markets in North America, Asia-Pacific and
Europe;
Office seating in Europe and Asia-Pacific; and
Aftermarket seats and components in North America, Europe and Asia-Pacific.
See Note 12 of the Consolidated Financial Statements under Item 8 Financial Statements and Supplementary Data for financial information presented by segment
for each of the three years ended December 31, 2019, 2018 and 2017, including information on sales and long-lived assets by geographic area.
ELECTRICAL SYSTEMS SEGMENT OVERVIEW
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Electrical Systems Segment Products
Set forth below is a description of our products manufactured in the Electrical Systems Segment and their applications.
Electrical Wire Harnesses, Control Panels, Electro-Mechanical and Cable Assemblies. We produce a wide range of electrical wire harnesses and electrical
distribution systems, and related assemblies primarily for construction, agriculture, industrial, automotive, truck, mining, rail and military industries. Our principal
products in this category include:
Electrical Wire Harnesses. We offer a broad range of electrical wire harness assemblies that function as the primary electric current carrying devices
used to provide electrical interconnections for gauges, lights, control functions, power circuits, powertrain and transmission sensors, emissions systems
and other electronic applications on commercial and other vehicles. Our wire harnesses are customized to fit specific end-user requirements and can be
complex.
Panel Assemblies. We assemble integrated components such as panel assemblies and cabinets that are installed in a vehicle or unit of equipment and
may be integrated with our wire harness assemblies. These components provide the user control over multiple operational functions and features.
Electro-Mechanical and Cable Assemblies. We provide electro-mechanical manufacturing services to our customers, including box builds, complex rack
and stack assemblies and large multi-cabinet control cabinets with power distribution and cabling. Our service includes mechanical assembly, wire and
cable routing, automated wire preparation capabilities, complex configurations, test and custom palletizing and crating solutions.
Trim Systems and Components. We design, engineer and produce Trim primarily for MD/HD Truck, and recreational and specialty vehicle applications. Our
Trim products are used mostly for the interior of cabs and are designed to provide a comfortable and durable interior along with a variety of functional and safety
features for the vehicle occupant. Our principal products in the Trim category include:
Trim Products. Our Trim products include door panels and other interior trim panels. Specific components include vinyl or cloth-covered appliqués
ranging from a traditional cut and sew approach to a contemporary molded styling theme, armrests, map pocket compartments, and sound-reducing
insulation.
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.
Headliners/Wall Panels. Headliners and wall panels consist of a substrate and a finished interior layer made of fabrics and other materials. While
headliners and wall panels 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.
Storage Systems. Our modular storage units and custom cabinetry are designed to improve comfort and optimize space for the operator. These storage
systems are designed to be integrated with the interior trim.
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. Non-carpeted flooring systems, used primarily in commercial and fleet
vehicles, offer improved wear and maintenance characteristics.
Sleeper Bunks. We offer a wide array of design choices for upper and lower sleeper bunks for heavy-duty trucks. All parts of our sleeper bunks can be
integrated to match the rest of the interior trim.
Grab Handles and Armrests. Our grab handles and armrests are designed and engineered with specific attention to aesthetics, ergonomics and strength.
Privacy Curtains. We produce privacy curtains for use in sleeper cabs.
Plastics Decorating and Finishing. We offer customers a wide variety of cost-effective finishes in paint, ultra violet, hard coating and customized
industrial hydrographic films (simulated appearance of wood grain, carbon fiber, brushed metal, marbles, camouflage and custom patterns), paints and
other interior and exterior finishes.
Cab Structures and Sleeper Boxes. We design, engineer and produce complete cab structures and sleeper boxes for MD/HD Trucks. Our principal products in
this category include:
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Cab Structures. We design, manufacture and assemble complete cab structures. Our cab structures, which are manufactured from both steel and
aluminum, are delivered fully assembled and primed for paint.
Sleeper Boxes. We design, manufacture and assemble sleeper boxes that can be part of the overall cab structure or standalone assemblies depending on
the customer application.
Mirrors, Wipers and Controls. We design, engineer and produce a variety of mirrors, wipers and controls used in commercial, military and specialty
recreational vehicles. Our principal products in this category include:
Mirrors. We offer a range of round, rectangular, motorized and heated mirrors and related hardware, including brackets, braces and side bars. We have
introduced both road and outside temperature devices that can be mounted on the cab, integrated into the mirror face and the vehicle’s dashboard through
our RoadWatch™ family of products.
Wiper Systems. We offer application-specific windshield wiper systems and individual windshield wiper components.
Controls. We offer a range of controls and control systems for window lifts, door locks and electric switch products.
Electrical Systems Segment’s Customers
The following is a summary of the Electrical Systems Segment’s significant revenues (figures are shown as a percentage of total Electrical Systems Segment
revenue) by end market for each of the three years ended December 31:
Truck
Construction
Aftermarket and OE Service
Automotive
Military
Agriculture
Other
Total
2019
51%
17
10
7
5
3
7
2018
49%
19
11
9
4
2
6
2017
44%
20
10
10
4
3
9
100%
100%
100%
Our principal customers include A.B. Volvo, Daimler, John Deere, PACCAR, and Caterpillar, constituting a combined total of 70%, 70% and 67% of Electrical
Systems Segment revenue for the years ended December 31, 2019, 2018 and 2017, respectively.
Our European and Asia-Pacific operations collectively contributed approximately 12%, 13% and 13% of our revenues for the years ended December 31, 2019,
2018 and 2017, respectively.
GLOBAL SEATING SEGMENT OVERVIEW
Global Seating Segment Products
Set forth below is a brief description of our products manufactured in the Global Seating Segment and their applications.
Seats and Seating Systems. We design, engineer and produce Seats for MD/HD Truck, bus, construction, agriculture and military markets. For the most part, our
Seats are fully-assembled and ready for installation when they are delivered to the OEM. We offer a wide range of Seats that include mechanical and air
suspension seats, static seats, bus seats and military seats. As a result of our product design and product technology, we believe we are a leader in designing Seats
with convenience and safety features. Our Seats are designed to achieve a high level of operator comfort by adding a wide range of manual and power features
such as lumbar support, cushion and back bolsters, and leg and thigh support. Our Seats are built to meet customer requirements in low volumes and produced in
numerous feature combinations to form a full-range product line with a wide level of price points. We also manufacture Seats, parts and components for the
aftermarket.
Office Seating. We design, engineer and produce office seating products. Our office seating was developed as a result of our experience in supplying Seats for
commercial vehicles and is fully adjustable to achieve a high comfort level. Our office seating is designed to suit different office environments including heavy
usage environments, such as emergency services, call centers, reception areas, studios and general office environments.
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Global Seating Segment Customers
The following is a summary of the Global Seating Segment’s significant revenues (figures are shown as a percentage of total Global Seating Segment revenue) by
end market for each of the three years ended December 31:
Medium- and Heavy-duty Truck OEMs
Construction OEMs
Aftermarket and OE Service
Bus OEMs
Other
Total
2019
49%
21
21
8
1
100%
2018
43%
24
21
8
4
100%
2017
39%
25
24
9
3
100%
Our principal customers include Daimler, A.B. Volvo, Navistar, PACCAR and Caterpillar, constituting a combined total of 61%, 59% and 57% of Global Seating
Segment revenue for the years ended December 31, 2019, 2018 and 2017, respectively.
Our European and Asia-Pacific operations collectively contributed approximately 43%, 48% and 50% of the Global Seating Segment’s revenues for the years
ended December 31, 2019, 2018 and 2017, respectively.
OUR CONSOLIDATED OPERATIONS
Industries Served
Commercial Vehicle Market. Commercial vehicles are used in a wide variety of end markets, including local and long-haul commercial trucking, bus,
construction, mining, agricultural, military, industrial, municipal, off-road recreation and specialty vehicle markets. 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 and construction vehicles; and (2) aftermarket sales, in which products are sold as replacements to a wide range of original
equipment service organizations, wholesalers, retailers and installers. In the OEM market, suppliers are generally divided into tiers - “Tier 1” suppliers
that provide products directly to OEMs, and “Tier 2” and “Tier 3” suppliers that sell products principally to other suppliers for integration into those
suppliers’ own product offerings. We are generally a Tier 1 supplier.
The commercial vehicle supplier industry is fragmented and comprised of several large companies and many smaller companies. In addition, the
commercial vehicle supplier industry is characterized by relatively low production volumes and can have considerable barriers to entry, including the
following: (1) specific technical and manufacturing requirements, (2) high transition costs to shift production to new suppliers, (3) just-in-time delivery
requirements, and (4) strong brand name recognition.
Although OEM demand for our products is directly correlated with new vehicle production, suppliers like us can increase revenue by further penetrating
existing customers’ businesses, gaining new customers, expanding into new geographic markets, developing new content in our products to meet
changing customer needs and by increasing aftermarket sales. We believe that companies with a global presence, advanced technology, engineering and
manufacturing and support capabilities, such as our company, are well positioned to take advantage of these opportunities.
North American Commercial Truck Market. Purchasers of commercial trucks include fleet operators, owner operators, governmental agencies and
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 Classes 5 through 7 vehicles are trucks with gross vehicle weight from 16,001
lbs. to 33,000 lbs.
The following describes the major markets within the commercial vehicle market in which the Global Seating Segment competes:
Class 8 Truck Market. The global Class 8 ("Class 8" or "heavy-duty") truck manufacturing market is concentrated in three primary regions: North
America, Europe and Asia-Pacific. 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 to meet the region-specific demands of end-users, and (3) the ability to meet
just-in-time delivery requirements. According to ACT Research, four companies represented approximately 98% of the market share for North American
Class 8 truck production in 2019. The percentages of North American heavy-duty production represented by Daimler, PACCAR, A.B. Volvo, and
Navistar were approximately 37%, 31%, 17%, and 14%, respectively, in 2019. We supply products to all of these OEMs.
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New Class 8 truck demand is cyclical and is particularly sensitive to economic factors that generate a significant portion of the freight tonnage hauled by
commercial vehicles.
The following table illustrates the actual and estimated North American Class 8 truck build for the years 2017 to 2024:
“E” — Estimated
Source: ACT (February 2020).
We believe the following factors are primarily responsible for driving the North American Class 8 truck market:
Economic Conditions. The North American truck industry is influenced by overall economic conditions and consumer spending. Since heavy-
duty truck OEMs supply the fleet operators, their production levels generally reflect the demand for freight and the fleet operators' purchase of
new vehicles.
Truck Replacement Cycle and Fleet Aging. The average age of the U.S. Class 8 truck population was approximately 6.4 years in 2019. 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. As truck fleets age, maintenance costs typically increase. Freight companies evaluate the
economics between repair and replacement as well as the potential to utilize more cost-effective technology in vehicles. The chart below
illustrates the actual and estimated approximate average age of the U.S. Class 8 truck population:
“E” — Estimated
Source: ACT (February 2020).
Class 5-7 Truck Market. North American Class 5-7 ("Class 5-7" or "medium-duty") includes recreational vehicles, buses and medium-duty trucks. We
primarily participate in the Class 6 and 7 portion of the medium-duty truck market. The medium-duty truck market is influenced by overall economic
conditions but has historically been less cyclical than the North American Class 8 truck market, with highs and lows generally not as pronounced as the
Class 8 truck market.
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As the North American truck fleet companies move to a distribution center model, requiring less long-haul freight vehicles, the demand for medium-duty
trucks may increase.
The following table illustrates the actual and estimated North American Class 5-7 truck build for the years 2017 through 2024:
“E” — Estimated
Source: ACT (February 2020).
Commercial Truck Aftermarket. 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, the content and value per vehicle, vehicle usage and the average useful life of vehicle parts. Aftermarket sales tend to be
at a higher margin. The recurring nature of aftermarket revenue can be expected to provide some insulation to the overall cyclical nature of the industry as
it tends to provide a more stable stream of revenues. Brand equity and the extent of a company’s distribution network also contribute to the level of
aftermarket sales. We believe CVG has a widely recognized brand portfolio and participates in most retail sales channels including original equipment
dealer networks and independent distributors.
Commercial Construction Equipment Market. New vehicle demand in the global construction equipment market generally follows certain economic
conditions including gross domestic product, infrastructure investment, housing starts, business investment, oil and energy investment and industrial
production around the world. Within the construction market, there are two classes of construction equipment markets: the medium and heavy
construction equipment market (weighing over 12 metric tons) and the light construction equipment market (weighing below 12 metric tons). Our
construction equipment products are primarily used in the medium and heavy construction equipment markets. The platforms that we generally participate
in include: cranes, pavers, planers and profilers, dozers, loaders, graders, haulers, tractors, excavators, backhoes, material handling and compactors.
Demand in the medium and heavy construction equipment market is typically related to the level of larger-scale infrastructure development projects such
as highways, dams, harbors, hospitals, airports and industrial development as well as activity in the mining, forestry and other commodities industries.
Purchasers of medium and heavy construction equipment include construction companies, municipalities, local governments, rental fleet owners,
quarrying and mining companies and forestry related industries. Purchasers of light construction equipment include contractors, rental fleet owners,
landscapers, logistics companies and farmers. In the medium and heavy construction equipment market, we primarily supply OEMs with our wire harness
and seating products.
Agricultural Equipment Market. We market most of our products for small, medium and large agricultural equipment across a spectrum of machines
including tractors, sprayers, bailers, farm telehandler equipment and harvesters. Sales and production of these vehicles can be influenced by rising or
falling farm commodity prices, land values, profitability, and other factors such as increased mechanization in emerging economies and new uses for crop
materials such as biofuels and other factors. In the medium to longer term, a combination of factors create the need for more productive agricultural
equipment, such as: (1) population growth, (2) an evolving sophistication of dietary habits, (3) constraints on arable land, and (4) other macroeconomic
and demographic factors.
Military Equipment Market. We supply products for heavy- and medium-payload tactical vehicles and complex military communications equipment
over multiple product lines that are used by various defense customers. Military equipment production is particularly sensitive to political and
governmental budgetary considerations.
Raw Materials and Suppliers
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A description of the principal raw materials we utilize in principal product categories are:
Electrical Wire Harnesses, Control Panels, Electro-Mechanical and Cable Assemblies. The principal raw materials used to manufacture our electrical
wire harnesses, controls panels, electro-mechanical and cable assemblies include wire and cable, connectors, terminals, switches, relays and various
covering techniques involving braided yarn, braided copper, slit and non-slit conduit and molded foam. These raw materials are obtained from multiple
suppliers and are generally available, although we have experienced a shortage of certain of these raw materials in the past.
Trim Systems and Components. The principal raw materials used in our Trim are resin and chemical products, foam, vinyl and fabric which are formed
and assembled into end products. These raw materials are generally readily available from multiple suppliers.
Cab Structures and Sleeper Boxes. The principal raw materials and components used in our cab structures and sleeper boxes are steel and aluminum.
These raw materials are generally readily available and obtained from multiple suppliers.
Mirrors, Wipers and Controls. The principal raw materials used to manufacture our mirrors, wipers and controls are steel, stainless steel, aluminum and
rubber, which are generally readily available and obtained from multiple suppliers. We also purchase sub-assembled products, such as motors, for our
mirrors, wipers and controls.
Seats and Seating Systems. The principal raw materials used in our Seats include steel, aluminum, resin-based products and foam products and are
generally readily available and obtained from multiple suppliers under various supply agreements. Leather, vinyl, fabric and certain other components are
also generally readily available and purchased from multiple suppliers.
Our Supply Agreements
Our supply agreements generally provide for fixed pricing but do not require us to purchase any specified quantities. Normally we do not carry inventories of raw
materials or finished products in excess of what is reasonably required to meet production and shipping schedules, as well as service requirements. Steel,
aluminum, petroleum-based products, copper, resin, foam, fabrics, wire and wire components comprise the most significant portion of our raw material costs. We
typically purchase steel, copper and petroleum-based products at market prices that are fixed over varying periods of time. Due to the volatility in pricing over the
last several years, we use methods such as market index pricing and competitive bidding to assist in reducing our overall cost. The recent imposition of tariffs on
steel and aluminum have impacted the prices of certain of our materials. Implementation of Brexit may result in supply disruptions. We strive to align our customer
pricing and material costs to minimize the impact of steel, copper and petrochemical price fluctuations. Certain component purchases and suppliers are directed by
our customers, so we generally will pass through directly to the customer cost changes from these components. We generally are not dependent on a single supplier
or limited group of suppliers for our raw materials.
Research and Development
Our research and development capabilities offer quality and technologically advanced products to our customers at competitive prices. We offer product styling,
product design, specialized simulation and testing and evaluation services that are necessary in today’s global markets. Our capabilities in acoustics, thermal
efficiency, benchmarking, multi-axis durability, biomechanics, comfort, prototyping and process prove-out allow us to provide complete integrated solutions to the
end-user.
We engage in global engineering, and research and development activities that improve the reliability, performance and cost-effectiveness of our existing products
and support the design, development and testing of new products for existing and new applications. We have product design, development, validation and testing
centers ("Product Design and Development") in North America, Europe and Asia. We have a global engineering support center in India to provide a cost-effective
global engineering resource to certain of our seat facilities.
We believe we are staffed with experienced engineers and have equipment and technology to support early design involvement that results in products that timely
meet or exceed the customer’s design and performance requirements, and are more efficient to manufacture. Our ability to support our products and customers with
extensive on site involvement enhances our position for bidding on such business. We work aggressively as we strive for our quality and delivery metrics to
distinguish us from our competitors.
Generally, we work with our customers’ engineering and development teams at the beginning of the design process for new components and assemblies and
systems, or the re-engineering process for existing components and assemblies, in order to leverage production efficiency and quality. Our customers are
continuously searching for advanced products while maintaining cost, quality and performance deliverables.
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Research and development costs for the years ended December 31, 2019, 2018 and 2017 totaled $9.9 million, $9.5 million and $7.7 million, respectively.
Intellectual Property
Our principal intellectual property consists of product and process technology and a limited number of U.S. 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.
Our major brands include CVG™, Sprague Devices®, Moto Mirror®, RoadWatch®, KAB Seating™, National Seating™, Bostrom Seating®, Stratos™ and
FinishTEK™. We believe that our brands are valuable but that our business is not dependent on any one brand. We own U.S. federal trademark registrations for
several of our products.
Manufacturing Processes
A description of the manufacturing processes we utilize for each of our principal product categories is set forth below:
Electrical Wire Harnesses, Control Panels, Electro-Mechanical and Cable Assemblies. We utilize several manufacturing techniques to produce our
electrical wire harnesses, control panels, electro-mechanical and cable assemblies. Our processes, manual and automated, are designed to produce a wide
range of products in short time frames and are electronically and hand tested.
Trim Systems and Components. Our Trim capabilities include injection molding, low-pressure injection molding, urethane molding and foaming
processes, compression molding, heavy-gauge thermoforming and vacuum forming as well as various cutting, sewing, trimming and finishing methods.
Cab Structures and Sleeper Boxes. We utilize a wide range of manufacturing processes to produce our cab structures and sleeper boxes and utilize
robotic and manual welding techniques in the assembly of these products. Large capacity, fully automated E-coat paint priming systems allow 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.
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 assembled utilizing semi-automatic work cells and are electronically tested.
Seats and Seating Systems. Our Seats utilize a variety of manufacturing techniques whereby foam and various other components along with fabric,
vinyl or leather are affixed to an underlying seat frame. We also manufacture and assemble seat frames.
We have a broad array of processes to enable us to meet our OEM customers’ styling and cost requirements. The vehicle cab is the most significant and appealing
aspect to the operator of the vehicle. Each commercial vehicle OEM therefore has unique requirements as to feel, appearance and features.
The end markets for our products can be 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 our production facilities. Manufacturing cells are clusters of individual manufacturing
operations and work stations. 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 better maintain our product output consistent with our OEM customers’
requirements and minimize the level of inventory.
When an end-user buys a commercial vehicle, the end-user may specify the seat and other features for that vehicle. Because our Seats are unique, our
manufacturing facilities have significant complexity, which we generally manage by building in sequence. We build our Seats as orders are received, and the Seats
are delivered to our customers in the sequence in which 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. Sequencing reduces our cost of production because it eliminates warehousing costs and reduces
waste and obsolescence, thereby offsetting increased labor costs. Several of our manufacturing facilities are strategically located near our customers’ assembly
facilities, which facilitates this process and minimizes shipping costs.
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We employ just-in-time manufacturing and sourcing in our operations to meet customer requirements for faster deliveries and to minimize our need to carry
significant inventory levels. We utilize 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, which reduces the need to carry excess inventory at our facilities.
Within our cyclical industries, we strive to maintain a certain portion of temporary labor to improve our ability to flex our costs and throughput as required by
fluctuating customer demand. We engage our core employees to assist in making our processes efficient.
Seasonality
OEMs close their production facilities around holidays or when demand drops, reducing work days. Our cost structure, to the extent it is variable, provides us with
some flexibility during these periods.
Our Customer Contracts, and Sales and Marketing
Our OEM customers generally source business to us pursuant to written contracts, purchase orders or other commitments (“Commercial Arrangements”) with
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 Commercial Arrangements provide that the
customer can terminate them if we do not meet specified quality, delivery and cost requirements. Although these Commercial Arrangements may be terminated at
any time by our customers (but not by us), such terminations have historically been minimal and have not had a material impact on our results of operations.
Because we produce products for a broad cross section of vehicle models, we are not overly reliant on any one vehicle model.
Our Commercial Arrangements with our OEM customers may provide for an annual prospective productivity price reduction. These productivity price reductions
are generally calculated on an annual basis as a percentage of the previous year’s purchases by each customer. Historically, most of these price reductions have
been offset by internal cost 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. The cost reduction is achieved through engineering changes, material cost reductions, logistics savings, reductions in packaging cost, labor
efficiencies and other productivity actions.
Our sales and marketing efforts are designed to create customer awareness of our engineering, design and manufacturing capabilities. Our sales and marketing staff
work closely with our design and engineering personnel to prepare the materials used for bidding on new business, as well as to provide an interface between us
and our key customers. We have sales and marketing personnel located in every major region in which we operate. From time to time, we participate in industry
trade shows and advertise in industry publications.
Our principal customers for our aftermarket sales include OEM dealers and independent wholesale or retail distributors. Our sales and marketing efforts are
focused on supporting these two distribution channels, as well as participation in industry trade shows and direct contact with major fleets.
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. A summary of our primary
competitors is set forth below:
Electrical Wire Harnesses, Control Panels, Electro-Mechanical and Cable Assemblies. We supply a wide range of electrical wire harnesses, control
panels, electro-mechanical and cable assemblies used in various commercial and other vehicles and for industrial applications. Our primary competitors
finclude large diversified suppliers such as Delphi Automotive PLC, Leoni, Nexans SA, Motherson-Sumi, St. Clair and Electrical Components
International as well as many smaller companies.
Trim Systems and Components. We believe we have a good position supplying Trim products to the North American MD/HD Truck market. We
compete with a number of competitors with respect to each of our Trim products and components. Our primary competitors are ConMet, International
Automotive Components, Superior, Blachford Ltd. and Grupo Antolin.
Cab Structures and Sleeper Boxes. We are a supplier of cab structures and sleeper boxes to the North American MD/HD Truck market. Our primary
competitors in this category are Magna, International Equipment Solutions, Worthington Industries, McLaughlin Body Company and Defiance Metal
Products.
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Mirrors, Wipers and Controls. We are a supplier of mirrors, wipers and controls to the truck, bus, agriculture, construction, rail and military markets in
North America and Europe. We compete with various competitors in this category. Our principal competitors for mirrors are Hadley, Retrac, and Lang-
Mekra, and our principal competitors for wiper systems are Doga, Wexco, Trico and Valeo.
Seats and Seating Systems. We believe we have a strong market position supplying Seats to the North American MD/HD Truck market. Our primary
competitors in the North American commercial vehicle market include Sears Manufacturing Company, Isringhausen, Grammer AG and Seats, Inc. Our
primary competitors in the European commercial vehicle market include Grammer AG and Isringhausen; and in the Asia-Pacific region include Isrihuatai,
Tiancheng, Harita and Pinnacle.
Competitive Strengths
Generally, the barriers to entry in our business include investment, specific engineering requirements, costs for OEMs to shift production to new suppliers, just-in-
time delivery requirements and brand name recognition. Our competitive strengths include the following:
Market Positions and Brands. We believe we have a strong market position supplying Seats and a good market position supplying Trim products to the
North American MD/HD Truck market. We believe we have processes in place to design, manufacture and introduce products that meet customers’
expectations in the North American MD/HD Truck market. We also believe we are competitive as a global supplier of construction vehicle Seats. Our
major product brands include CVG™, Sprague Devices®, Moto Mirror®, RoadWatch®, KAB Seating™, National Seating™, Bostrom Seating®,
Stratos™ and FinishTEK™.
Commercial Vehicle Solutions. We manufacture a broad base of products utilized in the interior and the exterior of commercial vehicles. We believe
the breadth of our product offerings provide us with a potential opportunity for further customer relationships by bundling our products to provide
complete system solutions.
End-User Focused Product Innovation. Commercial vehicle OEMs focus on interior and exterior product design features that better serve the vehicle
operator and therefore seek suppliers that can provide product innovation. Accordingly, we have engineering, and research and development capabilities
to assist OEMs in meeting those needs. We believe this helps us secure content on new as well as current platforms and models.
Flexible Manufacturing Capabilities. As commercial vehicle OEMs permit their customers to select from an extensive menu of cab options, our end
users frequently request modified products in low volumes within a limited time frame. We can leverage our flexible manufacturing capabilities to
provide low volume, customized products to meet styling, cost and just-in-time delivery requirements.
Global Capabilities. We have sales, engineering, manufacturing and assembly capabilities in North America, Europe and the Asia-Pacific region that
provide a high level of service to our customers who manufacture and sell their products on a global basis.
Relationships with Leading Customers and Major North American Fleets. We have comprehensive product offerings, brand names and product
features that enable us to be a global supplier to many of the leading MD/HD Truck, construction and specialty commercial vehicle manufacturers such as
PACCAR, Caterpillar, Volvo/Mack, Navistar, Daimler Trucks, John Deere, Oshkosh Corporation, Komatsu and Škoda (part of the Volkswagen Group).
In addition, we maintain relationships with the major MD/HD Truck fleets that are end-users of our products such as Schneider National, Werner,
Walmart, FedEx and JB Hunt.
Backlog
Our customers may place annual blanket purchase orders that 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 30 to 90 days prior to required delivery and may be canceled within
agreed terms. 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.
Employees
As of December 31, 2019, we had approximately 7,347 permanent employees, of whom approximately 16% were salaried and the remainder were hourly. As of
December 31, 2019, approximately 49% of the employees in our North American operations were unionized, with the majority of union-represented personnel
based in Mexico. Approximately 71% of our European, Asian and Australian operations were represented by shop steward committees.
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We did not experience any material strikes, lockouts or work stoppages during 2019 and consider our relationship with our employees to be satisfactory. On an as-
needed basis during peak periods we utilize contract and temporary employees. During periods of weak demand, we respond to reduced volumes through flexible
scheduling, furloughs and/or reductions in force as necessary.
Environmental, Social and Governance
CVG is committed to operating in an ethical and sustainable manner that benefits all our stakeholders including customers, employees and the communities we
serve. We have established company-wide environmental, human rights and labor rights policies that outline the Company’s standards for all business operations.
More information on these policies can be found on our website under the caption “About Us - CVG Policies.” The following highlights some of our ongoing
Environmental, Social and Governance (“ESG”) efforts:
Safety. CVG is committed to ensuring the safety and well-being of our employees, customers and communities. The Company maintains an occupational
Health and Safety Policy that applies to employees, business partners, customers and the global communities where we operate. CVG and its businesses
have invested in programs, technology and training to improve safety throughout our operations which is reflected in our exceptional safety performance.
Our annual safety incident rate has consistently been less than 1.0 for the past four years. More information on our Health and Safety Policy can be found
on our website under the caption “About Us - CVG Policies.”
Quality. CVG’s strict quality standards apply to all employees within the CVG organization and extend to all suppliers who wish to do business with
CVG. More information on our supplier requirements can be found on our website under the caption “About Us - CVG Policies.”
•
All requirements and standards stated in the CVG Supplier Quality and Development Requirements Manual pertain to the specific requirements
of CVG and all of our facilities.
• We require our suppliers to obtain a copy and maintain compliance with the Quality Management System Requirements of ISO9001:2015.
Environmental. CVG is committed to conducting business in an environmentally conscious manner and reducing our carbon footprint. We contribute to
eco-efficiency programs and have adopted energy efficiency programs. We have adopted an enterprise-level environmental policy that can be found on
our Company website under the caption “About Us - CVG Policies.” Some of our recent achievements and initiatives include:
•
•
•
•
Partnering with the U.S. Department of Energy’s Better Plants Initiative and establishing a voluntary energy intensity reduction target of 20%
over 10 years;
Contributing to a number of sustainability programs including an LED lighting initiative in our manufacturing facilities;
Increasing the number of facilities that are ISO 14001 certified to approximately 75% of global manufacturing facilities; and
Various other initiatives that focus on the conservation of energy and natural resources, the reduction of solid and chemical waste of our
operations, the avoidance and prevention of pollution, and the minimization of our overall environmental impact to the communities we operate
in.
Community Engagement. Our global teams embrace a wide variety of formal and informal interactions in the communities where we operate. Each
facility has an employee engagement committee that helps direct our charitable spend and volunteer hours. Our teams engage with the local communities
through different programs or areas of need including local schools, nursing homes, animal shelters, literacy, theater and the arts, first responders, STEM,
cancer awareness, veteran affairs, and hunger and homelessness, among others. A comprehensive list of CVG Community Partnerships, the organizations
that we support, can be found on our website under the caption “About Us - Partnerships.”
Corporate Governance, The Board of Directors has the ultimate responsibility for risk oversight and oversees a Company-wide approach to risk
management of ESG. The Board fulfills its oversight responsibilities directly and through delegation to the following committees: Audit, Compensation,
and Nominating and Governance. The Company’s Corporate Governance Guidelines, Code of Conduct and other Corporate Governance principles are
available on the Company’s website under the caption “About Us - Executive Management - Governance Documents.”
Government Regulations
New emissions regulations were approved in 2016 by US regulators impacting MD/HD Truck manufacturers. The regulations require manufacturers to cut
greenhouse gas emissions by 25% by 2027. Other countries are implementing clean air measures to
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reduce air pollution. For example, China's Ministry of Environment implemented new standards applicable beginning in 2017 for Stage V vehicles, including light
gasoline-powered vehicles, diesel-powered passenger vehicles and heavy diesel-powered vehicles manufactured and sold in China.
Under a California law known as Proposition 65, if the State has determined that a substance causes cancer or harms human reproduction, a warning must appear
on any product sold in the state that exposes consumers to that substance. The State maintains lists of these substances and periodically adds other substances to the
list. Certain of our products are subject to Proposition 65, which does not provide for any generally applicable quantitative threshold below which the presence of a
listed substance is exempt from the warning requirement. Consequently, the detection of even a trace amount of a listed substance can subject an affected product
to the requirement of a warning label. We provide warnings on our products in California.
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.
RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
On March 12, 2020, the Audit Committee of the Board of Directors of the Company, after considering the recommendations of management, and discussing such
recommendations with outside SEC counsel and KPMG, LLP, the Company's independent registered public accounting firm, concluded that our audited
consolidated financial statements as of and for the fiscal year ended December 31, 2018, included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2018, and our unaudited consolidated financial statements as of and for the quarterly periods ended March 31, 2019 and 2018, June 30, 2019 and
2018, and September 30, 2019 and 2018, included in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2019, June 30, 2019 and
September 30, 2019, should no longer be relied upon due to misstatements that are described in greater detail in Notes 2 and 19 of the Notes to the Consolidated
Financial Statements included within this Annual Report on Form 10-K.
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.
EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to our executive officers as of March 16, 2020:
Name
Patrick E. Miller
C. Timothy Trenary
Dale M. McKillop
Douglas F. Bowen
Age
52
63
62
63
Principal Position(s)
President, Chief Executive Officer, Director
Executive Vice President and Chief Financial Officer
Senior Vice President and Managing Director of Trim, Wipers and Structures
Senior Vice President and Managing Director of Global Seating
The following biographies describe the business experience of our executive officers:
Patrick E. Miller has served as President and Chief Executive Officer and Director since November 2015. Prior to being appointed President and Chief Executive
Officer, Mr. Miller, was President of the Company’s Global Truck & Bus Segment. Prior to that, he served in the capacity of Senior Vice President & General
Manager of Aftermarket; Senior Vice President of Global Purchasing; Vice President of Global Sales; Vice President & General Manager of North American
Truck and Vice President & General Manager of Structures. Prior to joining the Company, Mr. Miller held engineering, sales, and operational leadership positions
with Hayes Lemmerz International, Alcoa, Inc. and ArvinMeritor. In December 2018, Mr. Miller was appointed to the board of directors of Federal Signal
Corporation. He holds a Bachelor of Science in Industrial Engineering from Purdue University and a Masters of Business Administration from the Harvard
University Graduate School of Business.
C. Timothy Trenary has served as Executive Vice President and Chief Financial Officer since October 2013. Mr. Trenary served as Executive Vice President and
Chief Financial Officer of ProBuild Holdings LLC, a privately held North American supplier of building materials, from 2010 to 2013. Prior to that, Mr. Trenary
served as Senior Vice President & Chief Financial Officer of EMCON Technologies Holdings Limited, a privately held global automotive parts supplier, from
2008 to 2010; and as Vice
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President and Chief Financial Officer of DURA Automotive Systems, Inc., a publicly held global automotive parts supplier, from 2007 to 2008. In November
2017, Mr. Trenary became an organizer and in March 2018 became a member of the board of directors of Mi Bank, a de novo community bank in organization. He
holds a Bachelor of Accounting with Honors from Michigan State University and a Masters of Business Administration with Honors from the University of Detroit
Mercy. Mr. Trenary is a certified public accountant with registered status in Michigan.
Dale M. McKillop has served as Senior Vice President and Managing Director of Trim, Wipers and Structures since 2016. He has been with the Company since
2005 when he joined the Company with the acquisition of Mayflower Vehicle Systems. Mr. McKillop has held positions of increasing responsibility with the
company including Managing Director - Structures and Aftermarket, Managing Director - Structures, Director of Operations Trim and Structures, and Plant
Manager. Prior to joining Mayflower Vehicle Systems, Mr. McKillop held engineering positions with Pullman Standard from 1978 to 1982. Mr. McKillop holds a
Bachelor of Science degree in Business Administration from Gardner Webb University.
Douglas F. Bowen has served as Senior Vice President and Managing Director of Global Seating since November 2018 and previously served as Senior Vice
President & Managing Director of Global Construction, Agriculture & Military markets. He joined the Company in June 2017. Prior to joining CVG, Mr. Bowen
served as President of the North America and Asia Pacific markets for Dayco Products, LLC for more than 35 years. Mr. Bowen is a graduate of the Citadel, The
Military College of South Carolina and holds a Bachelor of Science in Business Administration.
Item 1A.
Risk Factors
You should carefully consider the risks described below before making an investment decision. These are not the only risks we face.
If any of these risks and uncertainties were to actually occur, our business, financial condition or results of operations could be materially and adversely affected. In
such case, the trading price of our common stock could decline and you may lose all or part of your investment.
Risks Related to Our Material Weaknesses and Restatements
Material weaknesses in our internal control over financial reporting could have a significant adverse effect on our business and the price of our common
stock.
As a public reporting company, we are subject to the rules and regulations established from time to time by the SEC. These rules and regulations require, among
other things, that we have, and periodically evaluate, disclosure controls and procedures that are designed to provide reasonable assurance that information required
to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and
forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow decisions regarding required disclosure. Reporting obligations as a public company are likely to continue to burden our financial
and management systems, processes and controls, as well as our personnel.
In addition, as a public company, we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley
Act so that our management can certify as to the effectiveness of our internal control over financial reporting. Likewise, our independent registered public
accounting firm is required to provide an attestation report on the effectiveness of our internal control over financial reporting.
In connection with the preparation of our financial statements for 2019, we have identified material weaknesses in our internal controls over financial reporting
relating to management's risk assessment and review process of manual journal entries and balance sheet account reconciliations. Further, we identified and
corrected certain errors as described in Note 2 and 19 to the accompanying financial statements, included in Part II, Item 8 of this Form 10-K. We deemed these
corrections to be material to the consolidated financial statements as of and for the fiscal year ended December 31, 2018, included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2018, and our unaudited consolidated financial statements as of and for the quarterly periods ended March 31, 2019
and 2018, June 30, 2019 and 2018, and September 30, 2019 and 2018, included in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31,
2019, June 30, 2019 and September 30, 2019. As a result, management concluded that our internal controls over financial reporting as of December 31, 2019 were
not effective. As described in Part II, Item 9A of this Form 10-K, management is taking steps to remediate the material weaknesses in our internal controls. There
can be no assurance that any measures we take will remediate the material weaknesses identified, nor can there be any assurance as to how quickly we will be able
to remediate these material weaknesses.
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In future periods, if our senior management is unable to remediate the material weaknesses such that they cannot conclude that we have effective internal control
over financial reporting, or to certify the effectiveness of such controls, or if our independent registered public accounting firm cannot render an unqualified
opinion on management’s assessment and the effectiveness of our internal control over financial reporting, or if additional material weaknesses in our internal
control over financial reporting are identified, we may be required to again restate our financial statements and could be subject to regulatory scrutiny and sanction,
a loss of public and investor confidence, and to litigation from investors, which could have a material adverse effect on our financial position and results of
operations.
Furthermore, actions to remediate any material weaknesses, including the ones noted above and in Item 9A of this Annual report on Form 10-K, could require
remedial measures, including additional personnel, which could be costly and time-consuming. We may encounter problems or delays in completing the
implementation of any remedial actions and receiving a favorable attestation report from our independent registered public accounting firm. If we do not maintain
adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial
performance on a timely basis, which could adversely affect our results of operations and financial condition and cause a decline in our common stock price.
Failure to comply with the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by regulatory authorities, which would likely require
additional financial and management resources.
Future Restatements could have a material effect on our business
As part of an internal investigation, the Company discovered material errors in our consolidated financial statements as of and for the fiscal year ended December
31, 2018, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and our unaudited consolidated financial statements as of and
for the quarterly periods ended March 31, 2019 and 2018, June 30, 2019 and 2018, and September 30, 2019 and 2018, included in our Quarterly Reports on Form
10-Q for the quarterly periods ended March 31, 2019, June 30, 2019 and September 30, 2019. As noted above, material weaknesses were also discovered in the
Company’s internal controls over financial reporting. Having one or more weakness in our internal controls over financial reporting can heighten the chance of
failing to discover future errors in the financial statements.
While the Company believes it has identified and corrected all material errors in our financial statements for the restated periods, there can be no assurance that
more material errors will not be identified in the future, both in or outside the restated periods. Restatements can lead to reputational harm, litigation, regulatory
investigations and sanctions, stock price fluctuation, and significant accounting and legal expenses to address. They also could require significant time and
resources from management.
Risks Related to Our Business and Industry
Our results of operations could be materially and adversely affected by downturns in the U.S. and global economy which are naturally accompanied by
related declines in freight tonnage hauled and in infrastructure development and other construction projects.
Our results of operations are directly impacted by changes in the U.S. and global economic conditions, which are accompanied by related declines in freight
tonnage hauled and in infrastructure development and other construction projects because, among other things:
•
•
•
Demand for our MD/HD Truck products is generally dependent on the number of new MD/HD Truck commercial vehicles manufactured in North
America. Historically, the demand for MD/HD Truck commercial vehicles has declined during periods of weakness in the North American economy.
Demand for our construction equipment products is dependent on vehicle demand for new commercial vehicles in the global construction equipment
market.
Demand in the medium and heavy-construction vehicle market, which is where our products are primarily used, is typically related to the level of
larger-scale infrastructure development projects.
If we experience periods of low demand for our products in the future, it could have a negative impact on our revenues, operating results and financial position.
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 of the economy, which generates a significant portion of
the freight tonnage hauled. Sales of commercial vehicles have historically been cyclical, with demand affected by such economic factors as industrial production,
construction levels, demand for consumer durable goods, interest rates and fuel costs.
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Historically, general weakness in the global economy, but especially the North American economy, and corresponding decline in the need for commercial vehicles
has contributed to a downturn in commercial vehicle production. Demand for commercial vehicles depends to some extent on economic and other conditions in a
given market and the introduction of new vehicles and technologies. The yearly demand for commercial vehicles may increase or decrease more than overall gross
domestic product in markets we serve. Downturns historically have had a material adverse effect on our business. If unit production of commercial vehicles
declines in the future it may materially and adversely affect our business and results of operations. Conversely, upswings in the global economy may result in a
sharp acceleration in commercial vehicle production. A sharp acceleration in commercial vehicle production may adversely affect our ability to convert the
incremental revenue into operating income efficiently.
Natural disasters could adversely affect us.
Natural disasters may also disrupt the commercial vehicle market and materially and adversely affect global production levels in our industry. The impact from
disasters resulting in wide-spread destruction may not be immediately apparent. It is particularly difficult to assess the impact of catastrophic losses on our
suppliers and end customers, who themselves may not fully understand the impact of such events on their businesses. Accordingly, there is no assurance our results
of operations will not be materially affected as a result of the impact of future natural disasters.
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 diminishing the current levels or any future expected growth in the commercial vehicle
markets we supply, 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. Similarly, strategic divestitures involve special risks and could have an adverse effect on our results of operations
and financial condition. 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 materially and adversely affect our business, results of
operations and growth potential.
We may be unable to complete strategic acquisitions or we may encounter unforeseen difficulties in integrating acquisitions.
We may pursue acquisition targets that will allow us to continue to expand into new geographic markets, add new customers, provide new products, 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, acquisition of businesses may require additional debt and/or equity
financing, perhaps resulting in additional leverage and/or shareholder dilution. The covenants relating to our debt instruments may further limit our ability to
complete acquisitions. There can be no assurance we will find attractive acquisition candidates or successfully integrate acquired businesses into our existing
business. If the expected synergies from acquisitions do not materialize or we fail to successfully integrate such new businesses into our existing businesses, our
results of operations could also be materially and adversely affected.
Circumstances associated with our acquisition and divestiture strategy could adversely affect our results of operations and financial condition.
From time to time, we pursue acquisition targets to expand or complement our business. Acquisitions involve risks, including the risk that we may overpay for a
business or are unable to obtain in a timely manner, or at all, the synergies and other expected benefits from acquiring a business. Integrating acquired businesses
also involves a number of special risks, including the following:
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the possibility that management’s attention may be diverted from regular business concerns by the need to integrate operations;
problems assimilating and retaining the management or employees of the acquired company or the Company’s employees following an acquisition;
accounting issues that could arise in connection with, or as a result of, the acquisition of the acquired company, including issues related to internal control
over financial reporting;
regulatory or compliance issues that could exist for an acquired company or business;
challenges in retaining the customers of the combined businesses;
the potential of lawsuits challenging the Company’s decisions; and
potential adverse short-term effects on results of operations through increased costs or otherwise.
If we are unable to successfully complete and integrate strategic acquisitions in a timely manner, our results of operations and financial condition could be
adversely affected.
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With respect to divestitures, from time to time we evaluate the performance and strategic fit of our businesses and may decide to sell a business or product line
based on such an evaluation. Any divestitures may result in significant write-offs, including those related to goodwill and other tangible and intangible assets,
which could have an adverse effect on our results of operations and financial condition. Divestitures could involve additional risks, including the following:
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difficulties in the separation of operations, services, products and personnel;
the diversion of management’s attention from other business concerns;
the assumption of certain current or future liabilities in order to induce a buyer to complete the divestiture;
the disruption of our business;
the potential of lawsuits challenging the Company's decisions;
the potential loss of key employees; and
the proper allocation of shared costs.
We may not be successful in managing these or any other significant risks that we may encounter in divesting a business or product line and our results of
operations and financial condition may be adversely affected.
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 A.B. Volvo, Daimler and PACCAR accounted for approximately 22%, 17% and 11%, respectively, of our revenue in 2019, and our ten largest customers
accounted for approximately 76% of our revenue in 2019. 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. 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.
Our profitability could be adversely affected if the actual production volumes for our customers’ vehicles are significantly lower than expected.
We incur costs and make capital expenditures based in part upon estimates of production volumes for our customers’ vehicles. While we attempt to establish a
price for 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 the supply requirements is our obligation for the entire production life
of the platform, with terms generally ranging from five to seven years, and we have limited 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. If customers representing a significant amount of our revenues were to purchase materially lower volumes than expected, or if we are
unable to keep our commitment under the agreements, 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. Generally, our contracts with major OEM customers provide for an annual
productivity price reduction. Historically, we have been able to generally mitigate these customer-imposed price reduction requirements through product design
changes, increased productivity and similar programs with our suppliers. However, if we are unable to generate sufficient production cost savings in the future to
offset these price reductions, our gross margin and profitability would be adversely affected. Additionally, we generally do not have clauses in our customer
agreements that guarantee that we will recoup the design and development costs that we incurred to develop a product. In other cases, we share the design costs
with the customer and thereby have some risk that not all the costs will be covered if the project does not go forward or if it is not as profitable as expected.
In addition, changes in OEMs’ purchasing policies or payment practices could have an adverse effect on our business. Furthermore, due to the cost focus of our
major customers, we have been, and expect to continue to be, requested to reduce prices as part of our initial business quotations and over the life of vehicle
platforms we have been awarded. We cannot be certain that we will be able to generate cost savings and operational improvements in the future that are sufficient
to offset price reductions requested by existing customers and necessary to win additional business.
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Demand for our products could also be materially reduced if our customers vertically integrate their operations in a significant manner, which would have a
material and adverse impact on our business and results of operations.
We are subject to certain risks associated with our foreign operations.
We have operations in the Mexico, China, United Kingdom, Czech Republic, Ukraine, Belgium, Australia, India and Thailand, which collectively accounted for
approximately 18% of our total revenues for the year ended December 31, 2019 . There are certain risks inherent in our international business activities including,
but not limited to:
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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 U.S.;
foreign currency exchange rate fluctuations affecting our ability to match revenue received with costs;
tax rates in certain foreign countries, which may exceed those in the U.S., withholding requirements or the imposition of tariffs, exchange controls or
other restrictions, including restrictions on repatriation, on foreign earnings;
intellectual property protection difficulties;
general economic and political conditions, along with major differences in business culture and practices, including the challenges of dealing with
business practices that may impact the company’s compliance efforts, in countries where we operate;
exposure to local social unrest, including any resultant acts of war, terrorism or similar events;
the difficulties associated with managing a large organization spread throughout various countries; and
complications in complying with a variety of laws and regulations related to doing business with and in foreign countries, some of which may
conflict with U.S. law or may be vague or difficult to comply with.
Additionally, our international business activities are also subject to risks arising from violations of U.S. laws such as the U.S. Foreign Corrupt Practices Act and
similar anti-bribery laws in other jurisdictions, and various export control and trade embargo laws and regulations, including those which may require licenses or
other authorizations for transactions relating to certain countries and/or with certain individuals identified by the U.S. government. If we fail to comply with
applicable laws and regulations, we could suffer civil and criminal penalties that could materially and adversely affect our results of operations and financial
condition.
As we expand our business on a global basis, we are increasingly exposed to these risks. Our success will be dependent, in part, on our ability to anticipate and
effectively manage these and other risks associated with foreign operations. These and other factors may have a material adverse effect on our international
operations, business, financial condition and results of operations.
The U.K.’s exit from the European Union (EU) could materially and adversely impact our results of operations, financial condition and cash flows.
On January 31, 2020, the U.K. formally exited from the EU (“Brexit”) and a transition period is in place until December 31, 2020 during which the U.K. will
maintain access to the EU single market and to the global trade deals negotiated by the EU on behalf of its members and remain subject to EU law. Brexit has had
an adverse impact on the U.K.’s economy. Uncertainty regarding the future relationship between the U.K. and the EU likely will continue to have an adverse
impact on the U.K.’s economy until the U.K. and the EU reach a definitive resolution on the outstanding trade and legal matters. Although it is unknown what the
terms of the U.K.’s future relationship with the EU will be, it is possible that there will be higher tariffs or greater restrictions on imports and exports between the
U.K. and the EU and increased regulatory complexities following the transition period. These factors could potentially disrupt our supply chain, including delays of
imports and exports, limited access to human capital within some of the target markets and jurisdictions in which we operate and adverse changes to tax benefits or
liabilities in these and other jurisdictions. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations, including with
respect to emissions and similar certifications, as the U.K. determines which EU laws to replace or replicate. Brexit also could lead to long-term volatility in the
currency markets, long-term adverse effects on the value of the British pound and significant volatility in currency exchange rates. Any of these effects of Brexit,
among others, could have a material adverse impact on our business operations, results of operations and financial condition.
We are subject to certain risks associated with our Mexican operations
In December 2018, the newly elected Mexican government announced new minimum wage requirements per the Mexican labor laws. Under the new requirements,
Mexico will have two minimum wages: one rate applicable to municipalities located on the border with the United States, which were included in a newly created
Northern Border Free Trade Zone, and a different rate applicable to the rest of Mexico.
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Along with the new requirements, the Mexican National Minimum Wage Commission announced the following new minimum wages, which have been in effect
since January 1, 2019: Pesos. 176.72 per day for municipalities in the Northern Border Free Trade Zone, a 100% increase from the minimum wage of Pesos. 88.36
per day in effect prior to January 1, 2019, and Pesos. 102.68 per day for the rest of Mexico, a 16.2% increase from the prior minimum wage. We have facilities in
the Northern Border Free Trade Zone that are affected by the 100% increase in minimum wage and we have complied with the new requirements. We are uncertain
if the increase in the affected employee’s minimum wage will flow through the entire compensation structure of our employees in our facilities in Mexico creating
additional costs and any labor shortages resulting from our failure to adjust the entire compensation structure over and above the incremental minimum wage.
Additionally, we are uncertain if we will be successful in passing through the related incremental cost to our customers and there can be no assurance our results of
operations will not continue to be materially affected as a result of the impact of such incremental cost.
Significant changes to international trade regulations could adversely affect our results of operations.
Our business benefits from current free trade agreements and other duty preference programs, including the North American Free Trade Agreement (“NAFTA”).
The U.S. government has negotiated the US-Mexico-Canada Agreement (the "USMCA") as a replacement for NAFTA. The USMA has been ratified by the Untied
States and Mexico, but will not become binding unless and until Canada ratifies the agreement. The U.S. government has indicated that it may propose significant
changes to other international trade agreements, import and export regulations, and tariffs and customs duties, which have increased uncertainty regarding the
future of existing international trade regulations. The imposition of tariffs on the products we manufacture and sell could have a material and adverse impact on our
business, financial condition and results of operations. Additionally, if the U.S. President or Congress takes action to withdraw from or materially modify NAFTA
or USMCA, our business, financial condition and results of operations could be adversely affected. In addition, the Trump administration has called for substantial
changes to U.S. foreign trade policy, including the imposition of greater restrictions on international trade and significant increases in tariffs on goods imported
into the United States, and has increased tariffs on certain goods imported into the United States from a number of foreign markets, following which retaliatory
tariffs have been imposed on exports of certain U.S. goods to those markets. These tariffs and any further escalation of protectionist trade measures could adversely
affect the markets in which we sell our products and, in turn, our business, financial condition, operating results, and cash flows.
Decreased availability or increased costs of materials could increase our costs of producing our products.
We purchase raw materials, fabricated components, assemblies and services from a variety of suppliers. Steel, aluminum, petroleum-based products, copper, resin,
foam, fabrics, wire and wire components account for the most significant portion of our raw material costs. Although we currently maintain alternative sources for
most raw materials, from time to time, however, the prices and availability of these materials fluctuate due to global market demands and other considerations,
which could impair the Company's ability to procure necessary materials, or increase the cost of such materials. We may be assessed surcharges on certain
purchases of steel, copper and other raw materials. Inflationary and other increases in costs of these materials have occurred in the past and may recur from time to
time. In addition, freight costs associated with shipping and receiving product are impacted by fluctuations in freight tonnage, freight hauler capacity and the cost
of oil and gas. If we are unable to purchase certain raw materials required for our operations, 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.
The recent imposition of tariffs on steel and aluminum have impacted the prices of certain of our materials. Uncertainty exists regarding whether these tariffs will
remain in place or be removed or reduced. If these tariffs are continued or expanded, they could result in material increases in our costs.
We have invested substantial resources in markets where we expect growth and we may be unable to timely alter our strategies should such expectations
not be realized.
Our future growth is dependent in part on our making the right investments at the right time to support product development and manufacturing capacity in areas
where we can support our customer base. We have identified the Asia-Pacific region as key markets likely to experience substantial growth in our market share,
and accordingly have made and expect to continue to make substantial investments, both directly and through participation in various partnerships and joint
ventures, in numerous manufacturing operations, technical centers and other infrastructure to support anticipated growth in the region. If we are unable to maintain,
deepen existing and develop additional customer relationships in these regions, we may not only fail to realize expected rates of return on our existing investments,
we may also incur losses on such investments and be unable to timely redeploy the invested capital to take advantage of other markets, potentially resulting in lost
market share to our competitors. We cannot guarantee that we will be successful in leveraging our capabilities into new markets and thus, in meeting the needs of
these new customers and competing favorably in these new markets. Our results will also suffer if these regions do not grow as quickly as we anticipate.
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Our inability to compete effectively in the highly competitive commercial vehicle component supply industry could result in lower prices for our products,
loss of market share and reduced gross margins, which could have an adverse effect on our revenues and operating results.
The commercial vehicle component supply industry is highly competitive. Some of our competitors are companies that are larger and have greater financial and
other resources than we do. In some cases, we compete with divisions of our OEM customers. Our products primarily compete on the basis of price, breadth of
product offerings, product quality, technical expertise, 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 more competitively. These developments could limit our ability to obtain revenues from new customers or maintain existing revenues from our
customer base. We may not be able to compete successfully against current and future competitors and our failure to do so may have a material adverse effect on
our business, operating results and financial condition.
We may be unable to successfully introduce new products and, as a result, our business, and financial condition and results of operations could be
materially and adversely affected.
Product innovations have been and will continue to be a part of our business strategy. We believe it is important we continue to meet our customers’ demands for
product innovation, improvement and enhancement, including the continued development of new-generation products, and 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 and
marketing. 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. In addition, our competitors may develop new products before us or may produce similar products that compete with our
new products. 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, which could 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, including the introduction of autonomous vehicles.
Changes in competitive technologies, including the introduction of autonomous vehicles, 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 of products to operate properly, all of which could adversely affect our business, results of operations and growth potential.
We could experience disruption in our supply or delivery chain, which could cause one or more of our customers to halt or delay production.
We, as with other component manufactures in the commercial vehicle industry, sometimes ship products to the customers throughout the world so they are
delivered on a “just-in-time” basis in order to maintain low inventory levels. Our suppliers (external suppliers as well as our own production sites) also sometimes
use a similar method. This just-in-time method makes the logistics supply chain in our industry very complex and very vulnerable to disruptions.
The potential loss of one of our suppliers or our own production sites could be caused by a myriad of potential problems, such as closures of one of our own or one
of our suppliers’ plants or critical manufacturing lines due to bankruptcy, strikes, mechanical breakdowns, equipment failure, electrical outages, fires, explosions,
political upheaval, as well as logistical complications due to weather, volcanic eruptions, earthquakes, flooding or other natural disasters, Acts of God, epidemics,
mechanical failures, delayed customs processing and more. Additionally, as we expand in growth markets, the risk for such disruptions is heightened. The lack of
even a small single subcomponent necessary to manufacture one of our products, for whatever reason, could force us to cease production, possibly for a prolonged
period. In the event of a reduction or 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. Similarly, a potential quality issue could force us to halt deliveries. Even where products are ready to be shipped or have been shipped, delays
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may arise before they reach our customer. Our customers may halt or delay their production for the same reason if one of their other suppliers fails to deliver
necessary components. This may cause our customers to suspend their orders or instruct us to suspend delivery of our products, which may adversely affect our
financial performance. When we cease timely deliveries, we have to absorb our own costs for identifying and solving the root cause problem as well as
expeditiously producing replacement components or products. Generally, we must also carry the costs associated with “catching up,” such as overtime and
premium freight.
Additionally, if we are the cause for a customer being forced to halt production the customer may seek to recoup all of its losses and expenses from us. These
losses and expenses could be very significant and may include consequential losses such as lost profits. Thus, any supply chain disruption, however small, could
potentially cause the complete shutdown of an assembly line of one of our customers, and any such shutdown could expose us to material claims for compensation.
Where a customer halts production because of another supplier failing to deliver on time, we may not be fully compensated, if at all, and therefore our business and
financial results could be materially and adversely affected.
We face risks related to health epidemics that could impact our sales and operating results.
Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the recent outbreak of respiratory illness in
several countries. Any outbreak of contagious diseases, and other adverse public health developments could adversely affect our operations and the operations and
production capabilities of our suppliers, including as a result of quarantine or closure. The extent to which the recent respiratory illness outbreak in the various
countries may affect our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may
emerge concerning the severity of the outbreak and the actions to contain the outbreak or treat its effects, among others. In addition, a significant outbreak of
contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many
countries, resulting in an economic downturn that could affect demand for our products and significantly impact our operating results.
Security breaches and other disruptions could compromise our information systems and expose us to liability, which could cause our business and
reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, financial information, our proprietary business
information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, in our data centers
and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our
security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfunction,
malfeasance or other disruptions. Like most companies, our systems are under attack on a routine basis. At times there are breaches of our security measures.
While past breaches have not been material, there is no guarantee that future breaches could not have a material impact. Any such access, disclosure or other loss
of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disrupt our
operations and the services we provide to customers, damage our reputation, and cause a loss of confidence in our products and services, which could adversely
affect our business and our results of operations.
If we are unable to recruit or retain senior management and other skilled personnel, our business, operating results and financial condition could be
materially and adversely affected.
Our operations depend to a large extent on the efforts of our senior management team as well as our ability to attract, train, integrate and retain highly skilled
personnel. We seek to develop and retain an effective management team through the proper positioning of existing key employees and the addition of new
management personnel where necessary. Retaining personnel with the right skills at competitive wages can be difficult in certain markets in which we are doing
business, particularly those locations that are seeing much inbound investment and have highly mobile workforces. Additionally, attracting sufficiently well-
educated and talented management, especially middle-management employees, in certain markets can be challenging.
We may not be able to retain our current senior management and other skilled personnel or attain similarly skilled personnel in the future. If we lose senior
management or the services of our skilled workforce, or if we are unable to attract, train, integrate and retain the highly skilled personnel we need, our business,
operating results and financial condition could be materially and adversely affected.
We may be adversely impacted by labor strikes, work stoppages and other matters.
As of December 31, 2019, approximately 49% of the employees in our North American operations were unionized, with the majority of union-represented
personnel based in Mexico. We have experienced limited unionization efforts at certain of our other North American facilities from time to time. In addition,
approximately 71% of our employees of our European, Asian and Australian
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operations were represented by a shop steward committee, which may limit our flexibility in our relationship with these employees. We may 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 earnings may be adversely affected by changes to the carrying values of our tangible and intangible assets as a result of recording any impairment
charges deemed necessary.
We are required to perform impairment tests whenever events and circumstances indicate the carrying value of certain assets may not be recoverable. We cannot
accurately predict the amount and timing of any impairment of assets. A significant amount of judgment is involved in determining if an indication of impairment
exists. Factors that may be considered in assessing whether goodwill or other long-lived assets may not be recoverable include a decline in our stock price or
market capitalization, reduced estimates of future cash flows, 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. A continued decline in our stock price may trigger an evaluation of the
recoverability of the recorded goodwill and other long-lived assets. Any charge for impairment could materially and adversely affect our reported net income and
our stockholders’ equity.
We have taken, are taking, and may take future restructuring actions to realign and resize our production capacity and cost structure to meet current and projected
operational and market requirements. Charges related to these actions or any further restructuring actions may have a material adverse effect on our results of
operations and financial condition. There can be no assurance that any current or future restructuring will be completed as planned or achieve the desired results.
The failure to complete restructuring as planned could materially and adversely affect our results of operations.
We have established and may establish in the future valuation allowances on deferred tax assets. These changes may have a material adverse effect on our results
of operations and financial position.
Additionally, from time to time in the past, we have recorded asset impairment losses relating to specific plants and operations. Generally, we record asset
impairment losses when we determine that our estimates of the future undiscounted cash flows from an operation will not be sufficient to recover the carrying
value of that facility’s building, fixed assets and production tooling. For goodwill, we perform a qualitative assessment of whether it is more likely than not that the
reporting unit’s fair value is less than its carrying amount. If the fair value of the reporting unit is less than its carrying amount, we compare its implied fair value
of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, the reporting unit would recognize an impairment loss for that
excess amount. Factors that may be considered in assessing whether goodwill or other long-lived assets may not be recoverable include a decline in our stock price
or market capitalization, reduced estimates of future cash flows, 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. There can be no assurance that we will not incur such charges in the future
as changes in economic or operating conditions impacting the estimates and assumptions could result in additional impairment. Any future impairments may
materially and adversely affect our results of operations.
Our inability to successfully achieve 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 in our existing operations
and intend to apply this strategy to those operations acquired through acquisitions. In addition, we incur restructuring charges periodically to close facilities, such
as lease termination charges, severance charges and impairment charges of leasehold improvements and/or machinery and equipment, as we continue to evaluate
our manufacturing footprint to improve our cost structure and remove excess, underperforming assets, or assets that no longer fit our goals. If we decide to close or
consolidate facilities, we may face execution risks which could adversely affect our ability to serve our customers. Further, we may be unsuccessful in achieving
these objectives which could adversely affect our operating results and financial condition.
Additionally, aspects of the data upon which the company’s business strategy is based may be incomplete or unreliable, which could lead to errors in the strategy,
which in turn could adversely affect the company’s performance. Also, not all business strategy
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can be based on data, and to the extent that it is based on assumptions and judgments that are untested, then it could be unsound and thereby lead to performance
below expectations.
Tax legislation initiatives or challenges to our tax positions could adversely affect our results of operations and financial condition.
We are a multinational corporation with operations in the United States and international jurisdictions. As such, we are subject to the tax laws and regulations of
the U.S. federal, state and local governments and various international jurisdictions. From time to time, various legislative initiatives may be proposed that could
adversely affect our tax positions. There can be no assurance that our effective tax rate or tax payments will not be adversely affected by these initiatives. In
addition, U.S. federal, state and local, as well as international, tax laws and regulations are extremely complex and subject to varying interpretations. There can be
no assurance that our tax position will not be challenged by relevant tax authorities or that we would be successful in any such challenge.
The geographic profile of our taxable income could adversely impact our tax provision and therefore our results of operations.
Our future tax provision could be adversely affected by the geographic profile of our taxable income and by changes in the valuation of our deferred tax assets and
liabilities. Our results could be materially impacted by significant changes in our effective tax rate. Additionally, any changes to manufacturing activities could
result in significant changes to our effective tax rate related to products manufactured either in the United States or in international jurisdictions. If the United
States or another international jurisdiction implements a tax change related to products manufactured in a particular jurisdiction where we do business, our results
could be materially and adversely affected.
Exposure to currency exchange rate fluctuations on cross border transactions and translation of local currency results into United States dollars could
materially impact our results of operations.
Cross border transactions, both with external parties and intercompany relationships, result in increased exposure to foreign currency fluctuations. The
strengthening or weakening of the United States dollar may result in favorable or unfavorable foreign currency translation effects in as much as the results of our
foreign locations are translated into United States dollars. This could materially impact our results of operations.
Litigation against us could be costly and time consuming to defend, as a result, our businesses and financial position could be materially and adversely
affected.
We are regularly subject to legal proceedings and claims that arise in the ordinary course of business, such as workers’ compensation claims, Occupational Safety
and Health Administration investigations, employment disputes, unfair labor practice charges, examination by the IRS, customer and supplier disputes, contractual
disputes, intellectual property disputes, environmental claims and product liability claims arising out of the conduct of our business. While we maintain insurance,
we cannot assure you that it will be sufficient to cover such proceedings and claims, that any costs and liability arising therefrom will not exceed our insurance
coverage limits or that such insurance will continue to be available on commercially reasonable terms, if at all. Litigation may result in substantial costs and may
divert management’s attention and resources from the operation of our business, which could have a material adverse effect on our business, results of operations
or financial condition.
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 and our operations could be limited by the rights of others.
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 third parties may have or acquire licenses for other technology or designs that we
may use or desire to use, requiring us 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, or 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 or disclosure
by persons who have access to them, such as our employees and others, through contractual arrangements. These arrangements may not provide meaningful
protection for our trade secrets, know-how or other confidential information in the event of any unauthorized use, misappropriation or disclosure. If we are unable
to maintain the proprietary
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nature of our technologies, trade secrets, know-how, or other confidential information, our revenues could be materially and adversely affected.
As we diversify and globalize our geographic footprint, we may encounter laws and practices in emerging markets that are not as stringent or enforceable as those
present in developed markets, and thus incur a higher risk of intellectual property infringement, which could materially and adversely affect our results of
operations.
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.
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 and construction vehicle OEMs and markets, 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 injury to person or property 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 maintain product liability insurance generally with a self-insured retention amount, 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.
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 many years. From time to time, we receive product warranty claims
from our customers, pursuant to which we may be required to bear costs of repair or replacement of certain of our products. 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 to
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 materially and adversely affect our results of operations.
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 adverse effect 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, 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 environmental and safety laws, and regulations.
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.
Several of our facilities are either certified as, or are in the process of being certified as ISO 9001, 14000, 14001 or TS16949 (the international environmental
management standard) compliant or are developing similar environmental management systems. We have made, and will continue to make, capital and other
expenditures to implement such environmental programs and comply with environmental requirements.
The environmental laws to which we are subject have become more stringent over time, and we could incur material costs or expenses in the future to comply with
environmental laws. If we violate or fail to comply with these laws and regulations or do
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not have the requisite 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 our financial condition and results of operations.
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 ("EPA"), state regulatory agencies in North America, 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 NHTSA in the U.S. 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 for truck engines used in Class 5 to 8
trucks imposed by the EPA and CARB became effective in 2010. In 2011, the EPA and NHTSA adopted a program to reduce greenhouse gas emissions and
improve the fuel efficiency of medium-and heavy-duty vehicles. 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.
Risks Related to Our Indebtedness
The agreement governing our senior secured revolving credit facility and the agreement governing our senior secured term loan credit facility contain
covenants that may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions. If
we are unable to comply with these covenants, our business, results of operations and liquidity could be materially and adversely affected.
Our senior secured revolving and term loan credit facilities require us to maintain certain financial ratios and to comply with various operational and other
covenants. If we do not comply with those covenants, we would be precluded from borrowing under the senior secured revolving credit facility, which could have
a material adverse effect on our business, financial condition and liquidity. If we are unable to borrow under our senior secured revolving credit facility, we will
need to meet our capital requirements using other sources; however, alternative sources of liquidity may not be available on acceptable terms. In addition, if we fail
to comply with the covenants set forth in our credit facilities the lenders thereunder could declare an event of default and cause all amounts outstanding thereunder
to be due and payable immediately. We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding credit
facilities or other debt instruments we may have in place from time to time, either upon maturity or if accelerated, upon an event of default, or that we would be
able to refinance or restructure the payments on the credit facilities or such other debt instruments on acceptable terms.
In addition, the agreements governing the senior secured revolving and term loan credit facilities contain covenants that, among other things, restrict our ability to:
incur liens;
incur or assume additional debt or guarantees or issue preferred stock;
pay dividends or repurchases with respect to capital stock;
prepay, or make redemptions and repurchases of, subordinated debt;
•
•
•
•
• make loans and investments;
•
•
•
•
engage in mergers, acquisitions, asset sales, sale/leaseback transactions and transactions with affiliates;
place restrictions on the ability of subsidiaries to pay dividends or make other payments to the issuer;
change the business conducted by us or our subsidiaries; and
amend the terms of subordinated debt.
Our indebtedness may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants and make
payments on our indebtedness.
Our indebtedness, combined with our lease and other financial obligations and contractual commitments could have other important consequences to our
stockholders, including:
• making it more difficult for us to satisfy our obligations with respect to our indebtedness, including the revolving credit facility, term loan and our
other debt instruments, 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 revolving credit facility or term loan and the governing documents of our debt instruments;
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•
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;
• making us more vulnerable to adverse changes in general economic, industry and competitive conditions;
•
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;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
placing us at a competitive disadvantage compared to our competitors that have less debt; and
limiting our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, or execution of
our business strategy or other purposes.
•
•
•
Any of these factors could materially and adversely affect our business, financial condition and results of operations. Our ability to make payments on our
indebtedness depends on our ability to generate cash in the future. If we do not generate sufficient cash flow to meet our debt service and working capital
requirements, we may need to seek additional financing or sell assets. This may make it more difficult for us to obtain financing on terms that are acceptable to us,
or at all. Without any such financing, we could be forced to sell assets to make up for any shortfall in our payment obligations under unfavorable circumstances. If
necessary, we may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations.
The transition away from LIBOR may adversely affect our cost to obtain financing and may negatively impact our interest rate swap agreements.
Central banks around the world, including the Board of Governors of the Federal Reserve, have commissioned working groups of market participants and official
sector representatives with the goal of finding suitable replacements for the London Interbank Offered Rate (“LIBOR”) based on observable market transactions. It
is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the course of the next few years. The U.K. Financial
Conduct Authority (FCA), which regulates LIBOR, has announced that it has commitments from panel banks to continue to contribute to LIBOR through the end
of 2021, but that it will not use its powers to compel contributions beyond such date. Accordingly, there is considerable uncertainty regarding the publication of
such rates beyond 2021. The Federal Reserve Bank of New York and various other authorities have commenced the publication of reforms and actions relating to
alternatives to U.S. dollar LIBOR. The full impact of such reforms and actions, together with any transition away from LIBOR, including the potential or actual
discontinuance of LIBOR publication, remains unclear. At this time, it is not possible to predict the effect any discontinuance, modification or other reforms to
LIBOR or any other reference rate, or the establishment of alternative reference rates will have on us. However, if LIBOR ceases to exist or if the methods of
calculating LIBOR change from their current form, our borrowing costs on our variable rate indebtedness may be adversely affected.
Risks Related to Our Common Stock
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 common stock.
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.
Our operating results may fluctuate as a result of these and other events and factors:
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 by us and our competitors;
changes in our pricing policies or those of our competitors;
changes in supply and pricing of raw materials and components;
•
•
•
•
•
• market acceptance of new and enhanced products;
•
•
•
•
•
•
•
•
•
announcement of technological innovations or new products by us or our competitors;
the length of our sales cycles;
conditions in the commercial vehicle industry;
changes in our operating expenses;
personnel changes;
health epidemics;
new business acquisitions;
uncertainty in geographic regions;
cyber attacks;
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•
•
•
•
•
currency and interest rate fluctuations;
uncertainty with respect to the NAFTA, USMCA and other international trade agreements;
Brexit
union actions; and
seasonal factors.
We base our operating expense budgets in large part on expected revenue trends. However, certain 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 significant change in revenue may cause significant
variation in operating results in any quarter or year.
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 and may
result in changes in analysts’ estimates. In such events, the trading price of our common stock may be adversely affected.
In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we become
involved in securities class action litigation in the future, it could result in substantial costs and diversion of management attention and resources, thus harming our
business.
Our common stock has historically had a low trading volume with limited analyst coverage and, as a result, any sale of a significant number of shares
may depress the trading price of our stock; stockholders may be unable to sell their shares above the purchase price.
Our common stock is traded on the NASDAQ Global Select Market under the symbol “CVGI.” The trading volume and analyst coverage of our common stock has
historically been limited as compared to common stock of an issuer that has a large and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share prices. Because of the limited trading volume, holders of our securities may not be able to sell quickly any significant
number of such shares, and any attempted sale of a large number of our shares may have a material adverse impact on the price of our common stock. Additionally,
because of the limited number of shares being traded, and changes in stock market analyst recommendations regarding our common stock or lack of analyst
coverage, the price per share of our common stock is subject to volatility and may continue to be subject to rapid price swings in the future that may result in
stockholders’ inability to sell their common stock at or above purchase price.
Provisions in our charter documents and Delaware law could discourage potential acquisition proposals, could delay, deter or prevent a change in control
and could limit the price certain investors might be willing to pay for our stock.
Certain provisions of our certificate of incorporation and by-laws may inhibit changes in control of our company not approved by our board of directors. These
provisions include:
•
•
•
•
•
a prohibition on stockholder action through written consents;
a requirement that special meetings of stockholders be called only by the board of directors;
advance notice requirements for stockholder proposals and director nominations;
limitations on the ability of stockholders to amend, alter or repeal the by-laws; and
the authority of the board of directors to issue, without stockholder approval, preferred stock and common stock with such terms as the board of
directors may determine.
We are also afforded the protections of Section 203 of the Delaware General Corporation Law, which would prevent us from engaging in a business combination
with a person who becomes a 15% or greater stockholder for a period of three years from the date such person acquired such status unless certain board or
stockholder approvals were obtained. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common
stock.
Item 1B.
Unresolved Staff Comments
None.
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Item 2.
Properties
Our corporate office is located in New Albany, Ohio. Several of our facilities are located near our OEM customers to reduce distribution costs, reduce risk of
interruptions in our 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 as of December 31, 2019:
Location
Piedmont, Alabama
Douglas, Arizona
Dalton, Georgia
Monona, Iowa
Michigan City, Indiana
Kings Mountain, North Carolina
Concord, North Carolina
Chillicothe, Ohio
New Albany, Ohio
Vonore, Tennessee
Dublin, Virginia
Elkridge, Maryland
Agua Prieta, Mexico
Esqueda, Mexico
Morelos, Mexico
Saltillo, Mexico
Primary Product/Function
Aftermarket Distribution
Warehouse
Trim & Warehouse
Wire Harness
Wipers, Switches
Cab, Sleeper Box
Injection Molding
Trim, Mirrors & Warehouse
Corporate Headquarters / Product Design and Development
Seats, Flooring & Warehouse / Product Design and Development
Trim & Warehouse
Electro-mechanical & Panel Assemblies
Wire Harness
Wire Harness
Wire Harness
Trim & Seats
Northampton, United Kingdom
Seats / Product Design and Development
Brisbane, Australia
Sydney, Australia
Mackay, Australia
Melbourne, Australia
Perth, Australia
Jiading, China
Bangkok, Thailand
Brandys nad Orlici, Czech Republic
Liberec, Czech Republic
Baska (State of Gujarat) India
Seats
Seats
Distribution
Distribution
Distribution
Seats and Wire Harness / Product Design and Development
Seats
Seats
Wire Harness
Seats
Pune (State of Maharashtra), India
Seats / Product Design and Development
Dharwad (State of Karnataka), India
Seats
L’viv, Ukraine
Wire Harness
Ownership Interest
Owned
Leased
Leased
Owned
Leased
Owned
Leased
Owned / Leased
Leased
Owned / Leased
Owned / Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
We also have leased sales and service offices in the Belgium, Australia, and Czech Republic and a sales office in Sweden. Our owned domestic facilities are
subject to liens securing our obligations under our revolving credit facility and senior secured term loan credit facility as described in Note 9 of the Consolidated
Financial Statements.
Utilization of our facilities varies with North American, European, Asian and Australian commercial vehicle production and general economic conditions in the
regions. All locations are principally used for manufacturing, assembly, distribution or warehousing, except for our New Albany, Ohio facility, which is principally
an administrative office.
Item 3.
Legal Proceedings
We are subject to various legal proceedings and claims arising in the ordinary course of business, including, but not limited to, workers’ compensation claims,
OSHA investigations, employment disputes, unfair labor practice charges, customer and supplier disputes, service provider disputes, product liability claims,
intellectual property disputes, environmental claims arising out of the conduct of our businesses and examinations by taxing authorities. Based upon the
information available to management and
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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 our business
are not expected to have a material adverse impact on the consolidated financial position, results of operations, stockholders' equity or cash flows; however, such
matters are subject to many uncertainties and the outcomes of individual matters are not predictable with any degree of assurance.
Item 4.
Mine Safety Disclosures
Not applicable.
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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 Global Select Market under the symbol “CVGI.”
As of March 16, 2020, there were 171 holders of record of our outstanding common stock.
PART II
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 Third Amended and Restated Loan and
Security Agreement and the Term Loan and Security Agreement, as described in more detail under “Management’s Discussion and Analysis - Liquidity and
Capital Resources - Debt and Credit Facilities.”
The following graph compares the cumulative five-year total return to holders of CVG’s common stock to the cumulative total returns of the NASDAQ Composite
Index and a Peer Group that includes a legacy group through October 31, 2016. The legacy group is Accuride Corporation, Altra Industrial Motion Corp, Core
Molding Technologies, EnPro Industries, Fuel Systems Solutions, L.B. Foster Company, Modine Manufacturing, Meritor Inc. Stoneridge Inc., Titan International
and Wabco Holdings. In 2016, Accuride Corporation was purchased by Crestview Partners, and Fuel Systems Solutions merged with Westport Innovations. Both
members are reported as part of the legacy peer group only through 2015. The new peer group is Altra Industrial Motion Corp., American Railcar Industries Inc.,
ASTEC Industries Inc., Columbus McKinnon Corp., Dorman Products Inc., EnPro Industries, Federal Signal Corp., Freightcar America Inc., Gentherm Inc., L.B.
Foster Company, LCI Industries, Modine Manufacturing, Shiloh Industries, Spartan Motors Inc., Standard Motor Products Inc., Stoneridge Inc., and Supreme
Industries. Supreme Industries was purchased by Wabash National Corporation and is reported as part of the new peer group only through 2017. The graph
assumes that the value of the investment in the Company’s common stock in the peer group and the index (including reinvestment of dividends) was $100 on
December 31, 2014 and tracks it through December 31, 2019.
Commercial Vehicle Group, Inc.
NASDAQ Composite
Legacy Peer Group
New Peer Group
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
100.00
100.00
100.00
100.00
41.44
107.11
80.33
93.28
82.88
116.72
98.91
127.28
160.21
151.41
N/A
145.60
85.42
147.16
N/A
122.49
95.16
201.22
N/A
159.20
The information in the graph and table above is not “solicitation material”, is not deemed “filed” with the Securities and Exchange Commission and is not to be
incorporated by reference in any of our filings under the Securities Act of 1933, as amended, or the
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Securities Exchange Act of 1934, as amended, whether made before or after the date of this annual report, except to the extent that we specifically incorporate such
information by reference.
We did not repurchase any of our common stock on the open market as part of a stock repurchase program during 2019. Our employees surrendered 130,141
shares of our common stock in 2019 to satisfy tax withholding obligations on the vesting of restricted stock awards issued under our Fourth Amended and Restated
Equity Incentive Plan and the 2014 Equity Incentive Plan. The following table sets forth information in connection with purchases made by, or on behalf of, us or
any affiliated purchaser, of shares of our common stock during the period ended December 31, 2019:
Total Number of
Shares (or Units)
Surrendered
Average
Price Paid
per Share
(or Unit)
Total Number
of Shares (or
Units) Purchased
as Part of
Publicly Announced
Plans or Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
October 1, 2019 through October 31, 2019
130,141 $
7.52
—
—
No other shares were surrendered during the quarter ended December 31, 2019.
Unregistered Sales of Equity Securities
We did not sell any equity securities during 2019 that were not registered under the Securities Act of 1933, as amended.
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Item 6.
Selected Financial Data
The following table sets forth selected consolidated financial data regarding our business. This information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Annual Report on Form 10-K and with our consolidated financial
statements and Notes thereto included elsewhere in this Annual Report on Form 10-K, including further details related to the misstatements discussed in Note 2.
Material Events Affecting Financial Statement Comparability
Aside from the acquisition of First Source Electronics, LLC, ("FSE") in September 2019, there are no material events affecting financial statement comparability
of our consolidated financial statements contained in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019. See Note 5 for a
description of the FSE acquisition. The table below sets forth Statements of Operations for the periods indicated (in thousands, except per share data):
Statements of Operations:
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Amortization expense
Operating income
Other (expense) income
Interest expense
Income before provision for income taxes
Provision for income taxes
Net income (loss)
Less: Non-controlling interest in subsidiary’s income (loss)
Net income (loss) attributable to CVG stockholders
Income (loss) per share attributable to common stockholders:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Description of Restatement Adjustments
Years Ended December 31,
2019
2018
(as restated)
2017
2016
2015
$
901,238 $
897,737 $
755,231 $
662,112 $
796,101
105,137
772,817
124,920
62,549
1,952
40,636
(2,225)
16,855
21,556
5,778
15,778
—
60,679
1,300
62,941
1,311
14,676
49,576
8,087
41,489
—
664,360
575,409
90,871
59,547
1,320
30,004
1,943
19,149
12,798
15,067
(2,269)
—
86,703
60,482
1,305
24,916
1,236
19,318
6,834
49
6,785
—
15,778 $
41,489 $
(2,269) $
6,785 $
0.52 $
0.51 $
1.37 $
1.36 $
(0.08) $
(0.08) $
0.23 $
0.23 $
30,602
30,823
30,277
30,587
29,942
29,942
29,530
29,878
$
$
$
825,341
714,986
110,355
71,321
1,327
37,707
471
21,359
16,819
9,758
7,061
1
7,060
0.24
0.24
29,209
29,399
The categories of restatement adjustments and immaterial corrections of errors and their impact on previously reported consolidated financial statements as of and
for the year ended December 31, 2018 and immaterial corrections of errors as of and for the year ended December 31, 2017, are detailed in Note 2 contained in the
Notes to the consolidated financial statements in this Annual Report on Form 10-K and are described below:
For the year ended December 31, 2018
Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted in a $4.1
million increase in cost of revenues; a $1.0 million decrease in provision for income taxes; and a $3.1 million decrease in net income.
Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million decrease in
cost of revenues; an immaterial increase in provision for income taxes; and a $0.1 million increase in net income.
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For the year ended December 31, 2017
Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted in a $1.0
million increase in cost of revenues; a $0.2 million decrease in provision for income taxes; and a $0.8 million increase in net loss.
Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million decrease in
cost of revenues; a $0.1 million reduction in provision for income taxes; and a $0.2 million decrease in net loss.
The table below sets forth certain balance sheet and other data for the periods indicated (in thousands):
Years Ended December 31,
2019
2018
(as restated)
2017
2016
2015
Balance Sheet Data (at end of each period):
Working capital (current assets less current liabilities)
$
149,365 $
176,571 $
149,546 $
202,693 $
Total assets
Total liabilities, excluding debt
Total debt, net of prepaid debt financing costs and discount
Total CVG stockholders’ equity
Total stockholders’ equity
Other Data:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Depreciation and amortization
Capital expenditures
North American Class 8 Production (units) 1
North America Class 5-7 Production (units) 1
(1)
Source: ACT (February 2020)
As of December 31, 2018
435,826
150,754
156,384
128,688
128,688
412,688
139,334
163,758
109,596
109,596
381,969
142,697
166,949
72,323
72,323
428,765
127,921
233,154
67,690
67,690
$
36,746 $
40,992 $
2,257 $
49,365 $
(57,979)
(10,113)
15,561
24,117
342
281
(14,101)
(5,835)
15,418
14,550
324
273
(10,776)
(72,848)
15,344
13,567
256
249
(8,903)
(714)
16,451
11,917
228
233
193,424
436,679
133,112
235,000
65,930
65,930
55,299
(14,506)
(16,008)
17,710
15,590
323
237
Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted in a $0.7
million decrease in accounts receivable, net; a $4.7 million decrease in other current assets; a $1.3 million increase in long-term deferred tax assets; and a $4.1
million increase in retained deficit.
Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $2.2 million decrease in
machinery and equipment; a $1.2 million decrease in accumulated depreciation; a $0.3 million decrease in long-term deferred tax assets; and a $1.3 million
increase in retained deficit.
As of December 31, 2017
Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted in an
immaterial decrease in accounts receivable, net; a $1.3 million decrease in other current assets; a $0.3 million increase in long-term deferred tax assets; and a $1.0
million increase in retained deficit.
Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $2.2 million decrease in
machinery and equipment; a $1.1 million decrease in accumulated depreciation; a $0.2 million decrease in long-term deferred tax assets; and a $1.3 million
increase in retained deficit.
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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 - Selected Financial Data” and our consolidated
financial statements and the notes thereto included in Item 8 in this Annual Report on Form 10-K. The statements in this discussion regarding industry outlook, our
long-term strategy, 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 - Risk Factors.” Our actual results may differ
materially from those contained in or implied by any forward-looking statements.
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Restatement
This MD&A gives effect to certain adjustments made to our previously reported consolidated financial statements as of and for the year ended December 31, 2018.
Due to the restatement of this period, the data set forth in this MD&A may not be comparable to discussions and data included in our previously filed Annual
Report on Form 10-K for 2018.
Refer to Notes 2 and 19 of the accompanying audited financial statements for further details related to the restatement and immaterial correction of errors and the
impact on our consolidated financial statements.
Company Overview
Commercial Vehicle Group, Inc. (through its subsidiaries) is a leading supplier of electrical wire harnesses, seating systems, and a full range of other cab related
products for the global commercial vehicle markets, including medium- and heavy-duty trucks ("MD/HD Truck") and medium- and heavy-construction vehicles.
We also supply electrical wire harnesses, control panels, electro-mechanical and cable assemblies, seating systems and other products to automotive, military, bus,
agriculture, transportation, mining, industrial and off-road recreational markets.
We have manufacturing operations in the United States, Mexico, China, United Kingdom, Czech Republic, Ukraine, Thailand, India and Australia. Our products
are primarily sold in North America, Europe, and the Asia-Pacific region.
We are differentiated from automotive industry suppliers by our ability to manufacture low volume, customized products on a sequenced basis to meet the
requirements of our customers. We believe our products are used by a majority of the North American MD/HD Truck and many medium- and heavy-duty
construction vehicle original equipment manufacturers (“OEMs”), and to a lesser extent other makers of industrial equipment.
In the quarter ended December 31, 2018, we completed a strategic reorganization of our operations into two business segments, Electrical Systems and Global
Seating. The reorganization allows the Company to better focus its business along product lines, as opposed to end markets, which the Company believes enhances
the effectiveness of seeking out growth opportunities and shareholder value.
Business Overview
For the year ended December 31, 2019, approximately 49% of our revenue was generated from sales to North American MD/HD Truck OEMs. Our remaining
revenue was primarily derived from sales to OEMs in the global construction equipment market, aftermarket and OE service organizations, military market and
specialty markets.
Demand for our products may be driven by preferences of the end-user of the vehicle, particularly with respect to heavy-duty trucks. Unlike the automotive
industry, heavy-duty truck OEMs generally afford the end-user the ability to specify many of the component parts that will be used to manufacture the vehicle,
including a wide variety of cab interior styles and colors, brand and type of seats, type of seat fabric and color, and interior styling. Certain of our products are only
utilized in heavy-duty trucks, such as our storage systems, sleeper boxes and privacy curtains. To the extent that demand for higher content vehicles increases or
decreases, our revenues and gross profit will be impacted positively or negatively.
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 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. Several of the major truck makers have upgraded their truck platforms and we believe we have maintained our
share of content in these platforms. We continue to pursue opportunities to expand our content.
Demand for our heavy-duty (or "Class 8") truck products is generally dependent on the number of new heavy-duty trucks manufactured in North America, which
in turn is a function of general economic conditions, interest rates, changes in government regulations, consumer spending, fuel costs, freight costs, fleet operators'
financial health and access to capital, used truck prices and our customers’ inventory levels. New heavy-duty truck 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. North
American heavy-duty truck production was 342,000 units in 2019. According to a February 2020 report by ACT Research, a publisher of industry market research,
North American Class 8 production levels are expected to decrease to 225,000 units in 2020, steadily increase to 340,000 units in 2023 and then decline to 246,000
units in 2024. ACT Research estimated that the average age of active North American Class 8 trucks was 6.4 and 6.6 years in 2019 and 2018, respectively. As
vehicles age, maintenance costs typically increase. ACT Research forecasts that the vehicle age will decline as aging fleets are replaced.
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North American medium-duty (or "Class 5-7") truck production steadily increased from 249,000 units in 2017 to 281,000 units in 2019. According to a February
2020 report by ACT Research, North American Class 5-7 truck production is expected to decrease to 249,000 units in 2020, steadily increase to 274,000 units in
2023 and then decline to 268,000 units in 2024. We primarily participate in the class 6 and 7 portion of the medium-duty truck market.
Demand for our construction equipment products is dependent on vehicle production. Demand for new vehicles in the global construction equipment market
generally follows certain economic conditions around the world. Our products are primarily used in the medium- and heavy-duty construction equipment markets
(vehicles weighing over 12 metric tons). Demand in the medium- and heavy-duty construction equipment market is typically related to the level of large scale
infrastructure development projects, such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and
commodities industries. The construction markets we serve in North America, Europe and Asia have declined.
On September 17, 2019, the Company entered into and closed on an Asset Purchase Agreement with First Source Electronics, LLC (“FSE”), Kevin Popielarczyk
and Richard Vuoto (collectively, “Principals”) and the Company’s wholly-owned subsidiary, CVG FSE, LLC (“CVG FSE”). Information relating to the FSE
acquisition in Note 5 of the Consolidated Financial Statements are incorporated in this section by reference.
During 2019, we began implementing cost reduction and manufacturing capacity rationalization actions (the "Restructuring Initiatives") in response to declines in
end market volumes. These actions were initiated in 2019 and are expected to continue through 2020. The Restructuring Initiatives consist primarily of headcount
reductions in each segment and at corporate, as well as other costs associated with the transfer of production and subsequent closure of facilities.
2020 Outlook
Management estimates that 2020 North American Class 8 truck production may decline by 35% to 42% (to 200,000 to 225,000 production units), North American
Class 5-7 production may decline by 15% to 20%, and the construction markets the Company serves in North America, Europe and Asia Pacific may decline by 10
to 15%.
While we experienced unplanned downtime during the first quarter of 2020 in our China operation due to the COVID-19 virus, we have seen steady improvements
in our ability to produce in that operation and are currently operating at approximately 70% of expected levels. Due to inventory levels built prior to the Chinese
New Year, sales losses in the first quarter have been immaterial and early indications are that the customers intend to make up lost production throughout the year.
In other regions, the situation is dynamic, we have taken preventative measures where possible and we are monitoring conditions closely.
Our Long-term Strategy
Our long-term strategy is to grow revenue by product, geography and end market. Our products include electrical wire harnesses and electro-mechanical and cable
assemblies, Trim, mirrors, wipers and controls, cab structures and sleeper boxes, and Seats. We intend to allocate resources consistent with our strategy; more
specifically, consistent with our product portfolio, geographic region and end market diversification objectives. We periodically evaluate our long-term strategy
and may adjust the strategy in response to changes in our business environment and other factors.
As part of our long-term strategy, we have considered and will consider acquisitions and divestitures to enhance return to our stockholders and service to
customers. As discussed in Note 5, the Company completed the acquisition of FSE in September 2019. This strategic acquisition improves our ability to participate
in the progression of digitalization, connectivity and associated power and data applications. The acquisition also complements our wire harness business, provides
an entry into new markets, and provides us with an opportunity to leverage our global footprint and to increase cross-selling opportunities.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements described in Note 1 of the Consolidated Financial Statements are incorporated in this section by reference.
Consolidated Results of Operations
The table below sets forth certain operating data expressed as a percentage of revenues for the periods indicated (dollars are in thousands):
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Revenues
Cost of revenues
Gross profit
2019
2018 (as restated)
2017
$
901,238
100.0 % $
897,737
100.0% $
755,231
100.0 %
796,101
105,137
62,549
1,952
40,636
(2,225)
16,855
21,556
5,778
15,778
88.3
11.7
6.9
0.2
4.5
(0.2)
1.9
2.4
0.6
1.8 % $
772,817
124,920
60,679
1,300
62,941
1,311
14,676
49,576
8,087
41,489
86.1
13.9
6.8
0.1
7.0
0.1
1.6
5.5
0.9
4.6% $
664,360
90,871
59,547
1,320
30,004
1,943
19,149
12,798
15,067
(2,269)
88.0
12.0
7.9
0.2
4.0
0.3
2.5
1.7
2.0
(0.3)%
Selling, general and administrative
expenses
Amortization expense
Operating income
Other (expense) income
Interest expense
Income before provision for income
taxes
Provision for income taxes
Net income (loss)
$
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
CONSOLIDATED RESULTS
The table below sets forth certain consolidated operating data for the periods indicated (dollars are in thousands):
Revenues
Gross profit
Selling, general and administrative expenses
Other (income) expense
Interest expense
Provision for income taxes
Net income
2019
2018
(as restated)
Dollar Change
% Change
$
901,238 $
897,737 $
105,137
124,920
62,549
(2,225)
16,855
5,778
15,778
60,679
1,311
14,676
8,087
41,489
3,501
(19,783)
1,870
(3,536)
2,179
(2,309)
(25,711)
0.4 %
(15.8)
3.1
(269.7)
14.8
(28.6)
(62.0)
Revenues. Consolidated revenues of $901.2 million were substantially unchanged in 2019 compared to 2018. Heavy-duty truck production volumes in North
America in 2019, our largest end market, were markedly higher than truck replacement level volumes, but production volumes declined significantly in the second
half of the year. Production volumes in our second largest end market, global construction equipment, declined in 2019 compared to 2018 for the medium- and
heavy-duty construction equipment parts we supply. Consolidated revenues in 2019 compared to 2018 were as follows:
•
•
•
•
•
a $26.8 million, or 7%, increase in OEM North American MD/HD Truck revenues;
a $10.3 million, or 54%, increase in military revenues primarily attributable to the acquisition of FSE;
a $20.3 million, or 11%, decrease in construction equipment revenues;
a $8.3 million, or 6%, decrease in aftermarket revenues; and
a $5.0 million, or 4%, decrease in other revenues.
2019 revenues were adversely impacted by foreign currency exchange translation of $10.4 million, which is reflected in the change in revenue above.
Gross Profit. Included in gross profit is cost of revenues, which consists primarily of raw materials and purchased components for our products, wages and
benefits for our employees and overhead expenses such as manufacturing supplies, facility rent and utilities costs related to our operations. Cost of revenues
increased $23.3 million, or 3.0%, resulting from an increase in raw material and purchased component costs of $12.1 million, wages and benefits of $2.0 million
and overhead expenses of $9.2 million. Supplier price increases and costs associated with difficult labor markets, including higher labor costs, adversely impacted
material and labor costs. Beginning in the first quarter of 2019, the imposition by Mexico of a new statutory minimum wage in the Free Zone of the Northern
Border (the “Border Minimum Wage”), a geographic area running along and just south of the U.S. / Mexico
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border and encompassing our wire harness facility in Agua Prieta, Mexico, adversely impacted labor costs. A number of actions, including pricing adjustments on
certain products, reduced the impact of the Border Minimum Wage. The net unfavorable impact of the Border Minimum Wage on the 2019 results was
approximately $2.3 million. Costs associated with a supplier of fabricated metals that sought bankruptcy relief in the second quarter of 2019 (the "Troubled
Supplier") adversely impacted the current year by $3.1 million. Costs associated with manufacturing investments in our global wire harness and North American
trim businesses (the "Manufacturing Investments") are included in 2019 results and approximate $1.8 million. Employee separation costs and charges associated
with manufacturing capacity rationalization (the "Restructuring Initiatives") that began in 2019 totaling $2.2 million adversely impacted gross profit in 2019. The
Restructuring Initiatives are expected to mitigate the impact of lower production volumes in 2020. As a percentage of revenues, gross profit margin was 11.7% for
the year ended December 31, 2019 compared to 13.9% for the year ended December 31, 2018.
Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses consist primarily of wages and benefits and other overhead
expenses such as marketing, travel, legal, audit, rent and utilities costs, which are not directly or indirectly associated with the manufacturing of our products.
SG&A expenses increased $1.9 million in the year ended December 31, 2019 as compared to the year ended December 31, 2018 due primarily to costs of $0.9
million associated with the acquisition of the assets of FSE and costs of $0.8 million associated with the Restructuring Initiatives.
Other (Income) Expense. The 2019 results include a $2.5 million non-cash charge associated with the early payout of benefits to term vested participants in the
U.S. Pension Plan, which reduced future financial risk associated with the U.S. Pension Plan and contributed to an improvement in funded status to approximately
100%.
Interest Expense. Interest expense includes the mark-to-market impact of an interest rate swap agreement, which resulted in a $1.9 million non-cash charge in the
year ended December 31, 2019 and a $0.8 million gain in the prior year.
Provision for Income Taxes. Income tax provisions of $5.8 million and $8.1 million were recorded for the fiscal years ended December 31, 2019 and 2018,
respectively. The year over year change in the tax provision was primarily attributable to the lower tax expense resulting from the decrease in income before
provision for income taxes, offset by a decrease in the amount of favorable, period-specific tax adjustments and an increase in withholding tax expense recorded in
the current year for the impact of the repatriation of earnings from certain foreign subsidiaries.
Electrical Systems Segment Results
The table below sets forth certain Electrical Systems Segment operating data for the periods indicated (dollars are in thousands):
Revenues
Gross profit
Selling, general & administrative expenses
Operating income
2019
530,901 $
$
60,008
15,815
42,778
2018
(as restated)
512,754 $
71,104
15,390
54,967
Dollar Change
% Change
18,147
(11,096)
425
(12,189)
3.5 %
(15.6)
2.8
(22.2)
Revenues. The increase in Electrical Systems Segment 2019 revenues is primarily a result of:
•
•
•
•
a $18.6 million, or 7%, increase in OEM North American MD/HD Truck revenues;
a $10.2 million, or 55%, increase in military revenues primarily attributable to the FSE acquisition;
a $2.0 million, or 2%, decrease in OEM construction equipment revenues; and
a $8.7 million, or 6%, decrease in other revenue.
Electrical Systems Segment 2019 revenues were adversely impacted by foreign currency exchange translation of $3.7 million, which is reflected in the changes in
revenue above.
Gross Profit. Included in gross profit is cost of revenues, which increased $29.2 million, or 6.6%, as a result of an increase in raw material and purchased
component costs of $13.8 million, wages and benefits of $4.4 million and overhead expenses of $11.0 million. Inflationary pressures affecting the Company’s raw
material, purchased component, labor and labor associated costs adversely affected cost of revenues. Also adversely impacting 2019 results, was the Border
Minimum Wage, approximately $2.3 million; the Troubled Supplier, approximately $3.1 million; and costs associated with the Manufacturing Investments,
approximately $1.8 million. Cost control and cost recovery initiatives, including pricing adjustments, reduced the impact of these
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cost pressures on gross profit. Gross profit for the year ended December 31, 2019 was also adversely impacted by costs of $1.8 million associated with the
Restructuring Initiatives. As a percentage of revenues, gross profit for the year ended December 31, 2019 was 11.3% compared to 13.9% for the year ended
December 31, 2018.
Selling, General and Administrative Expenses. Electrical Systems Segment SG&A expenses increased $0.4 million, or 2.8%, in 2019 compared to 2018. SG&A
includes costs of $0.4 million associated with the Restructuring Initiatives.
Global Seating Segment Results
The table below sets forth certain Global Seating Segment operating data for the periods indicated (dollars are in thousands):
Revenues
Gross profit
Selling, general & administrative expenses
Operating income
2019
381,548 $
$
2018
(as restated)
Dollar Change
% Change
397,501 $
(15,953)
(4.0)%
45,201
20,429
24,235
54,231
22,433
31,245
(9,030)
(2,004)
(7,010)
(16.7)
(8.9)
(22.4)
Revenues. The decrease in Global Seating Segment 2019 revenues is primarily a result of:
•
•
•
•
a $8.2 million, or 5%, increase in OEM North American MD/HD Truck revenues;
a $18.3 million, or 19%, decrease in OEM construction equipment revenues;
a $5.4 million, or 6%, decrease in aftermarket revenues; and
a $0.4 million, or 1%, decrease in other revenues.
Global Seating Segment 2019 revenues were adversely impacted by foreign currency exchange translation of $6.7 million, which is reflected in the changes in
revenue above.
Gross Profit. Included in gross profit is cost of revenues, which decreased $6.9 million, or 2.0%, as a result of a decrease in raw material and purchased
component costs of $3.1 million, wages and benefits of $2.4 million and overhead expenses of $1.4 million. Inflationary pressures affecting the Company’s raw
material, purchased component, labor and labor associated costs adversely affected cost of revenues. Cost control and cost recovery initiatives, including pricing
adjustments, reduced the impact of these cost pressures on gross profit. Gross profit for the year ended December 31, 2019 was also adversely impacted by costs of
$0.4 million associated with the Restructuring Initiatives. As a percentage of revenues, gross profit was 11.8% for the year ended December 31, 2019 compared to
13.6% for the year ended December 31, 2018.
Selling, General and Administrative Expenses. Global Seating Segment SG&A expenses decreased $2.0 million, or 8.9%, for the year ended December 31, 2019
compared to the year ended December 31, 2018, reflecting a focus on cost discipline. SG&A includes costs of $0.1 million associated with the Restructuring
Initiatives.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Consolidated Results
The table below sets forth certain consolidated operating data for the periods indicated (dollars are in thousands):
Revenues
Gross profit
Selling, general & administrative expenses
Interest expense
Provision for income taxes
Net (loss) income
$
2018
(as restated)
897,737 $
124,920
60,679
14,676
8,087
41,489
39
2017
Dollar Change
% Change
755,231 $
142,506
18.9 %
90,871
59,547
19,149
15,067
(2,269)
34,049
1,132
(4,473)
(6,980)
43,758
37.5
1.9
(23.4)
(46.3)
(1,928.5)
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Revenues. The increase in consolidated revenues for the year ended December 31, 2018 compared to the year ended December 31, 2017 primarily resulted from
increased heavy-duty truck production volumes in North America and an improvement in the global construction equipment markets. More specifically,
the increase resulted from:
•
•
•
•
a $106.4 million, or 33%, increase in OEM North American MD/HD Truck revenues;
a $24.9 million, or 15%, increase in construction equipment revenues;
a $17.2 million, or 14%, increase in aftermarket revenues; and
a $6.0 million, or 4%, decrease in other revenues.
2018 revenues were favorably impacted by foreign currency exchange translation of $8.1 million, which is reflected in the change in revenue above.
Gross Profit. The increase in gross profit is attributable to the increase in sales volume. Cost of revenues increased $108.5 million, or 16.3%, resulting from an
increase in raw material and purchased component costs of $85.6 million, wages and benefits of $10.6 million and overhead expenses of $12.3 million. Commodity
and other material inflationary pressures and difficult labor markets adversely affected cost of revenues. Cost control and cost recovery initiatives, including
pricing adjustments, reduced the impact of these cost pressures on gross profit. Also benefiting gross profit was the completion of facility restructuring in late
2017. The year ended December 31, 2017 included costs of approximately $10.0 million arising from a labor shortage in our North American wire harness
business and $1.9 million in charges relating to facility restructuring and related costs. There were no facility restructuring and related costs in 2018. As a
percentage of revenues, gross profit was 13.9% for the year ended December 31, 2018 compared to 12.0%for the year ended December 31, 2017.
Selling, General and Administrative Expenses. SG&A expenses increased $1.1 million, or 1.9%, on an 18.9% increase in revenues, reflecting a focus on cost
discipline. The year ended December 31, 2017 includes $2.4 million of litigation settlement costs.
Interest Expense. The decrease is the result of less outstanding debt and the favorable impact of the mark-to-market of an interest rate swap agreement due to
rising interest rates. Included in interest expense for the year ended December 31, 2017 is a non-cash write-off of deferred financing fees of $1.6 million and
interest of $1.5 million paid to bondholders during the 30-day notification period associated with the redemption of the 7.875% notes in 2017.
Provision for Income Taxes. The decrease in the tax provision is primarily attributable to $11.2 million in non-recurring tax expense recorded during the year
ended December 31, 2017 for the impact of the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”). The $11.2 million tax provision consisted of $7.2 million tax
expense associated with the decrease in value of the Company’s deferred tax assets resulting from the reduced 21% U.S. corporate income tax rate and $4.0 million
tax expense estimated for the deemed repatriation of accumulated untaxed earnings of the Company’s foreign subsidiaries. Moreover, results for the year ended
December 31, 2018 include a $4.2 million tax benefit recorded as an adjustment to the $4.0 million provisional tax expense accrued during the year ended
December 31, 2017 for the estimated impact of the deemed repatriation of accumulated untaxed earnings of the Company’s foreign subsidiaries. The $4.2 million
tax benefit is primarily attributable to foreign tax credits that were generated as a result of the deemed repatriation of accumulated untaxed earnings of the
Company's foreign subsidiaries which were not provided for in the provisional $4.0 million tax expense recorded during the year ended December 31, 2017 due to
the lack of regulatory guidance on how certain provisions of the U.S. Tax Reform should be implemented.
Excluding the non-recurring impact of the U.S. Tax Reform, our provision for income taxes would have been $12.3 million for the year ended December 31, 2018
compared to $3.9 million for the year ended December 31, 2017. The year over year change in tax provision, excluding the impact of the U.S. Tax Reform, was
primarily attributable to the increase in worldwide pre-tax earnings during the year ended December 31, 2018 and unfavorable impact of the new Global Intangible
Low-Taxed Income rules enacted under the U.S. Tax Reform.
SEGMENT RESULTS
Electrical Systems Segment Results
The table below sets forth certain Electrical Systems Segment operating data for the periods indicated (dollars are in thousands):
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Revenues
Gross profit
Selling, general & administrative expenses
Operating income
2018
(as restated)
$
512,754 $
2017
434,398
Dollar Change
$78,356
71,104
15,390
54,967
51,017
15,757
34,514
20,087
(367)
20,453
% Change
18.0 %
39.4
(2.3)
59.3
Revenues. The increase in Electrical Systems Segment revenues in 2018 compared to 2017 is primarily a result of:
•
•
•
•
•
a $63.0 million, or 33%, increase in OEM North American MD/HD Truck revenues;
a $11.0 million, or 13%, increase in OEM construction equipment revenues;
a $10.0 million, or 23%, increase in aftermarket revenues;
a $3.6 million, or 4%, increase in other revenue; and
a $9.2 million, or 41%, decrease in OEM recreational and specialty revenues.
Electrical Systems Segment 2018 revenues were favorably impacted by foreign currency exchange translation of $4.5 million, which is reflected in the changes in
revenue above.
Gross Profit. The increase in gross profit was primarily the result of the increase in sales volume. Included in gross profit is cost of revenues, which increased
$58.3 million, or 15.2%, as a result of an increase in raw material and purchased component costs of $47.5 million, wages and benefits of $5.8 million and
overhead expenses of $5.0 million. Commodity and other material inflationary pressures and difficult labor markets adversely affected cost of revenues. Cost
control and cost recovery initiatives, including pricing adjustments, reduced the impact of these cost pressures on gross profit. The year ended December 31, 2017,
included costs of approximately $10.0 million arising from a labor shortage in our North American wire harness business and $1.8 million in charges relating to
facility restructuring and related costs, which was completed in late 2017. There were no facility restructuring and related costs in 2018. As a percentage of
revenues, gross profit was 13.9% for the year ended December 31, 2018 compared to 11.7% for the year ended December 31, 2017.
Selling, General and Administrative Expenses. Electrical Systems Segment SG&A expenses decreased $0.4 million, or 2.3%, in 2018 compared to 2017,
notwithstanding the increase in revenues, reflecting a focus on cost discipline.
Global Seating Segment Results
The table below sets forth certain Global Seating Segment operating data for the periods indicated (dollars are in thousands):
Revenues
Gross profit
Selling, general & administrative expenses
Operating income
2018
(as restated)
$
397,501 $
2017
329,516
Dollar Change
$67,985
54,231
22,433
31,245
40,722
21,585
18,563
13,509
848
12,682
% Change
20.6%
33.2
3.9
68.3
Revenues. The increase in Global Seating Segment 2018 revenue is primarily a result of:
•
•
•
•
a $43.4 million, or 34%, increase in OEM North American MD/HD Truck revenues;
a $13.9 million, or 17%, increase in OEM construction equipment revenues;
a $7.2 million, or 9%, increase in aftermarket revenues; and
a $3.5 million, or 9%, increase in revenues other revenues.
Global Seating Segment 2018 revenues were favorably impacted by foreign currency exchange translation of $3.6 million, which is reflected in the changes in
revenue above.
Gross Profit. The increase in gross profit was primarily the result of the increase in sales volume. Included in gross profit is cost of revenues, which increased
$54.5 million, or 18.9%, as a result of an increase in raw material and purchased component costs
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of $42.0 million, wages and benefits of $4.8 million and overhead expenses of $7.7 million. Commodity and other material inflationary pressures and difficult
labor markets adversely affected cost of revenues. Cost control and cost recovery initiatives, including pricing adjustments, reduced the impact of these cost
pressures on gross profit. As a percentage of revenues, gross profit was 13.6% for the year ended December 31, 2018 compared to 12.4% for the year ended
December 31, 2017.
Selling, General and Administrative Expenses. Global Seating Segment SG&A expenses increased $0.8 million, or 3.9%, on a 20.6% increase in revenues in 2018
compared to 2017, reflecting a focus on cost discipline.
Liquidity and Capital Resources
During the year ended December 31, 2019, the Company borrowed under its revolving credit facility; however, as of year end the Company did not have any
outstanding borrowings under the facility. At December 31, 2019, the Company had liquidity of $94.6 million; $39.5 million of cash and $55.1 million availability
from its revolving credit facility.
We intend to allocate resources consistent with the following priorities: (1) to provide liquidity; (2) to invest in growth; (3) to reduce debt; and (4) to return capital
to our stockholders.
Cash Flows
Our primary source of liquidity during the year ended December 31, 2019 was cash and availability under our revolving credit facility. We believe that these
sources of liquidity will provide adequate funds for our working capital needs, planned capital expenditures and servicing of our debt through the next twelve
months. However, no assurance can be given that this will be the case. We had no borrowings under our revolving credit facility at December 31, 2019.
For the year ended December 31, 2019, cash provided by operations was $36.7 million compared to $41.0 million in the year ended December 31, 2018 and $2.3
million in the year ended December 31, 2017. More than all of the decrease in cash provided by operations for the year ended December 31, 2019 compared to
2018 was due to a decrease in net income partially offset by less cash used for working capital changes in 2019 than in 2018. The increase in cash provided by
operations for the year ended December 31, 2018 compared to 2017 was primarily due to an increase in net income.
Net cash used in investing activities was $58.0 million for the year ended December 31, 2019 compared to $14.1 million for the year ended December 31, 2018,
and $10.8 million for the year ended December 31, 2017. The increase in cash used in investing activities for the year ended December 31, 2019 compared to 2018
was due to the acquisition of the assets of FSE and an increase in capital expenditures. The increase in cash used in investing activities for the year ended
December 31, 2018 compared to 2017 was due primarily to a gain on the sale of a building in 2017. In 2020, we expect capital expenditures to be in the range of
$12 million to $15 million.
Net cash used in financing activities was $10.1 million for the year ended December 31, 2019 compared to $5.8 million for the year ended December 31, 2018, and
$72.8 million for the year ended December 31, 2017. The increase in net cash used in financing activities for the year ended December 31, 2019 was due primarily
to repayments on the term loan facility. The decrease in net cash used in financing activities for the year ended December 31, 2018 is attributable to the debt
refinancing completed in 2017.
As of December 31, 2019, substantially all of the cash of $39.5 million was held by foreign subsidiaries. During the year ended December 31, 2019, $19.4 million,
net of $1.0 million in foreign withholding tax was repatriated from our foreign subsidiaries. We plan to repatriate an additional $12.0 million in 2020 and a $0.8
million deferred tax liability was recorded during the year ended December 31, 2019 for the expected future income tax implications.
Debt and Credit Facilities
The debt and credit facility summaries described in Note 9 of the Consolidated Financial Statements are incorporated in this section by reference.
Contractual Obligations and Commercial Commitments
The following table reflects our contractual obligations as of December 31, 2019 (in thousands):
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Debt obligations
Estimated interest payments
Leasing obligations
Non-U.S. pension funding
Total
Payments Due by Period
Total
1 Year
2-3 Years
4-5 Years
159,913 $
4,375 $
8,750 $
146,788 $
39,782
46,435
23,019
12,549
10,701
1,964
23,960
19,486
3,858
3,273
9,413
4,040
269,149 $
29,589 $
56,054 $
163,514 $
$
$
More than
5 Years
—
—
6,835
13,157
19,992
We estimated future interest payments based on the effective interest rate as of December 31, 2019. Since December 31, 2019, there have been no material changes
outside the ordinary course of business to our contractual obligations as set forth above.
We expect to contribute approximately $1.0 million to our UK pension plan in 2020. No contributions are expected to be made to our U.S. pension plan in 2020.
We enter into agreements with our customers at the beginning of a given vehicle platform’s life to supply products for the entire life of that vehicle platform. 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. The obligations under these agreements and regulations are not reflected in the contractual obligations table above.
As of December 31, 2019, we were not a 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. These letter of credit contracts are usually extended on a year-to-year basis. As of December 31, 2019, we had outstanding letters of credit of $1.6
million. We do not believe that these letters of credit will be drawn.
We currently have no non-consolidated special purpose entity arrangements.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
For a comprehensive discussion of our significant accounting policies, see Note 1 to our consolidated financial statements in Item 8 in this Annual Report on
Form 10-K.
The preparation of our consolidated financial statements requires us 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.
We evaluate our estimates and assumptions on an ongoing basis, particularly relating to accounts receivable reserves, inventory reserves, goodwill, intangible and
long-lived assets, income taxes, warranty reserves, litigation reserves and pension and other post-retirement benefit plans. We base our estimates on historical
experience and 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 materially from these
estimates and assumptions. See Item 1A - Risk Factors in this Annual Report on Form 10-K for additional information regarding risk factors that may impact our
estimates.
Revenue Recognition — We recognize revenue when our performance obligation has been satisfied and control of products has been transferred to a customer,
which typically occurs upon shipment. Revenue is measured based on the amount of consideration we expect to receive in exchange for the transfer of goods or
services. We enter into agreements with our customers at the beginning of a vehicle platform’s life to supply products for that vehicle platform. Once we enter into
such agreements, fulfillment of our requirements is our obligation for the entire production life of the platform and we have no provisions to terminate such
contracts. Management judgments and estimates must be made in estimating sales returns and allowances relating to revenue recognized in a given period.
Lease Accounting — In accordance with ASU No. 2016-02, "Leases (Topic 842)", which was adopted as of January 1, 2019, we elected not to
recognize lease assets and lease liabilities for leases with a term of twelve months or less and elected to not separate lease and non-lease components. We elected
the transition method option under ASU 2018-11, "Leases (Topic 842): Targeted Improvements" with the package of practical expedients that permits the
Company to: (a) not reassess whether expired or existing contracts contain leases, (b) not reassess lease classification for existing or expired leases and (c) not
consider whether previously capitalized initial direct costs would be appropriate under the new standard. We recorded a right-of-use asset of $21.2 million and a
lease liability of $22.2 million upon adoption. We also elected the option to apply the new leasing standard on the date of adoption
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and recognize a cumulative-effect transition adjustment to the opening balance of retained earnings in the period of adoption resulting in a cumulative effect as of
January 1, 2019 of $0.1 million.
Business Combinations — Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of
acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of
identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and
in some cases subjective assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Accounting for business
acquisitions requires management to make judgments as to whether a purchase transaction is a multiple element contract, meaning that it includes other transaction
components such as a settlement of a preexisting relationship. This judgment and determination affects the amount of consideration paid that is allocable to assets
and liabilities acquired in the business purchase transaction.
Inventory — Inventories are valued at the lower of first-in, first-out cost or net realizable value. Cost includes applicable material, labor and overhead. We value
our 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 our estimated production requirements driven by expected market
volumes.
Income Taxes — We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial
statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and
liabilities using enacted tax laws and rates expected to be in place when the deferred tax items are realized. We recognize tax positions initially in the financial
statements when it is more likely than not the position will be sustained upon examination by the tax authorities. We provide a valuation allowance for deferred tax
assets when it is more likely than not that a portion of such deferred tax assets will not be realized.
Item 7A.
Quantitative and Qualitative Disclosures About Market 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 enter into financial instruments, from time to time, to manage 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.
Interest Rate Risk
We manage our interest rate risk by balancing the amount of our fixed rate and variable rate debt. To manage its exposure to variable interest rates in a cost-
efficient manner, the Company enters into interest rate swaps in which the Company agrees to exchange, at specified intervals, the difference between fixed and
variable interest amounts calculated by reference to an agreed-upon notional principal amount. The Company entered into an interest rate swap agreement to fix the
interest rate on an initial aggregate amount of $80.0 million of its initial $175.0 million of variable rate debt thereby reducing exposure to interest rate changes.
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. The interest on
the Term Loan Facility is variable and is comprised of 1) an applicable margin of either (i) 5.00% for base rate loans or (ii) 6.00% for LIBOR loans, and 2) LIBOR
as quoted two business days prior to the commencement of an interest period provided that LIBOR at no time falls below 1.00%.
At December 31, 2019, the interest rate swap agreement was not designated as a hedging instrument; therefore, it has been marked-to-market and the fair value
recorded in the Consolidated Balance Sheets with the offsetting gain or loss recorded in interest and other expense in our Consolidated Statements of Operations.
The interest rate swap agreement is more fully described in Note 4.
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 certain foreign currency transaction exposures. We estimate our projected revenues and purchases in certain foreign currencies and locations and will
hedge a portion or all of the anticipated long or short position. The contracts typically run from one month up to eighteen months. To mitigate our exposure to
Mexican Pesos, where we have our greatest exposure, we have entered into multiple monthly forward exchange contracts that have been designated as cash flow
hedge instruments which are recorded in the Consolidated Balance Sheets at fair value. Noncash gains and losses are deferred in
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accumulated other comprehensive loss and recognized when settled in our Consolidated 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, 2019 are more fully described in Note 4.
At December 31, 2019 and 2018, the potential reduction in earnings from a hypothetical instantaneous 10% adverse change in quoted foreign currency spot rates
applied to foreign currency sensitive instruments would have been immaterial.
Foreign Currency Transactions
A portion of our revenues during the year ended December 31, 2019 were derived from manufacturing operations outside of the U.S. The results of operations and
the financial position of our operations in these other countries are primarily measured in their respective currency and translated into U.S. Dollars. A portion of the
expenses incurred 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 long-term assets and liabilities at December 31, 2019 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’ equity. Accordingly, our
stockholders’ investment will fluctuate depending upon the weakening or strengthening of the U.S. Dollar against the respective foreign currency. The principal
currencies of exposure are the Mexican Peso, Chinese Yuan, British Pound, Euro, Czech Koruna, Australian Dollar, Japanese Yen, Indian Rupee, Thai Baht, and
Ukrainian Hryvnia. Foreign currency translation adversely impacted fiscal year 2019 revenues by $10.4 million, or 1.2%.
Effects of Inflation
Inflation potentially affects us in two principal ways. First, borrowings under our revolving credit facility 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, pension liabilities
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.
The significant rise in certain commodity prices negatively impacted our margins in 2019, 2018 and 2017.
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Item 8.
Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Documents Filed as Part of this Annual Report on Form 10-K
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Item 15 - Exhibits and Financial Statement Schedules
46
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47
48
49
50
51
52
53
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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Commercial Vehicle Group, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Commercial Vehicle Group, Inc. and subsidiaries (the Company) as of December 31, 2019 and
2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period
ended December 31, 2019, and the related notes and financial statement schedule II: Valuation and Qualifying Accounts and Reserves (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31,
2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal
control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission, and our report dated March 16, 2020 expressed an adverse opinion on the effectiveness of the
Company’s internal control over financial reporting.
Restatement of Previously Issued Financial Statements
As discussed in Note 2 to the consolidated financial statements, the Company has restated its consolidated financial statements as of December 31, 2018 and for
the year ended December 31, 2018 to correct misstatements.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2019, the Company changed its method of accounting for leases due to the
adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2012.
Columbus, Ohio
March 16, 2020
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2019 and 2018
Current Assets:
Cash
Accounts receivable, net of allowances of $4,634 and $5,139, respectively
ASSETS
Inventories
Other current assets
Total current assets
Property, Plant and Equipment:
Land and buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
Property, plant and equipment, net
Operating lease right-of-use asset, net
Goodwill
Intangible assets, net of accumulated amortization of $11,440 and $9,568, respectively
Deferred income taxes, net
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Current operating lease liabilities
Accrued liabilities and other
Current portion of long-term debt
Total current liabilities
Long-term debt
Long-term operating lease liabilities
Pension and other post-retirement liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ Equity:
Preferred stock, $.01 par value (5,000,000 shares authorized; no shares issued and outstanding)
Common stock, $.01 par value (60,000,000 shares authorized; 30,801,255 and 30,512,843 shares issued and
outstanding, respectively)
Treasury stock, at cost: 1,464,392 and 1,334,251 shares, respectively
Additional paid-in capital
Retained deficit
Accumulated other comprehensive loss
Total stockholders’ equity
2019
2018 (as restated)
(in thousands, except share and per share
amounts)
$
39,511 $
115,099
82,872
18,490
255,972
29,153
186,511
12,961
(154,939)
73,686
34,960
27,816
25,258
14,654
3,480
70,913
133,935
92,359
12,080
309,287
26,240
173,771
6,650
(142,560)
64,101
—
7,576
12,800
16,341
2,583
435,826 $
412,688
$
$
63,058 $
7,620
32,673
3,256
106,607
153,128
29,414
10,666
7,323
307,138
—
323
(11,230)
245,852
(60,307)
(45,950)
128,688
86,645
—
36,969
9,102
132,716
154,656
—
12,065
3,655
303,092
—
318
(10,245)
243,007
(76,013)
(47,471)
109,596
412,688
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
435,826 $
The accompanying notes are an integral part of these consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2019, 2018 and 2017
Revenues
Cost of revenues
Gross Profit
Selling, general and administrative expenses
Amortization expense
Operating Income
Other (expense) income
Interest expense
Income Before Provision for Income Taxes
Provision for income taxes
Net income (loss)
Earnings (loss) per common share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
2019
2018
(as restated)
2017
(In thousands, except per share amounts)
$
901,238 $
897,737 $
796,101
105,137
62,549
1,952
40,636
(2,225)
16,855
21,556
5,778
772,817
124,920
60,679
1,300
62,941
1,311
14,676
49,576
8,087
755,231
664,360
90,871
59,547
1,320
30,004
1,943
19,149
12,798
15,067
$
$
$
15,778 $
41,489 $
(2,269)
0.52 $
0.51 $
30,602
30,823
1.37 $
1.36 $
30,277
30,587
(0.08)
(0.08)
29,942
29,942
The accompanying notes are an integral part of these consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2019, 2018 and 2017
Net income (loss)
Other comprehensive (loss) income:
Foreign currency translation adjustments
Minimum pension liability, net of tax
Derivative instrument
Other comprehensive income (loss)
Comprehensive income
2019
2018 (as restated)
2017
(In thousands)
$
15,778 $
41,489 $
(2,269)
(1,185)
2,738
(32)
1,521
(5,675)
(1,057)
496
(6,236)
$
17,299 $
35,253 $
7,141
469
—
7,610
5,341
The accompanying notes are an integral part of these consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2019, 2018 and 2017
Common Stock
Shares
Amount
Treasury
Stock
Additional
Paid-In
Capital
Retained
Deficit
Accum.
Other
Comp.
Loss
Total CVG
Stockholders’
Equity
BALANCE - December 31, 2016
Issuance of restricted stock
Surrender of common stock by employees
Share-based compensation expense
Total comprehensive income
BALANCE - December 31, 2017
Issuance of restricted stock
Surrender of common stock by employees
Share-based compensation expense
Total comprehensive income (as restated)
BALANCE - December 31, 2018 (as restated)
Issuance of restricted stock
Surrender of common stock by employees
Share-based compensation expense
Cumulative effect of adoption of Topic 842
Total comprehensive income
BALANCE - December 31, 2019
29,871,354 $
509,306
(161,382)
—
—
30,219,278 $
452,021
(158,456)
—
—
30,512,843 $
418,553
(130,141)
—
—
—
30,801,255 $
299 $
5
—
—
—
304 $
14
—
—
—
318 $
5
—
—
—
—
323 $
(7,753) $
—
(1,361)
—
—
(9,114) $
(115,233) $
—
—
—
(2,269)
(117,502) $
(In thousands, except share data )
237,367 $
—
—
2,503
—
239,870 $
—
—
3,137
—
243,007 $
—
—
2,845
—
—
245,852 $
—
—
—
41,489
(76,013) $
—
—
—
(72)
15,778
(60,307) $
(1,131)
—
—
(10,245) $
—
(985)
—
—
—
(11,230) $
(48,845) $
—
—
—
7,610
(41,235) $
—
—
—
(6,236)
(47,471) $
—
—
—
—
1,521
(45,950) $
65,835
5
(1,361)
2,503
5,341
72,323
14
(1,131)
3,137
35,253
109,596
5
(985)
2,845
(72)
17,299
128,688
The accompanying notes are an integral part of these consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2019, 2018 and 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
2019
2018 (as restated)
2017
(In thousands)
$
15,778 $
41,489 $
(2,269)
Depreciation and amortization
Provision for doubtful accounts
Noncash amortization of debt financing costs
Shared-based compensation expense
Deferred income taxes
Noncash loss (gain) on forward exchange contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Accrued liabilities
Other operating activities, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from disposal/sale of property, plant and equipment
Payments for acquisition of business
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Revolving Credit Facility
Repayment of Revolving Credit Facility
Borrowings of Term Loan Facility
Repayment of Term Loan Facility
Surrender of common stock by employees
Redemption of Notes
Prepayment charge for redemption of Notes
Payment of Term Loan Facility discount
Payment of debt issuance costs
Other financing activities, net
Net cash used in financing activities
EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON CASH
NET INCREASE (DECREASE) IN CASH
CASH:
Beginning of period
End of period
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts payable
15,514
6,861
1,393
2,843
1,562
1,972
11,954
9,495
(1,793)
(24,261)
(3,525)
(1,047)
36,746
(24,002)
23
(34,000)
(57,979)
35,700
(35,700)
—
(8,525)
(985)
—
—
—
(160)
(443)
(10,113)
(56)
(31,402)
15,270
7,607
1,404
3,137
5,031
(1,468)
(34,987)
4,836
(2,292)
1,451
2,631
(3,117)
40,992
(14,150)
49
—
(14,101)
80,500
(80,500)
—
(4,375)
(1,131)
—
—
—
—
(329)
(5,835)
(2,387)
18,669
$
$
$
$
70,913
39,511 $
13,873 $
8,774 $
624 $
52,244
70,913 $
14,046 $
3,143 $
509 $
15,196
5,622
1,251
2,503
7,709
(726)
(13,792)
(25,104)
179
23,250
(12,284)
722
2,257
(13,458)
2,682
—
(10,776)
—
—
175,000
(2,188)
(1,361)
(235,000)
(1,543)
(3,500)
(4,256)
—
(72,848)
3,451
(77,916)
130,160
52,244
18,572
3,276
109
The accompanying notes are an integral part of these consolidated financial statements.
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1.
Significant Accounting Policies
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019, 2018 and 2017
Organization - Commercial Vehicle Group, Inc. (through its subsidiaries) is a leading supplier of electrical wire harnesses, seating systems, and a full range of
other cab related products for the global commercial vehicle markets, including the medium- and heavy-duty truck, medium-and heavy-construction vehicle,
military, bus, agriculture, specialty transportation, mining, industrial equipment and off-road recreational markets.
We are differentiated from automotive industry suppliers by our ability to manufacture low volume, customized products on a sequenced basis to meet the
requirements of our customers. We believe our products are used by a majority of the North American MD/HD Truck and many medium- and heavy-duty
construction vehicle original equipment manufacturers (“OEMs”), and to a lesser extent other makers of industrial equipment.
We have manufacturing operations in the United States, Mexico, China, United Kingdom, Czech Republic, Ukraine, Thailand, India and Australia. Our products
are primarily sold in North America, Europe, and the Asia-Pacific region.
We report our financial results by business segment; more specifically, Electrical Systems and Global Seating. The Company’s Chief Operating Decision Maker
(“CODM”), its President and Chief Executive Officer, reviews financial information for these two reportable segments and makes decisions regarding the
allocation of resources based on these segments. See Note 12 of the Notes to Consolidated Financial Statements for more information.
Unless otherwise indicated, all amounts are in thousands, except share and per share amounts.
Principles of Consolidation - The accompanying consolidated financial statements include the accounts of our wholly-owned or controlled subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates
include allowance for doubtful accounts, inventory reserves, goodwill, intangible and long-lived assets, pension and other post-retirement benefits, product
warranty reserves, litigation reserves, and income tax valuation allowances. Actual results may differ materially from those estimates.
Cash - Cash consists of deposits with high credit-quality financial institutions.
Accounts Receivable - Trade accounts receivable are stated at current value less allowances, which approximates fair value. We review our receivables on an
ongoing basis to ensure that they are properly valued and collectible.
The allowance for doubtful accounts is used to record the estimated risk of loss related to our customers’ inability to pay. This allowance is maintained at a level
that we consider appropriate based on factors that affect collectability, such as the financial health of our customers, historical trends of charge-offs and recoveries
and current economic market conditions. As we monitor our receivables, we identify customers that may have payment problems and adjust the allowance
accordingly, with the offset to selling, general and administrative expense. Account balances are charged off against the allowance when recovery is considered
remote.
Inventories - Inventories are valued at the lower of first-in, first-out cost or market and are measured at the lower of cost or net realizable value. Inventory
quantities on-hand are regularly reviewed and when necessary provisions for excess and obsolete inventory are recorded based primarily on our estimated
production requirements, taking into consideration expected market volumes and future potential use.
Property, Plant and Equipment - 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:
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Buildings and improvements
Machinery and equipment
Tools and dies
Computer hardware and software
15 to 40 years
3 to 20 years
3 to 7 years
3 to 5 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. Depreciation expense for property, plant and equipment for each of the years ended December 31, 2019,
2018 and 2017 was $13.6 million, $14.0 million and $13.9 million, respectively.
We review long-lived assets for recoverability whenever events or changes in circumstances indicate that carrying amounts of an asset group may not be
recoverable. Our asset groups are established by determining the lowest level of cash flows available. If the estimated undiscounted cash flows are less than the
carrying amounts of such assets, we recognize an impairment loss in an amount necessary to write down the assets to fair value as estimated from expected future
discounted cash flows. Estimating the fair value of these assets is judgmental in nature and involves the use of significant estimates and assumptions. We base our
fair value estimates on assumptions we believe to be reasonable, but that are inherently uncertain.
Revenue Recognition - We recognize revenue when our performance obligation has been satisfied and control of products has been transferred to a customer,
which typically occurs upon shipment. Revenue is measured based on the amount of consideration we expect to receive in exchange for the transfer of goods or
services.
Returns and allowances are used to record estimates of returns or allowances resulting from quality, delivery, discounts or other issues affecting the value of
receivables. This amount is estimated based on historical trends and current market conditions, with the offset to revenues.
Income Taxes - We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial
statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and
liabilities based on enacted tax laws and rates expected to be in place when the deferred tax items are realized. In assessing the realizability of deferred tax assets,
we consider whether it is more likely than not that a portion of the deferred tax assets will not be realized. We provide a valuation allowance for deferred tax assets
when it is more likely than not that a portion of such deferred tax assets will not be realized.
We evaluate tax positions for recognition by determining, based on the weight of available evidence, whether it is more likely than not the position will be
sustained upon audit. Any interest and penalties related to our uncertain tax positions are recognized in income tax expense.
Comprehensive Income (Loss) - Comprehensive income (loss) reflects the change in equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources including foreign currency translation, derivative instruments and pension and other post-retirement
adjustments. See Note 18 for a rollforward of activity in accumulated comprehensive loss.
Fair Value of Financial Instruments - The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions
(i.e., inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant
management judgment. The three levels are defined as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2 - Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets and inactive
markets.
Level 3 - Significant unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
Concentrations of Credit Risk - Financial instruments that potentially subject us to concentrations of credit risk consist primarily of accounts receivable. We sell
products to various companies throughout the world in the ordinary course of business. We routinely assess the financial strength of our customers and maintain
allowances for anticipated losses. As of December 31, 2019 and 2018, receivables from our largest customers, A.B. Volvo, Daimler Trucks, Caterpillar, Navistar,
John Deere and PACCAR, represented approximately 62% and 66% of total receivables, respectively.
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Foreign Currency Translation - Our functional currency is the local currency. Accordingly, all assets and liabilities of our foreign subsidiaries are translated using
exchange rates in effect at the end of the period; revenue and costs are translated using average exchange rates for the period. The related translation adjustments
are reported in accumulated other comprehensive income (loss) in stockholders’ equity. Translation gains and losses arising from transactions denominated in a
currency other than the functional currency of the entity are included in the results of operations.
Foreign Currency Forward Exchange Contracts - We use forward exchange contracts to hedge certain foreign currency transaction exposures. We estimate our
projected revenues and purchases in certain foreign currencies or locations and hedge a portion of the anticipated long or short position. The contracts typically run
from one month to eighteen months. All forward foreign exchange contracts that are not designated as hedging instruments have been marked-to-market and the
fair value of contracts recorded in the Consolidated Balance Sheets with the offsetting non-cash gain or loss recorded in our Consolidated Statements of
Operations. For forward contracts that are designated as hedging instruments, the gains and losses are recorded in accumulated other comprehensive income (loss)
and recognized in the Consolidated Statement of Operations when the contracts are settled. We do not hold or issue foreign exchange options or forward contracts
for trading purposes.
Interest Rate Swap Agreement - We use an interest rate swap agreement to fix the interest rate on a portion of our variable interest debt thereby reducing exposure
to interest rate changes. The interest rate swap agreement was not designated as a hedging instrument; therefore, the interest rate swap agreement has been marked-
to-market and the fair value of the agreement recorded in the Consolidated Balance Sheets with the offsetting gain or loss recorded in interest and other expense in
our Consolidated Statements of Operations.
Recently Issued Accounting Pronouncements
In July 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-07, "Codification Updates to SEC
Sections". ASU No. 2019-07 clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC's
regulations, thereby eliminating redundancies. This ASU is effective upon issuance and did not have a significant impact on the Company's consolidated financial
statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326)". The ASU requires financial assets measured at amortized
cost basis to be presented at the net amount expected to be collected. The FASB subsequently issued ASU No. 2018-19, "Codification Improvements to Topic 326:
Financial Instruments - Credit Losses", in November 2018 which provided further guidance on assessment of receivables for operating leases. ASU No. 2019-04,
"Codification Improvements to Topic 326, Topic 815 and Topic 825" and ASU No. 2019-05, "Targeted Transition Relief", that were issued in April and May of
2019 do not materially impact the Company. In November 2019, the FASB issued ASU No. 2019-11, "Codification Improvements to Topic 326, Financial
Instruments - Credit Losses", which further clarified and improved the Codification to make it easier to understand and apply. The Company anticipates ASU
2016-13, ASU 2018-19 and ASU 2019-11 will apply to its trade receivables and will not have a material impact on the reported value of such receivables. We
expect to implement ASU No. 2016-13, 2018-19 and 2019-11 on the effective date of January 1, 2020.
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes". The ASU simplifies the
accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and otherwise clarifies and amends existing guidance. ASU
2019-12 is effective for fiscal years beginning after December 15, 2020. We are evaluating the effect this ASU will have on the Company.
Accounting Pronouncements Implemented During the Year Ended December 31, 2019
In June 2018, the FASB issued ASU No. 2018-07, "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting". The ASU changed the measurement date for determining the fair value of share awards to nonemployees to the grant date and requires the
consideration of the probability of satisfying performance obligations in assessing the awards. The ASU did not have a material impact on our recognition of share-
based payments for nonemployees.
Lease Accounting Guidance
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" followed by ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements", issued
in July 2018. These ASUs are intended to increase transparency and comparability among companies by recognizing lease assets and liabilities and disclosing key
information about leasing arrangements. ASU 2016-02 was adopted by the Company on January 1, 2019.
In accordance with Topic 842, we elected not to recognize lease assets and lease liabilities for leases with a term of twelve months or less and elected to not
separate lease and non-lease components. We elected the transition method option under ASU 2018-11 with the package of practical expedients that permits the
Company to: (a) not reassess whether expired or existing contracts contain
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leases, (b) not reassess lease classification for existing or expired leases and (c) not consider whether previously capitalized initial direct costs would be appropriate
under the new standard. We recorded a right-of-use asset of $21.2 million and a lease liability of $22.2 million upon adoption. We also elected the option to apply
the new leasing standard on the date of adoption and recognize a cumulative-effect transition adjustment to the opening balance of retained earnings in the period
of adoption resulting in a cumulative effect as of January 1, 2019 of $0.1 million. Refer to Note 6 for further details.
2. Restatement of Previously Issued Consolidated Financial Statements
Restatement Background
On March 12, 2020, the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company, after considering the recommendations of
management, and discussing such recommendations with outside SEC counsel, concluded that our 2018 Financial Statements, included in our Annual Report on
Form 10-K as of and for the fiscal year ended December 31, 2018 (the “2018 Annual Report”), and our unaudited consolidated financial statements as of and for
the quarterly periods ended March 31, 2019 and 2018, June 30, 2019 and 2018, and September 30, 2019 and 2018, included in our Quarterly Reports on Form 10-
Q for the quarterly periods ended March 31, 2019, June 30, 2019 and September 30, 2019 (the "2019 Quarterly Reports”), should no longer be relied upon due to
misstatements that are described in greater detail below, and that we would restate such financial statements to make the necessary accounting corrections.
During the preparation of our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”), we noted a potential overstatement
of the prepaid production tooling account of our vehicle cab structures manufacturing facility (presented in other current assets in the consolidated balance sheets).
An investigation was conducted, under the direction of the Audit Committee, by external counsel with the assistance of a forensic accounting firm. As a result of
the investigation, the Company concluded that the misstatements in our consolidated financial statements for the periods identified above were due to a former
employee preparing manual journal entries to understate cost of revenues by improperly capitalizing certain manufacturing expenses, primarily in the prepaid
production tooling account. The former employee made intentional misrepresentations during the investigation. During the course of, and as a result of, the
investigation, the Company terminated the former employee and has taken additional personnel actions.
The Company evaluated the materiality of these errors both qualitatively and quantitatively in accordance with Staff Accounting Bulletin (“SAB”) No. 99,
Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements in Current Year Financial Statements, and determined the effect of these
corrections was material to the consolidated financial statements as of and for the year ended December 31, 2018 and the quarterly periods ended March 31, 2019
and 2018, June 30, 2019 and 2018, and September 30, 2019 and 2018. As a result of the material misstatements, we have restated our consolidated financial
statements as of and for the year ended December 31, 2018 and our unaudited consolidated financial statements as of and for the quarterly periods ended March 31,
2019 and 2018, June 30, 2019 and 2018, and September 30, 2019 and 2018, in accordance with ASC 250, Accounting Changes and Error Corrections (the
"Restated Financial Statements").
Based on the analysis noted above, the correction of errors resulting from the former employee's actions noted above were immaterial to the previously reported
consolidated financial statements as of and for the year ended December 31, 2017 (the “2017 Annual Report”). The amounts in the 2017 Annual Report have been
revised to reflect the correction of these errors.
In addition to the adjustments to correct the understatement of cost of revenues and impacted balance sheet accounts, we also made an adjustment to correct an
overstatement of property, plant and equipment (“PPE”) that was no longer in service as of the year ended December 31, 2016, and was unrelated to the correction
of errors resulting from the former employee's actions. The Company evaluated this error in accordance with SAB 99 and 108 and concluded that the correction of
the PPE error was immaterial to our consolidated financial statements.
The restated interim financial information for the relevant unaudited interim financial statements for the quarterly periods ended March 31, 2019 and 2018, June
30, 2019 and 2018, September 30, 2019 and 2018, and December 31, 2018, is included in Note 19.
The restatement adjustments and error correction and their impact on previously reported consolidated financial statements are described below.
(a) Understatement of cost of revenues and impacted balance sheet accounts - Corrections for the understatement of cost of revenues by improperly
capitalizing certain manufacturing expenses. Balance sheet accounts adjusted as a result of
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the improper capitalization of expenses include other current assets, accounts receivable, net of allowances and construction in progress.
(b) Property, plant and equipment, net - We recorded an adjustment for a previously identified property, plant and equipment, net error unrelated to the
understatement of cost of revenues and related balance sheet accounts misstatements. This PPE was no longer in service as of and for the year ended
December 31, 2016.
Summary impact of restatement adjustments and immaterial error correction to previously reported financial information
The following tables present the summary impacts of the restatement adjustments and immaterial error correction on our previously reported retained deficit and
total stockholders’ equity for the year ended December 31, 2016, and income before provision for income taxes and net income (loss) for the years ended
December 31, 2018 and 2017:
As previously reported
Cumulative adjustments
As adjusted
Income before income taxes - as previously reported
Restatement adjustments
Error corrections
Income before income taxes - as restated / adjusted
Net income (loss) - as previously reported
Restatement adjustments
Error corrections
Net income (loss) - as restated / adjusted
December 31, 2016
Retained deficit
Total Stockholders' Equity
(113,378) $
(1,855)
(115,233) $
For the years ended December 31,
2018
2017
53,508 $
(4,080)
148
49,576 $
44,512 $
(3,135)
112
41,489 $
67,690
(1,855)
65,835
13,645
—
(847)
12,798
(1,705)
—
(564)
(2,269)
$
$
$
$
$
$
The following table presents the effect of the error correction on the Company’s consolidated balance sheets for the period indicated:
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
Current Assets:
Cash
Accounts receivable, net of allowances of $5,139
Inventories
Other current assets
Total current assets
Property, Plant and Equipment:
Land and buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
Property, plant and equipment, net
Goodwill
Intangible assets, net of accumulated amortization of of $9,568
Deferred income taxes, net
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Accrued liabilities and other
Current portion of long-term debt
Total current liabilities
Long-term debt
Pension and other post-retirement liabilities
Other long-term liabilities
Total liabilities
Stockholders’ Equity:
Preferred stock, $.01 par value (5,000,000 shares authorized; no shares
issued and outstanding)
Common stock, $.01 par value (60,000,000 shares authorized; 30,512,843
shares issued and outstanding)
Treasury stock, at cost: 1,334,251 shares
Additional paid-in capital
Retained deficit
Accumulated other comprehensive loss
Total CVG stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
As of December 31, 2018
As of December 31, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
70,913 $
— $
70,913
$
$
134,624
92,359
16,828
314,724
26,240
175,990
6,650
(143,781)
65,099
7,576
12,800
15,348
2,583
(689)
—
(4,748)
(5,437)
—
(2,219)
—
1,221
(998)
—
—
993
—
133,935
92,359
12,080
309,287
26,240
173,771
6,650
(142,560)
64,101
7,576
12,800
16,341
2,583
418,130 $
(5,442)
$
412,688
86,645 $
— $
36,969
9,102
132,716
154,656
12,065
3,655
303,092
—
318
(10,245)
243,007
(70,571)
(47,471)
115,038
418,130 $
—
—
—
—
—
—
—
—
—
—
—
(5,442)
—
(5,442)
(5,442)
$
86,645
36,969
9,102
132,716
154,656
12,065
3,655
303,092
—
318
(10,245)
243,007
(76,013)
(47,471)
109,596
412,688
a
a
b
b
a, b
a, b
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.7 million decrease in accounts receivable, net; a $4.7 million decrease in other current assets; a $1.3 million increase in long-term deferred tax assets; and a
$4.1 million increase in retained deficit.
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(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $2.2 million
decrease in machinery and equipment; a $1.2 million decrease in accumulated depreciation; a $0.3 million decrease in long-term deferred tax assets; and a $1.3
million increase in retained deficit.
The following table presents the effect of the error corrections on the consolidated statements of income for the periods indicated:
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2018
For the Year Ended December 31, 2017
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Adjustments
As Adjusted
Restatement
References
$
$
$
$
$
$
$
Revenues
Cost of revenues
Gross profit
Selling, general and
administrative expenses
Amortization expense
Operating income
Other expense
Interest expense
Income before provision for
income taxes
Provision for income taxes
Net income (loss)
Earnings (loss) per common
share
Basic
Diluted
Weighted average shares
outstanding
Basic
Diluted
897,737 $
768,885
128,852 $
60,679
1,300
— $
897,737 $
755,231 $
— $
755,231
3,932
772,817
663,513
847
664,360
a, b
(3,932)
$
124,920 $
91,718 $
(847)
$
90,871
—
—
60,679
1,300
59,547
1,320
—
—
59,547
1,320
66,873 $
(3,932)
$
62,941 $
30,851 $
(847)
$
30,004
1,311
14,676
53,508 $
8,996
44,512 $
—
—
1,311
14,676
1,943
19,149
—
—
1,943
19,149
(3,932)
$
49,576 $
13,645 $
(909)
8,087
15,350
(847)
$
(283)
12,798
15,067
a, b
a, b
(3,023)
$
41,489 $
(1,705) $
(564)
$
(2,269)
1.47 $
1.46 $
(0.10)
(0.10)
$
$
1.37 $
1.36 $
(0.06) $
(0.06) $
(0.02)
(0.02)
$
$
(0.08)
(0.08)
30,277
30,587
30,277
30,587
30,277
30,587
29,942
29,942
29,942
29,942
29,942
29,942
For the year ended December 31, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $4.1 million increase in cost of revenues; a $1.0 million decrease in provision for income taxes; and a $3.1 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
decrease in cost of revenues; an immaterial increase in provision for income taxes; and a $0.1 million increase in net income.
For the year ended December 31, 2017
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.0 million increase in cost of revenues; a $0.2 million decrease in provision for income taxes; and a $0.8 million increase in net loss.
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(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
decrease in cost of revenues; a $0.1 million decrease in provision for income taxes; and a $0.2 million decrease in net loss.
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
For the Year Ended December 31, 2018
For the Year Ended December 31, 2017
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Adjustments
As Adjusted
Restatement
References
Net income (loss)
$
44,512 $
(3,023)
$
41,489 $
(1,705) $
(564)
$
(2,269)
a, b
Other comprehensive
(loss) income:
Foreign currency
translation adjustments
Minimum pension
liability, net of tax
Derivative instrument
Other comprehensive
(loss) income
Comprehensive income
(loss)
$
$
(5,675)
(1,057)
496
—
(5,675)
7,141
—
7,141
—
—
(1,057)
496
469
—
—
—
469
—
(6,236) $
— $
(6,236) $
7,610 $
— $
7,610
38,276 $
(3,023)
$
35,253 $
5,905 $
(564)
$
5,341
For the year ended December 31, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $3.1 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, Plant and Equipment, Net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
For the year ended December 31, 2017
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.8 million increase in net loss. Refer to descriptions of the adjustments and their impacts to net loss above.
(b) Property, Plant and Equipment, Net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.2 million
decrease in net loss. Refer to descriptions of the adjustment and its impact to net loss above.
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BALANCE - December 31,
2016 (As Previously Reported)
Cumulative adjustments
BALANCE - December 31,
2016 (As Adjusted)
BALANCE - December 31,
2017 (As Previously Reported)
Cumulative adjustments
BALANCE - December 31,
2017 (As Adjusted)
BALANCE - December 31,
2018 (As Previously Reported)
Cumulative restatement
adjustments
BALANCE - December 31,
2018 (As Restated)
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Additional
Shares
Amount
Treasury
Stock
Paid-In
Capital
Retained
Deficit
Accumulated Other
Comprehensive Loss
Total CVG
Stockholders’
Equity
29,871,354 $
299 $
(7,753) $
237,367 $
(113,378) $
(48,845)
$
—
—
—
—
(1,855)
—
67,690
(1,855)
29,871,354 $
299 $
(7,753) $
237,367 $
(115,233) $
(48,845)
$
65,835
30,219,278 $
304 $
(9,114) $
239,870 $
(115,083) $
(41,235)
$
—
—
—
—
(2,419)
—
74,742
(2,419)
30,219,278 $
304 $
(9,114) $
239,870 $
(117,502) $
(41,235)
$
72,323
30,512,843 $
318 $ (10,245) $
243,007 $
(70,571) $
(47,471)
$
115,038
—
—
—
—
(5,442)
—
(5,442)
30,512,843 $
318 $ (10,245) $
243,007 $
(76,013) $
(47,471)
$
109,596
As of December 31, 2018, 2017 and 2016
The increase in retained deficit and corresponding decrease of total CVG stockholders’ equity for each restated period was the result of the adjustments for
understatement of costs of revenues and impacted balance sheet accounts and the adjustment to property, plant and equipment, net. These adjustments resulted in
a $5.4 million increase in retained deficit and corresponding decrease of total CVG stockholders’ equity as of December 31, 2018, a $2.4 million increase in
retained deficit and corresponding decrease of total CVG stockholders’ equity as of December 31, 2017, and a $1.9 million increase in retained deficit and
corresponding decrease of total CVG stockholders’ equity as of December 31, 2016.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Year Ended December 31, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income
$
44,512 $
(3,023)
$
41,489
a, b
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization
Provision for doubtful accounts
Noncash amortization of debt financing costs
Shared-based compensation expense
Deferred income tax
Noncash (gain) loss on derivative contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Accrued liabilities
Other operating activities, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from disposal/sale of property, plant and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Revolving Credit Facility
Repayment of Revolving Credit Facility
Repayment of Term Loan Facility principal
Surrender of common stock by employees
Other financing activities, net
Net cash used in financing activities
EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON
CASH
NET (DECREASE) INCREASE IN CASH
CASH:
Beginning of period
End of period
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts
payable
For the year ended December 31, 2018
$
$
$
$
15,418
7,607
1,404
3,137
5,940
(1,468)
(35,674)
4,836
(5,685)
1,451
2,631
(3,117)
40,992
(14,150)
49
(14,101)
80,500
(80,500)
(4,375)
(1,131)
(329)
(5,835)
(2,387)
18,669
52,244
70,913 $
14,046 $
3,143 $
509 $
(148)
—
—
—
(909)
—
687
—
3,393
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
— $
15,270
b
a, b
a
a
7,607
1,404
3,137
5,031
(1,468)
(34,987)
4,836
(2,292)
1,451
2,631
(3,117)
40,992
(14,150)
49
(14,101)
80,500
(80,500)
(4,375)
(1,131)
(329)
(5,835)
(2,387)
18,669
52,244
70,913
14,046
3,143
509
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $3.1 million decrease in net income; a $0.9 million decrease in deferred income
62
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tax; a $0.7 million decrease in change in accounts receivable; and a $3.4 million decrease in change in prepaid expenses. Refer to descriptions of the adjustments
and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
increase in net income; a $0.1 million decrease in depreciation expense; and an immaterial increase in deferred income tax. Refer to descriptions of the adjustment
and its impact to net income above.
The impact of these error corrections to relevant segment and quarterly financial information is presented in Notes 12 and 19 to these consolidated financial
statements, respectively.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Year Ended December 31, 2017
As Previously
Reported
Adjustments
As Adjusted
Restatement
References
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income
$
(1,705) $
(564)
$
(2,269)
a, b
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
(148)
15,196
b
15,344
5,622
1,251
2,503
(586)
7,992
(726)
(13,794)
(25,104)
(814)
23,250
(12,284)
1,308
2,257
(13,458)
2,682
(10,776)
175,000
(2,188)
(1,361)
(235,000)
(1,543)
(3,500)
(4,256)
(72,848)
3,451
(77,916)
Depreciation and amortization
Provision for doubtful accounts
Noncash amortization of debt financing costs
Shared-based compensation expense
(Gain) loss on sale of assets
Deferred income tax
Noncash (gain) loss on derivative contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Accrued liabilities
Other operating activities, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from disposal/sale of property, plant and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Term Loan Facility
Repayment of Term Loan Facility principal
Surrender of common stock by employees
Redemption of Notes
Prepayment charge for redemption of Notes
Payment of Term Loan Facility discount
Payment of debt issuance costs
Net cash used in financing activities
EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON
CASH
NET (DECREASE) INCREASE IN CASH
CASH:
Beginning of period
End of period
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts
payable
—
—
—
—
(283)
—
2
—
993
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
a, b
a
a
5,622
1,251
2,503
(586)
7,709
(726)
(13,792)
(25,104)
179
23,250
(12,284)
1,308
2,257
(13,458)
2,682
(10,776)
175,000
(2,188)
(1,361)
(235,000)
(1,543)
(3,500)
(4,256)
(72,848)
3,451
(77,916)
130,160
52,244
18,572
3,276
130,160
52,244 $
18,572 $
3,276 $
—
— $
— $
— $
109 $
— $
109
$
$
$
$
64
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For the year ended December 31, 2017
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.8 million increase in net loss; a $0.2 million decrease in deferred income tax; an immaterial decrease in change in accounts receivable; and a $1.0 million
decrease in change in prepaid expenses. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.2 million
decrease in net loss; a $0.1 million decrease in depreciation expense; and a $0.1 million decrease in deferred income tax.
Refer to descriptions of the adjustment and its impact to net income above. The impact of these error corrections to relevant segment and quarterly financial
information is presented in Notes 12 and 19 to these consolidated financial statements, respectively.
3. Revenue Recognition
Our products include electrical wire harnesses, control panels and assemblies; trim systems and components ("Trim"); cab structures and sleeper boxes; mirrors,
wipers and controls; and seats and seating systems ("Seats"). We sell these products into multiple geographic regions including North America, Europe and Asia-
Pacific and to multiple customer end markets including MD/HD Truck OEMs, Bus OEMs, Construction OEMs, the aftermarket and other markets. The nature,
timing and uncertainty of recognition of revenue and associated cash flows across the varying product lines, geographic regions and customer end markets is
substantially consistent.
Contractual Arrangements
Revenue is measured based on terms and conditions specified in contracts or purchase orders with customers. We have long-term contracts with some customers
that govern overall terms and conditions which are accompanied by purchase orders that define specific order quantities and/or price. We have many customers
with which we conduct business outlined in purchase orders without a long-term contract. We generally do not have customer contracts with minimum order
quantity requirements.
Amount and Timing of Revenue Recognition
The transaction price is based on the consideration to which the Company will be entitled in exchange for transferring control of a product to the customer. This is
defined in a purchase order or in a separate pricing arrangement and represents the stand-alone selling price. Our payment terms vary by customer. None of the
Company's business arrangements as of December 31, 2019, contained a significant financing component. We typically do not have multiple performance
obligations requiring us to allocate a transaction price.
We recognize revenue at the point in time when we satisfy a performance obligation by transferring control of a product to a customer, usually at a designated
shipping point and in accordance with customer specifications. We make estimates for potential customer returns or adjustments based on historical experience,
which reduce revenues.
Other Matters
Shipping and handling costs billed to customers are recorded in revenues and costs associated with outbound freight are generally accounted for as a fulfillment
cost and are included in cost of revenues. We generally do not provide for extended warranties or material customer incentives. Our customers typically do not
have a general right of return for our products.
We had outstanding customer accounts receivable, net of allowances, of $115.1 million as of December 31, 2019 and $133.9 million as of December 31, 2018. We
generally do not have other assets or liabilities associated with customer arrangements. In general, we do not make significant judgments or have variable
consideration that impact our recognition of revenue.
Refer to Note 12 for revenue disclosures by reportable segments.
4.
Fair Value Measurement
At December 31, 2019, our financial instruments consisted of cash, accounts receivable, accounts payable, accrued liabilities and our revolving credit facility. 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.
Foreign Currency Forward Exchange Contracts. Our derivative assets and liabilities represent foreign exchange contracts that are measured at fair value using
observable market inputs such as forward rates, interest rates, our own credit risk and counterparty credit risk. Based on the utilization of these inputs, the
derivative assets and liabilities are classified as Level 2.
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To manage our risk for transactions denominated in Mexican Pesos, we have entered into forward exchange contracts that are designated as cash flow
hedge instruments, which are recorded in the Consolidated Balance Sheets at fair value. The gains and losses as a result of the changes in fair value of the hedge
contract is deferred in accumulated other comprehensive loss and recognized in cost of revenues in the period the related hedge transactions are recognized.
Interest Rate Swap Agreement. To manage our exposure to variable interest rates, we have entered into an agreement (the “Interest Rate Swap Agreement”) with
Bank of America, N.A. whereby the Company has agreed to exchange, at a specified interval, the difference between fixed and variable interest amounts calculated
by reference to an agreed upon notional principal amount. The Interest Rate Swap Agreement is intended to mitigate the impact of rising interest rates on the
Company and covers $80 million of outstanding debt under the senior secured term loan facility. The Company expects this agreement to remain effective during
the remaining term of the Interest Rate Swap Agreement and records the impact of the agreement in interest and other expense in the Consolidated Statements of
Operations.
The fair values of our derivative instruments and contingent consideration measured on a recurring basis as of December 31 and are categorized as follows:
2019
2018
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Derivative assets
Derivative liabilities
Earnout liability
Derivative equity
Foreign exchange
contract 1
Interest rate swap
agreement 2
Interest rate swap
agreement 3
Contingent
consideration 5
Foreign exchange
contract 4
$
$
$
$
$
464 $
— $
464 $
— $
496 $
— $
496 $
150 $
— $
150 $
— $
1,131 $
— $
1,131 $
995 $
— $
995 $
— $
— $
— $
— $
4,700 $
— $
— $
4,700 $
— $
— $
— $
464 $
— $
464 $
— $
496 $
— $
496 $
—
—
—
—
—
1
2
3
4
5
Presented in the Consolidated Balance Sheets in other current assets and based on observable market transactions of spot and forward rates.
Presented in the Consolidated Balance Sheets in other assets and based on observable market transactions of forward rates.
Presented in the Consolidated Balance Sheets in accrued liabilities and other and based on observable market transactions of forward rates.
Presented in the Consolidated Balance Sheets in accumulated other comprehensive income (loss) and based on observable market transactions of forward
rates.
Presented in the Consolidated Balance Sheets in accrued liabilities and other long term liabilities and based on a Monte Carlo valuation model.
The following table summarizes the notional amount of our open foreign exchange contracts at December 31:
2019
2018
U.S. $
Equivalent
U.S. $
Equivalent
Fair Value
U.S. $
Equivalent
U.S. $
Equivalent
Fair Value
Commitments to buy or sell currencies
$
22,474 $
22,939 $
22,371 $
22,867
We consider the impact of our credit risk on the fair value of the contracts, as well as the ability to execute obligations under the contract.
The following table summarizes the effect of derivative instruments on the Consolidated Statements of Operations for derivatives not designated as hedging
instruments at December 31:
Foreign exchange contracts
Cost of Revenues
Interest rate swap agreement
Interest and Other Expense
Location of Gain (Loss)
Recognized on Derivatives
66
2019
2018
Amount of Gain (Loss)
Recognized on Derivatives
4 $
(1,818) $
607
785
$
$
Table of Contents
Long-term Debt. The fair value of long-term debt obligations is based on a fair value model utilizing observable inputs. Based on these inputs, our long-term debt
is classified as Level 2. The carrying amounts and fair values of our long-term debt at December 31 are as follows:
2019
2018
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Term loan and security agreement 1
1
161,759
Presented in the Consolidated Balance Sheets as the current portion of long-term debt (net of current prepaid debt financing costs of $0.5 million and current
original issue discount of $0.6 million) of $3.3 million and long-term debt (net of long-term prepaid debt financing costs of $1.2 million and long-term
original issue discount of $1.3 million) of $153.1 million.
156,384 $
163,758 $
157,983 $
$
Long-lived Assets. There are no fair value measurements of our long-lived assets and definite-lived intangible assets measured on a non-recurring basis, except for
definite-lived intangibles acquired and contingent consideration as a part of the acquisition of First Source Electronics, LLC discussed in Note 5, as of
December 31, 2019 and December 31, 2018. The contingent consideration is classified as Level 3 and valued based on a Monte Carlo valuation model.
5. Business Combinations
On September 17, 2019, the Company entered into and closed on an Asset Purchase Agreement (the “Agreement”) with First Source Electronics, LLC (“FSE”),
Kevin Popielarczyk and Richard Vuoto (collectively, “Principals”) and the Company’s wholly-owned subsidiary, CVG FSE, LLC (“CVG FSE”). The Agreement
provided for the acquisition (the "FSE Acquisition") by CVG FSE of substantially all of the assets and certain liabilities of FSE in exchange for a cash purchase
price of $34.0 million, subject to a net working capital adjustment, plus a right to earn up to $10.8 million in contingent milestone payments. The purchase was
funded through domestic cash on hand and $2.0 million of borrowings under our revolving credit facility. FSE is in the business of manufacturing, distributing,
marketing and selling cable and electro-mechanical assemblies, control panels and other business and consumer electronics products and services. FSE improves
our ability to participate in the progression of digitalization, connectivity and associated power and data applications. Furthermore, this strategic acquisition
complements our high-complexity, low-to-medium volume electrical business, and provides an entry into the warehouse automation market, while also providing
us with the opportunity to leverage our global footprint and to increase cross selling opportunities.
The milestone payments are payable based on achieving certain earnings before interest, taxes, depreciation and amortization ("EBITDA") thresholds over the
periods from (a) September 18, 2019 through September 17, 2020, (b) September 18, 2019 through March 17, 2021, (c) September 18, 2019 through September
17, 2022 and (d) March 18, 2021 through September 17, 2022. The payment amount will be determined on a sliding scale for reaching between 90% and 100% of
the respective EBITDA targets. The fair value for the milestone payments is based on a Monte Carlo simulation utilizing forecasted EBITDA through September
17, 2022. The estimate was recorded within other long-term liabilities in the Consolidated Balance Sheet as of September 30, 2019. The total undiscounted
milestone payments is estimated at $5.6 million and the fair value is $4.7 million as of September 30, 2019.
The Agreement contains customary indemnification provisions and provided for the establishment of an escrow fund of $3.0 million of the purchase price to secure
indemnification claims by CVG FSE for an 18-month period. The Company is a party to the Agreement solely as a guarantor of CVG FSE’s payment obligations.
The operating results of FSE, since the date of acquisition, have been included in our consolidated financial statements. From the date of the FSE Acquisition
through December 31, 2019, FSE operations recorded revenues of approximately $12.8 million resulting in net income of $0.2 million for the period within the
Electrical Systems Segment. Acquisition related expenses for FSE of approximately $0.9 million were incurred for the year ended December 31, 2019 and have
been recorded as selling, general and administrative expenses in our consolidated statements of operations.
The FSE Acquisition was accounted for under the acquisition method of accounting. Under acquisition accounting, the acquired tangible and intangible assets and
liabilities of FSE have been recorded at their respective fair values. The Company has completed its preliminary assessment of fair values of assets acquired and
liabilities assumed, and the preliminary amounts are reflected in the table below. The purchase price associated with the FSE Acquisition exceeded the preliminary
fair value of the net assets acquired by approximately $20.4 million. This reflects an increase of $2.7 million from the initial valuation as of September 30, 2019.
As of December 31, 2019, the net working capital adjustment is still preliminary. The excess purchase price over net assets acquired is recorded as goodwill and
was determined as follows:
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Table of Contents
Initial cash paid, net of working capital adjustment
Contingent consideration at fair value
Total consideration
Net assets at fair value
Excess of total consideration over net assets acquired
$
$
$
34,000
4,700
38,700
18,335
20,365
In the fourth quarter of 2019, management decreased the value of definite-lived intangible assets with an offset to goodwill to reflect a refinement of valuation
assumptions. The allocation of the fair value of the assets acquired and liabilities assumed is as follows:
Accounts receivable
Inventories
Prepaid and other current assets
Property, plant and equipment
Other long-term assets
Definite-lived intangible assets
Goodwill
Accounts payable and accrued liabilities
Other long-term liabilities
Total consideration
$
$
6,567
3,140
353
503
1,650
14,500
20,365
(7,204)
(1,174)
38,700
The following unaudited pro forma information for the twelve months ended December 31, 2019 and 2018 presents the result of operations as if the FSE
Acquisition had taken place at the beginning of the annual reporting period. The pro forma results reflect estimates and assumptions and are not necessarily
indicative of the financial position or result of operations had the acquisition taken place at the beginning of the period. The Company adjusted historical results for
assumed intangible amortization expense consistent with future years and assumed an effective tax rate of 25%. In addition, the pro forma results are not
necessarily indicative of the future financial or operating results.
(unaudited)
Revenue
Net income
Earnings per share attributable to common stockholders:
Basic
Diluted
6. Leases
Twelve months ended December 31,
2019
2018 (as restated)
$
$
$
$
936,766
18,324
0.60
0.59
$
$
$
$
935,596
44,139
1.46
1.44
The Company leases office, warehouse and manufacturing space and certain equipment under non-cancelable operating lease agreements that generally require us
to pay maintenance, insurance, taxes and other expenses in addition to annual rental fees. Our leases have remaining lease terms of one year to nine years, some of
which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year.
The components of lease expense are as follows:
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Table of Contents
Twelve Months Ended
December 31, 2019
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
Short-term lease cost 1
Total lease expense
$
$
$
7,279
341
60
401
7,357
15,037
1 Includes variable lease costs, which are not significant.
Supplemental cash flow information related to leases is as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Financing cash flows from finance leases
Twelve Months Ended December 31,
2019
$
$
7,898
443
The Company elected to apply the modified retrospective approach. As such, we did not restate the prior year Consolidated Balance Sheet. Supplemental balance
sheet information related to leases is as follows:
Balance Sheet Location
December 31, 2019
Operating Leases
Right-of-use assets, net
Current liabilities
Non-current liabilities
Total operating lease liabilities
Finance Leases
Right-of-use assets
Accumulated depreciation
Right-of-use assets, net
Current liabilities
Non-current liabilities
Total finance lease liabilities
Weighted Average Remaining Lease Term
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Operating lease right-of-use assets, net 1
Current operating lease liabilities
Operating lease liabilities
Other assets, net
Accrued liabilities and other
Other long-term liabilities
$
$
$
$
$
$
$
34,960
7,620
29,414
37,034
1,135
(343)
792
354
398
752
5.0 years
2.8 years
9.1%
1
Finance leases
Includes $21.2 million for operating leases existing on January 1, 2019 and $18.6 million for operating leases that commenced or were renewed in the
twelve months ended December 31, 2019, net of amortization of $4.8 million.
7.2%
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in
determining the present value of the lease payments. We utilize an incremental borrowing rate,
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which is reflective of the specific term of the leases and economic environment of each geographic region, and apply a portfolio approach for certain machinery
and equipment that have consistent terms in a specific geographic region.
Anticipated future lease costs, which are based in part on certain assumptions to approximate minimum annual rental commitments under non-cancelable leases,
are as follows:
Operating
Financing
Total
$
10,300 $
Year Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
$
$
9,902
9,211
5,214
4,132
6,834
45,593 $
(8,559)
37,034 $
$
401
249
124
54
13
1
842
$
(90)
752
$
10,701
10,151
9,335
5,268
4,145
6,835
46,435
(8,649)
37,786
The following are the future minimum annual rental commitments under Topic 840 as disclosed in our December 31, 2018 Form 10-K:
Year Ending December 31,
Thereafter
2019 $
2020 $
2021 $
2022 $
2023 $
$
7,558
6,492
5,960
5,286
1,676
2,501
7.
Inventories
Inventories consisted of the following as of December 31:
Raw materials
Work in process
Finished goods
8.
Accrued and Other Liabilities
Accrued and other liabilities consisted of the following as of December 31:
70
2019
2018
$
$
57,742 $
12,612
12,518
82,872 $
66,965
12,333
13,061
92,359
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Compensation and benefits
Insurance
Warranty costs
Taxes payable
Accrued freight
Restructuring
Legal and professional fees
Accrued services
Deferred tooling revenue
Other
9. Debt
Debt consisted of the following at December 31:
Term loan and security agreement 1, 2
2019
2018
$
9,681 $
12,893
3,110
3,082
2,513
2,408
2,324
2,115
912
524
6,004
2,485
3,911
5,272
1,559
—
1,710
1,106
1,466
6,567
$
32,673 $
36,969
2019
2018
$
156,384
$
163,758
1 Presented in the Consolidated Balance Sheets as current portion of long-term debt of $3.3 million, net of current prepaid debt financing costs of $0.5
million and current original issue discount of $0.6 million; and long-term debt of $153.1 million, net of long-term prepaid debt financing costs of $1.2
million and long-term original issue discount of $1.3 million as of December 31, 2019.
2 Presented in the Consolidated Balance Sheets as current portion of long-term debt of $9.1 million, net of current prepaid debt financing costs of $0.6
million, and current original issue discount of $0.6 million; and long-term debt of $154.7 million, net of long-term prepaid debt financing costs of $1.7
million and long-term original issue discount of $1.8 million as of December 31, 2018.
Term Loan and Security Agreement
On April 12, 2017, the Company entered into a $175.0 million senior secured term loan credit facility (the “Term Loan Facility”), maturing on April 12, 2023,
pursuant to a term loan and security agreement (the “TLS Agreement”) with the Company and certain subsidiaries of the Company party thereto as guarantors,
Bank of America, N.A., as administrative agent, and other lender parties thereto. Concurrent with the closing of the TLS Agreement, the proceeds of the Term
Loan Facility were used, together with cash on hand in the amount of $74.0 million, to (a) fund the redemption, satisfaction and discharge of all of the Company’s
outstanding 7.875% notes along with accrued interest; and (b) pay related transaction costs, fees and expenses. In conjunction with the redemption of the 7.875%
notes, the Company recognized a non-cash charge of $1.6 million in the second quarter of 2017 to write-off deferred financing fees and a charge for interest of $1.5
million paid to bondholders during the 30-day notification period associated with the redemption of the 7.875% notes.
The interest on the Term Loan Facility is variable and is comprised of 1) an applicable margin of either (i) 5.00% for base rate loans or (ii) 6.00% for LIBOR
loans, and 2) an applicable rate of either (i) base rate for any day, a per annum rate equal to the greater of (a) the prime rate for such day, (b) the federal funds rate
for such day, plus 0.50%, or (c) LIBOR for a 30 day interest period as of such day, plus 1.00%, or (ii) LIBOR as quoted two business days prior to the
commencement of an interest period provided that LIBOR at no time falls below 1.00%. There was $0.1 million in accrued interest as of December 31, 2019. The
unamortized deferred financing fees of $1.7 million and original issue discount of $1.8 million are netted against the aggregate book value of the outstanding debt
to arrive at a balance of $156.4 million as of December 31, 2019 and are being amortized over the remaining life of the agreement. The weighted average interest
rate was 8.29% as of December 31, 2019 and 8.09% as of December 31, 2018.
The Term Loan Facility is a senior secured obligation of the Company. Our obligations under the TLS Agreement are guaranteed by the Company and certain
subsidiaries of the Company. The obligations of the Company and the guarantors under the TLS Agreement are secured (subject to certain permitted liens) by a
first-priority lien on substantially all of the non-current assets (and
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a second priority lien on substantially all of the current assets) of the Company and the guarantors, including a first priority pledge of certain capital stock of the
domestic and foreign subsidiaries directly owned by the Company and the guarantors. The liens, the security interests and all of the obligations of the Company
and the guarantors and all provisions regarding remedies in an event of default are subject to an intercreditor agreement among the Company, the guarantors, the
agent for the lenders party to the Company’s revolving credit facility and the collateral agent under the TLS Agreement.
Terms, Covenants and Compliance Status
The TLS Agreement contains customary restrictive covenants, including limitations on our ability and the ability of our subsidiaries to: incur additional debt; pay
dividends or other restricted payments; make investments; engage in transactions with affiliates; create liens on assets; and consolidate, merge or transfer all or
substantially all of our assets and the assets of our subsidiaries. In addition, the TLS Agreement contains a financial maintenance covenant requiring the Company
to maintain a total leverage ratio as of the last day of any fiscal quarter not to exceed the ratios set forth in the applicable table within the TLS Agreement. The TLS
Agreement also contains customary reporting and other affirmative covenants. We were in compliance with the covenants as of December 31, 2019.
The TLS Agreement requires the Company to repay principal of approximately $1.1 million on the last day of each quarter commencing with the quarter ending
September 30, 2017 with the remaining outstanding principal due at maturity on April 12, 2023.
Voluntary prepayments of amounts outstanding under the TLS Agreement are permitted at any time, without premium or penalty. In addition, to the extent
applicable, customary LIBOR breakage charges may be payable in connection with any prepayment.
The TLS Agreement requires the Company to make mandatory prepayments with excess cash flow, the proceeds of certain asset dispositions and upon the receipt
of insurance or condemnation proceeds; and in the case of an asset disposition or insurance or condemnation event, to the extent the Company does not reinvest the
proceeds within the periods set forth in the TLS Agreement. A mandatory prepayment of $4.2 million pursuant to the TLS Agreement was made during the first
quarter of 2019 as a result of our 2018 Excess Cash Flow Period.
The TLS Agreement includes customary events of default (subject in certain cases to customary grace and cure periods) which include, among others:
• nonpayment of obligations when due;
• breach of covenants or other agreements in the TLS Agreement; and
• defaults in payment of certain other indebtedness.
Revolving Credit Facility
On April 12, 2017, Commercial Vehicle Group Inc. and certain subsidiaries, collectively the "borrowers", entered into the Third Amended and Restated Loan and
Security Agreement (the "Third ARLS Agreement") increasing its senior secured revolving credit facility (the "Revolving Credit Facility") to $65 million from $40
million and setting the maturity date to April 12, 2022. Up to an aggregate of $10.0 million is available to the borrowers for the issuance of letters of credit, which
reduces availability under the Third ARLS Agreement.
The Third ARLS Agreement included amendments to certain definitions and covenants including, but not limited to, amendments to (i) permitted debt, (ii)
permitted distributions, (iii) distribution of assets, and (iv) the calculation of EBITDA. The Third ARLS Agreement contains a fixed charge coverage ratio
maintenance covenant of 1.00:1.00 and amended the availability threshold for triggering compliance with the fixed charge coverage ratio.
The borrowers’ obligations under the Revolving Credit Facility are secured (subject to certain permitted liens) by a first-priority lien on substantially all of the
current assets (and a second priority lien on substantially all of the non-current assets) of the borrowers. Each of the Company and each other borrower is jointly
and severally liable for the obligations under the Revolving Credit Facility and unconditionally guarantees the prompt payment and performance thereof. The liens,
the security interests and all of the obligations of the Company and each other borrower and all provisions regarding remedies in an event of default are subject to
an intercreditor agreement among the Company, certain of its subsidiaries, the agent under the Third ARLS Agreement and the collateral agent for the lenders
party to the Company’s Term Loan credit Facility.
On September 18, 2019, the Company and certain of its subsidiaries, as co-borrowers, entered into an Amendment No. 1 (the “Amendment”), which amends the
Third ARLS Agreement. The Amendment amends the terms of the Revolving Credit Facility
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to entitle the Company and the other named borrowers thereunder (subject to the terms and conditions described therein) to request loans and other financial
accommodations in an amount equal to the lesser of $90.0 million and a borrowing base composed of accounts receivable and inventory (such facility, the
“Tranche A Facility”). Of the $90.0 million, $7.0 million shall be available as a first-in, last-out facility (“Tranche B Facility”) at a 100 basis points premium, as
detailed in the below applicable margin table. The Company can increase the size of the revolving commitments under the Revolving Credit Facility by an
incremental $20.0 million, subject to the consent of the lenders providing the incremental commitments.
The applicable margin is based on average daily availability under the revolving credit facility as follows:
Level
III
II
I
Average Daily Availability
≥ $30,000,000
> $15,000,000 but < $30,000,000
≤ $15,000,000
Tranche A
Base Rate
Loans
0.50%
0.75%
1.00%
Tranche A
LIBOR
Revolver Loans
1.50%
1.75%
2.00%
Tranche B
Base Rate
Loans
1.50%
1.75%
2.00%
Tranche B
LIBOR
Revolver Loans
2.50%
2.75%
3.00%
The applicable margin is subject to increase or decrease by the agent on the first day of the calendar month following each fiscal quarter end. If the agent is unable
to calculate average daily availability for a fiscal quarter due to the borrowers' failure to deliver a borrowing base certificate when required, the applicable margin
will be set at Level I until the first day of the calendar month following receipt of a borrowing base certificate. As of December 31, 2019, the applicable margin
was set at Level III.
The unamortized deferred financing fees associated with our revolving credit facility of $0.6 million and $0.7 million as of December 31, 2019 and December 31,
2018, respectively, are being amortized over the remaining life of the agreement. As of December 31, 2019 and December 31, 2018, we did not have borrowings
under the revolving credit facility and had outstanding letters of credit of $1.6 million and $1.7 million, respectively. We had borrowing availability of $55.1
million at December 31, 2019.
The Company pays a commitment fee to the lenders equal to 0.25% per annum of the unused amounts under the revolving credit facility.
Terms, Covenants and Compliance Status
The Third ARLS Agreement requires the maintenance of a minimum fixed charge coverage ratio. The borrowers are not required to comply with the fixed charge
coverage ratio requirement for so long as the borrowers maintain borrowing availability under the revolving credit facility at the greater of (i) $5,000,000 or (ii) ten
percent (10%) of the revolving commitments. If borrowing availability falls below this threshold at any time, the borrowers would be required to comply with the
fixed charge coverage ratio of 1.00:1.00 as of the end of each relevant fiscal quarter and would be required to continue to comply with these requirements until the
borrowers have borrowing availability in excess of this threshold for 60 consecutive days. Since the Company had borrowing availability in excess of this threshold
from December 31, 2018 through December 31, 2019, the Company was not required to comply with the minimum fixed charge coverage ratio covenant during
the year ended December 31, 2019.
The Third ARLS Agreement contains customary restrictive covenants, including limitations on our ability and the ability of our subsidiaries to: incur additional
debt; pay dividends or other restricted payments; make investments; engage in transactions with affiliates; create liens on assets; and consolidate, merge or transfer
all or substantially all of our assets and the assets of our subsidiaries. The Third ARLS Agreement also contains customary reporting and other affirmative
covenants. The Company was in compliance with these covenants as of December 31, 2019.
Voluntary prepayments of amounts outstanding under the Revolving Credit Facility are permitted at any time, without premium or penalty, other than (to the extent
applicable) customary LIBOR breakage charges.
The Third ARLS Agreement requires the borrowers to make mandatory prepayments upon the receipt of insurance or condemnation proceeds in respect of the
revolving credit facility’s priority collateral.
The Third ARLS Agreement includes customary events of default (subject in certain cases to customary grace and cure periods) which include, among others:
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•
•
•
•
nonpayment of obligations when due;
breach of covenants or other agreements in the Third ARLS Agreement;
a change of control; and
defaults in payment of certain other indebtedness, including the term loan credit facility.
10. Goodwill and Intangible Assets
Our intangible assets as of December 31 were comprised of the following:
Definite-lived intangible assets:
Trademarks/Tradenames
Customer relationships
Technical know-how
Covenant not to compete
Definite-lived intangible assets:
Trademarks/Tradenames
Customer relationships
December 31, 2019
Weighted-
Average
Amortization
Period
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
23 years $
15 years
5 years
5 years
$
11,553 $
15,025
9,790
330
(4,276) $
(6,574)
(571)
(19)
36,698 $
(11,440) $
7,277
8,451
9,219
311
25,258
December 31, 2018
Weighted-
Average
Amortization
Period
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
23 years $
15 years
$
8,346 $
14,022
22,368 $
(3,888) $
(5,680)
(9,568) $
4,458
8,342
12,800
The aggregate intangible asset amortization expense was $2.0 million for the fiscal year ended December 31, 2019 and $1.3 million for each of the fiscal years
ended December 31, 2018 and 2017. The estimated intangible asset amortization expense for each of the five succeeding fiscal years ending after December 31,
2019 is $3.5 million for years 2020 through 2023 and $2.9 million for the year through December 31, 2024.
The changes in the carrying amounts of goodwill for the years ended December 31 are as follows:
Balance - Beginning of the year
FSE Acquisition
Currency translation adjustment
Balance - End of the year
11.
Income Taxes
Pre-tax income (loss) consisted of the following for the years ended December 31:
Domestic 1
Foreign
Total
2019
2018
$
$
7,576
$
20,365
(125)
27,816
$
8,045
—
(469)
7,576
2019
2018
(as restated)
$
$
4,777 $
23,092 $
16,779
26,484
21,556 $
49,576 $
2017
(2,940)
15,738
12,798
(1) The Company has adjusted certain prior period amounts for the restatement and immaterial corrections of error. See Note 2 for details.
A reconciliation of income taxes computed at the statutory rates to the reported income tax provision for the years ended December 31 follows:
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Federal provision at statutory rate 1
U.S./Foreign tax rate differential
Foreign non-deductible expenses
Foreign tax provision
State taxes, net of federal benefit 1
State tax rate change, net of federal benefit
Change in uncertain tax positions
Change in valuation allowance
Tax credits
Share-based compensation
Change in U.S. corporate tax rate
Repatriation of foreign earnings
GILTI, net of related foreign tax credit
Other
Provision for income taxes
2019
2018
(as restated)
2017
$
4,527 $
10,411 $
393
2,059
793
308
(41)
15
(2,054)
(2,652)
(14)
—
1,235
730
479
731
(1,759)
1,253
619
(32)
84
597
(2,049)
(50)
—
(3,670)
1,194
758
4,480
(919)
(2,006)
615
49
(264)
119
2,475
(152)
(657)
7,277
3,964
—
86
$
5,778 $
8,087 $
15,067
(1) The Company has adjusted certain prior period amounts for the restatement and immaterial corrections of error. See Note 2 for details.
The provision (benefit) for income taxes for the years ended December 31 follows:
2019
2018 (as restated)
2017
Current
Deferred
Total
Current
Deferred
Total
Current
Deferred
Total
Federal 1
State and local 1
Foreign
Total
$
$
(205) $
(336) $
(541) $
(3,432) $
4,426 $
994 $
2,954 $
7,446 $
10,400
214
4,207
883
1,015
1,097
5,222
123
6,365
87
518
210
6,883
362
4,042
(384)
647
(22)
4,689
4,216 $
1,562 $
5,778 $
3,056 $
5,031 $
8,087 $
7,358 $
7,709 $
15,067
(1) The Company has adjusted certain prior period amounts for the restatement and immaterial corrections of error. See Note 2 for details.
A summary of deferred income tax assets and liabilities as of December 31 follows:
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Noncurrent deferred tax assets: 1
Amortization and fixed assets
Accounts receivable
Inventories
Pension obligations
Warranty obligations
Accrued benefits
Foreign exchange contracts
Restricted stock
Operating leases
Tax credit carryforwards
Net operating loss carryforwards
Other temporary differences not currently available for tax purposes
Total noncurrent deferred tax assets
Valuation allowance
Net noncurrent deferred tax assets
Noncurrent deferred tax liabilities:
Amortization and fixed assets
Accounts receivable
Inventories
Warranty obligations
Accrued benefits
Operating leases
Net operating loss carryforwards
Other temporary differences not currently available for tax purposes
Total noncurrent tax liabilities
Total net deferred tax asset
2019
2018
(as restated)
$
1,457 $
129
2,032
2,134
741
369
91
126
165
3,843
12,657
2,902
26,646 $
(11,992)
14,654 $
1,992
166
2,226
2,375
827
382
(367)
106
—
3,537
16,817
2,945
31,006
(14,665)
16,341
(2,501) $
(2,960)
72
115
1
(111)
27
1,517
(678)
(1,558)
54
123
1
67
—
2,272
(351)
(794)
$
13,096 $
15,547
$
$
$
(1) The Company has adjusted certain prior period amounts for the restatement and immaterial corrections of error. See Note 2 for details.
We assess whether valuation allowances should be established against deferred tax assets based on consideration of all available evidence using a “more likely than
not” standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of
statutory carryforward periods, our experience with unused tax attributes expiring and tax planning alternatives. In making such judgments, significant weight is
given to evidence that can be objectively verified.
During 2019, we recorded additional valuation allowance of $0.7 million on the deferred tax assets of our United Kingdom subsidiary and certain U.S. state tax net
operating loss carryforwards, and released $3.4 million in valuation allowances related to the deferred tax assets of our Luxembourg subsidiaries. We expect to be
able to realize the benefits of all of our deferred tax assets that are not currently offset by a valuation allowance, as discussed above. 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.
As of December 31, 2019, the Company had net operating loss carryforwards of $115.2 million, of which $55.2 million related to foreign jurisdictions and $60.0
million related to U.S. state jurisdictions. The carryforward periods for these net operating losses range from five years to indefinite. Utilization of these losses is
subject to the tax laws of the applicable tax jurisdiction and may be limited by the ability of certain subsidiaries to generate taxable income in the associated tax
jurisdiction. We have established valuation allowances for all net operating losses that we believe are more likely than not to expire before they can be utilized.
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As of December 31, 2019, we had $2.5 million of U.S. foreign tax credits carried forward primarily attributable to the deemed repatriation of the accumulated
untaxed earnings of our foreign subsidiaries resulting from the U.S. Tax Reform. Utilization of these credits may be limited if the Company does not continue to
generate U.S. federal taxable income in future years. The credits begin to expire in 2027.
As of December 31, 2019, we had $1.3 million of research and development tax credits being carried forward related to our U.S. operations. Utilization of these
credits may be limited if the Company does not continue to generate U.S. federal taxable income in future years. As a result of the Tax Cuts and Jobs Act of 2017,
the unutilized research and development tax credits the Company generated after December 31, 2017 can be carried forward indefinitely whereas the credits
generated prior to that date are subject to a 20-year carryforward period. Approximately $0.5 million of the Company's tax credits are subject to the 20-year
carryforward period and begin to expire between between 2025 and 2039.
As of December 31, 2019, cash of $39.5 million was held by foreign subsidiaries. During the year ended December 31, 2019, $19.4 million, net of $1.0 million in
foreign withholding tax incurred, was repatriated from the Company's foreign subsidiaries. The Company plans to repatriate an additional $12.0 million in 2020
and a $0.8 million deferred tax liability was recorded during the year ended December 31, 2019 for the expected future income tax implications.
We file federal income tax returns in the U.S. and income tax returns in various states and foreign jurisdictions. In the U.S., we are generally no longer subject to
tax assessment for tax years prior to 2016. In our major non-U.S. jurisdictions including China, Czech Republic, Mexico and the United Kingdom, tax years are
typically subject to examination for three to five years.
As of December 31, 2019, and 2018, we provided a liability of $0.9 million for unrecognized tax benefits related to U.S. federal and state, and foreign jurisdictions.
The majority of these unrecognized tax benefits are netted against their related noncurrent deferred tax assets.
We accrue interest and penalties related to unrecognized tax benefits through income tax expense. We had $0.4 million and $0.3 million accrued for the payment of
interest and penalties as of December 31, 2019 and December 31, 2018, respectively. Accrued interest and penalties are included in the $0.9 million of
unrecognized tax benefits.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (including interest and penalties) at December 31 follows:
Balance - Beginning of the year 1
Gross increase - tax positions in prior periods 1
Gross decreases - tax positions in prior periods 1
Gross increases - current period tax positions 1
Lapse of statute of limitations
Currency translation adjustment
Balance - End of the year 1
2019
2018
(as restated)
2017
894 $
811 $
1,098
70
(39)
—
(12)
(5)
66
(14)
59
(12)
(16)
908 $
894 $
70
(219)
65
(221)
18
811
$
$
(1) The Company has adjusted certain prior period amounts for the restatement and immaterial corrections of error. See Note 2 for details.
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12. Segment Reporting and Geographic Locations
In the year ended December 31, 2018, we completed a strategic reorganization of our operations into two business segments, Electrical Systems and Global
Seating. As a result of the strategic reorganization, we restated prior period segment information to conform to the current period segment presentation.
Operating segments are defined as components of an enterprise that are evaluated regularly by the Company’s CODM, which is our President and Chief Executive
Officer. Each of these segments consists of a number of manufacturing facilities. Certain of our facilities manufacture and sell products through both of our
segments. Each manufacturing facility that sells products through both segments is reflected in the financial results of the segment that has the greatest amount of
sales from that manufacturing facility. Our segments are more specifically described below.
The Electrical Systems Segment manufactures and sells the following products:
•
Electrical wire harnesses, control panels, electro-mechanical and cable assemblies primarily for the construction, agricultural, industrial, automotive,
truck, mining, rail and military industries in North America, Europe and Asia-Pacific;
Trim systems and components ("Trim") primarily for the North America MD/HD Truck market;
•
• Mirrors, wipers and controls primarily for the truck, bus, agriculture, construction, rail and military markets in North America and Europe;
•
•
Cab structures for the North American MD/HD Truck market; and
Aftermarket components in North America.
The Global Seating Segment manufactures and sells the following products:
•
•
•
Seats and seating systems ("Seats") primarily to the MD/HD Truck, construction, agriculture and mining markets in North America, Asia-Pacific and
Europe;
Office seating in Europe and Asia-Pacific; and
Aftermarket seats and components in North America, Europe and Asia-Pacific.
Corporate expenses consist of overhead and shared costs that are not directly attributable to the operations of a segment. For purposes of business segment
performance measurement, some of these costs are for the benefit of the operations and are allocated based on a combination of methodologies. The costs that are
not allocated to a segment are considered stewardship costs and remain at corporate in our segment reporting.
The following table presents segment revenues, gross profit, selling, general and administrative expenses, amortization expense, operating income, capital
expenditures, depreciation expense and other items for the year ended December 31, 2019. The table does not include assets as the CODM does not review assets
by segment.
Revenues
External revenues
Intersegment revenues
Total revenues
Gross profit
Selling, general & administrative expenses
Amortization expense
Operating income
Capital Expenditures, Depreciation Expense and Other:
Capital expenditures
Depreciation expense
Other items 1
For the year ended December 31, 2019
Electrical Systems Global Seating
Corporate/
Other
Total
$
$
$
$
$
$
$
522,484 $
378,754 $
— $
901,238
8,417
2,794
(11,211)
530,901 $
381,548 $
(11,211) $
60,008 $
45,201 $
(72) $
15,815
1,415
20,429
537
26,305
—
42,778 $
24,235 $
(26,377) $
—
901,238
105,137
62,549
1,952
40,636
17,728 $
6,699 $
2,159 $
3,721 $
4,379 $
489 $
2,668 $
2,484 $
1,210 $
24,117
13,562
3,858
1 Other items include costs associated with restructuring activities, including employee severance and retention costs, lease cancellation costs, building
repairs, costs to transfer equipment, and costs of $0.9 million associated with the acquisition of the assets of FSE.
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The following table presents segment revenues, gross profit, selling, general and administrative expenses, amortization expense, operating income, capital
expenditures and depreciation expense for the year ended December 31, 2018. The table does not include assets as the CODM does not review assets by segment.
Revenues
External revenues
Intersegment revenues
Total revenues
Gross profit
Selling, general & administrative expenses
Amortization expense
Operating income
Capital Expenditures and Depreciation Expense:
Capital expenditures
Depreciation expense
For the year ended December 31, 2018 (as restated)
Electrical Systems
1
Global Seating
Corporate/
Other 1
Total
$
$
$
$
$
$
503,717 $
394,020 $
— $
897,737
9,037
3,481
(12,518)
512,754 $
397,501 $
(12,518) $
71,104 $
54,231 $
(415) $
15,390
747
22,433
553
22,856
—
54,967 $
31,245 $
(23,271) $
—
897,737
124,920
60,679
1,300
62,941
9,825
$
6,919 $
3,579
$
4,604 $
2,140
$
2,448 $
15,544
13,971
1 The Company has adjusted certain prior period amounts for the restatement and immaterial correction of error. See Note 2 for details.
The following table presents segment revenues, gross profit, selling, general and administrative expenses, amortization expense, operating income, capital
expenditures, depreciation expense and other items as of and for the year ended December 31, 2017. The table does not include assets as the CODM does not
review assets by segment.
Revenues
External revenues
Intersegment revenues
Total revenues
Gross profit
Selling, general & administrative expenses
Amortization expense
Operating income
Capital expenditures, depreciation expense and other:
Capital expenditures
Depreciation expense
Other items 2
For the year ended December 31, 2017
Electrical Systems
1
Global Seating
Corporate/
Other 1
Total
$
$
$
$
$
$
$
427,476 $
327,755 $
— $
755,231
6,922
1,761
(8,683)
—
434,398 $
329,516 $
(8,683) $
755,231
51,017 $
40,722 $
(868) $
15,757
746
21,585
574
22,205
—
34,514 $
18,563 $
(23,073) $
6,744 $
7,381 $
1,835 $
4,870 $
3,910 $
88 $
1,953 $
2,584 $
2,377 $
90,871
59,547
1,320
30,004
13,567
13,875
4,300
1 The Company has adjusted certain prior period amounts for the immaterial corrections of error. See Note 2 for details.
2 Other items include costs associated with restructuring activities, including employee severance and retention costs, lease cancellation costs, building
repairs, costs to transfer equipment, and litigation settlement costs associated with a consulting contract.
The following table presents revenues and long-lived assets for the geographic areas in which we operate:
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United States
United Kingdom
All other countries
Years Ended December 31,
2019
2018
2017
Revenues
Long-lived
Assets 2
Revenues
Long-lived
Assets 1
Revenues
Long-lived
Assets
$
691,224 $
70,870 $
670,075 $
49,874 $
560,412 $
48,070
161,944
12,233
26,335
51,451
176,211
3,204
44,013
11,023
150,806
$
901,238 $
109,438 $
897,737 $
64,101 $
755,231 $
49,060
3,849
10,574
63,483
1 The Company has adjusted certain prior period amounts for the immaterial corrections of error. See Note 2 for details.
2 Long-lived assets for 2019 include right-of-use assets attributable to the implementation of ASC 842 discussed in Note 6 totaling $15.1 million for the United
States, $9.3 million for the United Kingdom and $11.3 million for all other countries.
Revenues are attributed to geographic locations based on the geography from which the legal entity operates. The following is the composition, by product
category, of our revenues:
Seats
Electrical wire harnesses, panels and assemblies
Trim
Cab structures and sleeper boxes
Mirrors, wipers and controls
Years Ended December 31,
2019
2018
2017
Revenues
%
Revenues
%
Revenues
%
$
356,877
40% $
369,337
41% $
314,717
42%
198,420
202,898
87,864
55,179
22
22
10
6
196,411
195,427
76,380
60,182
22
22
8
7
189,154
150,228
56,417
44,715
$
901,238
100
$
897,737
100
$
755,231
25
20
7
6
100
Sales to A.B. Volvo, Daimler and PACCAR, which are included in both reporting segments, have been in excess of 10 percent of total Company revenues in each
of the years ended December 31, 2019, 2018 and 2017. No other customers exceed 10% of the Company’s revenues in any period presented. The following table
presents revenue from the above mentioned customers as a percentage of total revenue for the years ended December 31:
A.B. Volvo
Daimler
PACCAR
2019
2018
2017
22%
17%
11%
19%
16%
11%
17%
16%
10%
13. Commitments and Contingencies
Leases - As disclosed in Note 6, we lease office, warehouse and manufacturing space and equipment under non-cancelable operating lease agreements that
generally require us to pay maintenance, insurance, taxes and other expenses in addition to annual rental fees. As of December 31, 2019, our equipment leases did
not provide for any material guarantee of a specified portion of residual values.
Guarantees - Costs associated with guarantees are accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. The
most likely cost to be incurred is accrued based on an evaluation of available facts; where no amount within a range of estimates is more likely, the minimum is
accrued. As of December 31, 2019 and 2018, we had no such guarantees.
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Litigation - We are subject to various legal proceedings and claims arising in the ordinary course of business, including but not limited to workers' compensation
claims, OSHA investigations, employment disputes, unfair labor practice charges, customer and supplier disputes, service provider disputes, product liability
claims, intellectual property disputes, environmental claims arising out of the conduct of our businesses and examinations by the Internal Revenue Service.
Management believes that the Company maintains adequate insurance and that we have established reserves for issues that are probable and estimable in amounts
that 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 our business are not expected to
have a material adverse impact on the consolidated financial position, results of operations, equity or cash flows; however, such matters are subject to many
uncertainties and the outcomes of individual matters are not predictable with any degree of assurance.
Warranty - We are subject to warranty claims for products that fail to perform as expected due to design or manufacturing deficiencies. Depending on the terms
under which we supply products to our customers, a customer may hold us responsible for some or all of the repair or replacement costs of defective products when
the product supplied did not perform as represented. Our policy is to record provisions for estimated future customer warranty costs based on historical trends and
for specific claims. These amounts, as they relate to the years ended December 31, 2019 and 2018, are included within accrued liabilities and other in the
accompanying Consolidated Balance Sheets. The following presents a summary of the warranty provision for the years ended December 31:
Balance - Beginning of the year
Provision for new warranty claims
Change in provision for preexisting warranty claims
Deduction for payments made
Currency translation adjustment
Balance - End of year
2019
2018
$
$
3,911 $
1,895
(27)
(2,705)
8
3,082 $
3,490
2,435
932
(2,803)
(143)
3,911
Debt Payments - As disclosed in Note 9, the TLS Agreement requires the Company to repay a fixed amount of principal on a quarterly basis, make mandatory
prepayments of excess cash flows and make voluntary prepayments that coincide with certain events.
The following table provides future minimum principal payments and mandatory prepayment of excess cash flows due on long-term debt for the next five years.
The existing long-term debt agreement matures in 2023; no payments are due thereafter:
Year Ending December 31,
2020 $
2021
2022
2023
2024
Thereafter
4,375
4,375
4,375
146,788
—
—
14. Stockholders’ Equity
Common Stock - Our authorized capital stock includes common stock of 60,000,000 shares with a par value of $0.01 per share, with 30,801,255 and 30,512,843
shares outstanding as of December 31, 2019 and 2018, respectively.
Preferred Stock - Our authorized capital stock includes preferred stock of 5,000,000 shares with a par value of $0.01 per share, with no shares outstanding as of
December 31, 2019 and 2018.
Earnings (Loss) 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 (loss) per share presented is determined by dividing net income by the weighted average number of common shares and potential
common shares outstanding during the period as determined by the treasury stock method. Potential common shares are included in the diluted earnings per share
calculation when dilutive.
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Diluted earnings (loss) per share for years ended December 31, 2019, 2018 and 2017 includes the effects of potential common shares when dilutive. Net income
has been restated in 2018 and corrected for immaterial errors in 2017, along with its impact to Basic and Dilutive EPS as discussed in Note 2, and is as follows:
Net income (loss) attributable to common stockholders
Weighted average number of common shares outstanding
Dilutive effect of restricted stock grants after application of the treasury stock method
Dilutive shares outstanding
Basic earnings (loss) per share attributable to common stockholders
Diluted earnings (loss) per share attributable to common stockholders
2019
2018
(as restated)
2017
15,778 $
41,489 $
30,602
221
30,823
0.52 $
0.51 $
30,277
310
30,587
1.37 $
1.36 $
(2,269)
29,942
—
29,942
(0.08)
(0.08)
$
$
$
The Company has adjusted certain prior period amounts for the restatement and immaterial corrections of error. See Note 2 for details.
There were no anti-dilutive shares for the year ended December 31, 2019. For the year ended December 31, 2018, diluted earnings (loss) per share excludes 55
thousand shares, of nonvested restricted stock as the effect would have been anti-dilutive.
Dividends — We have not declared or paid any cash dividends in the past. The terms of the Third ARLS Agreement and the Term Loan Facility restrict the
payment or distribution of our cash or other assets, including cash dividend payments.
The changes in stockholder's equity are as follows:
Twelve Months Ended December 31, 2019
Common Stock
Amount
Shares
Treasury
Stock
Additional Paid In
Capital
Retained
Deficit 1
Accumulated
Other Comp. Loss
Total Stockholders’
Equity
December 31, 2018 (as restated)
30,513 $
318 $
(10,245) $
Share-based compensation expense
Cumulative effect of adoption of Topic 842
Total comprehensive income (as restated)
—
—
—
—
—
—
—
—
—
(Unaudited)
243,007 $
761
—
—
(76,013) $
(47,471) $
109,596
—
(72)
9,986
—
—
(206)
March 31, 2019 (as restated)
30,513 $
318 $
(10,245) $
243,768 $
(66,099) $
(47,677) $
Share-based compensation expense
Total comprehensive income (as restated)
68
—
1
—
—
—
718
—
—
6,146
—
1,955
June 30, 2019 (as restated)
30,581 $
319 $
(10,245) $
244,486 $
(59,953) $
(45,722) $
128,885
Share-based compensation expense
Total comprehensive income (as restated)
—
—
—
—
—
—
721
—
—
7,180
—
(5,998)
721
1,182
September 30, 2019 (as restated)
30,581 $
319 $
(10,245) $
245,207 $
(52,773) $
(51,720) $
130,788
Issuance of restricted stock
Surrender of common stock by employees
Share-based compensation expense
Total comprehensive income
351
(131)
—
—
4
—
—
—
—
(985)
—
—
—
—
645
—
—
—
—
—
—
4
(985)
645
(7,534)
5,770
(1,764)
December 31, 2019
30,801 $
323 $
(11,230) $
245,852 $
(60,307) $
(45,950) $
128,688
82
761
(72)
9,780
120,065
719
8,101
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(1) The Company has adjusted certain prior period amounts for the restatement and immaterial corrections of error. See Notes 2 and 19 for details.
Twelve Months Ended December 31, 2018
Common Stock
Amount
Shares
Treasury
Stock
Additional Paid In
Capital
Retained
Deficit 1
Accumulated
Other Comp. Loss
Total Stockholders’
Equity
(Unaudited)
December 31, 2017
30,219 $
304 $
(9,114) $
239,870 $
(117,502) $
(41,235) $
Share-based compensation expense
Total comprehensive income (as
restated)
—
—
—
—
—
—
673
—
—
—
9,444
1,132
March 31, 2018 (as restated)
30,219 $
304 $
(9,114) $
240,543 $
(108,058) $
(40,103) $
Share-based compensation expense
Total comprehensive income (as
restated)
—
—
—
—
—
—
844
—
—
—
12,671
(5,898)
June 30, 2018 (as restated)
30,219 $
304 $
(9,114) $
241,387 $
(95,387) $
(46,001) $
Share-based compensation expense
Total comprehensive income (as
restated)
—
—
—
—
—
—
780
—
—
—
11,277
(2,589)
September 30, 2018 (as restated)
30,219 $
304 $
(9,114) $
242,167 $
(84,110) $
(48,590) $
Issuance of restricted stock
Surrender of common stock by
employees
Share-based compensation expense
Total comprehensive income (as
restated)
452
14
(158)
—
—
—
—
(1,131)
—
—
—
840
—
—
—
—
—
—
—
—
8,097
1,119
December 31, 2018 (as restated)
30,513 $
318 $
(10,245) $
243,007 $
(76,013) $
(47,471) $
72,323
673
10,576
83,572
844
6,773
91,189
780
8,688
100,657
14
(1,131)
840
9,216
109,596
(1) The Company has adjusted certain prior period amounts for the restatement and immaterial corrections of error. See Notes 2 and 19 for details.
15. Performance Awards
Awards, defined as cash, shares or other awards, may be granted to employees under the Commercial Vehicle Group, Inc. 2014 Equity Incentive Plan (the “2014
EIP”). The cash award is earned and payable based upon the Company’s relative total shareholder return in terms of ranking as compared to the peer group over a
three-year period (the “Performance Period”). Total shareholder return is determined by the percentage change in value (positive or negative) over the applicable
measurement period as measured by dividing (A) the sum of the cumulative value of dividends and other distributions paid on the Common Stock for the
applicable measurement period and the difference (positive or negative) between each such company’s starting stock price and ending stock price, by (B) the
starting stock price. The award is payable at the end of the Performance Period in cash if the employee is employed through the end of the Performance Period. If
the employee is not employed during the entire Performance Period, the award is forfeited. These grants are accounted for as cash settlement awards for which the
fair value of the award fluctuates based on the change in total shareholder return in relation to the peer group.
The following table summarizes performance awards granted in the form of cash awards under the 2014 EIP in November 2018, 2017 and 2016:
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Grant Date
Grant Amount
Adjustments
Forfeitures
Payments
Adjusted Award
Value at December 31,
2019
November 2016 $
November 2017
November 2018
1,434
1,584
1,590
— $
(16)
(37)
$
$
(88)
(195)
(200)
(1,346) $
—
Vesting Schedule
November 2019
—
—
1,373
November 2020
1,353
November 2021
Remaining
Periods (in
Months) to
Vesting
0
9
21
$
4,608 $
(53)
$
(483)
$
(1,346) $
2,726
The Company generally grants performance awards in November of each year. However, there were no performance awards granted in November 2019. The next
cash award under the 2014 EIP will be granted in the three months ended March 31, 2020. Unrecognized compensation expense was $1.1 million and $2.6 million
as of December 31, 2019 and 2018, respectively.
16. Share-Based Compensation
The compensation expense for our share-based compensation arrangements (see Restricted Stock Awards below) was $2.8 million, $3.1 million and $2.5 million
for the years ended December 31, 2019, 2018 and 2017, respectively. Share-based compensation expense is included in selling, general and administrative
expenses in the Consolidated Statements of Operations.
Restricted Stock Awards - 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 or in the case of the board of directors, a separation for cause, prior to the end of a restricted period set by the
compensation committee of the board of directors. Forfeitures are recorded as they occur. A participant granted restricted stock generally has all of the rights of a
stockholder, unless the compensation committee determines otherwise.
The following table summarizes information about unvested restricted stock grants as of December 31, 2019 (in thousands):
Grant
October 2017
October 2018
May 2019
October 2019
Shares
Granted
Unvested
Shares
Vesting Schedule
Unearned
Compensation
303
382
71
12
90 3 equal annual installments commencing on October 20, 2018
242 3 equal annual installments commencing on October 20, 2019
Shares granted to independent board members that fully vest as of
May 16, 2020
59
12 3 equal annual installments commencing on October 20, 2020
$
$
$
$
711.7
1,500.7
150.0
77.5
Remaining
Period to Vesting (in
months)
10
22
4
33
As of December 31, 2019, there was approximately $2.4 million of unrecognized compensation expense related to non-vested share-based compensation
arrangements granted under our equity incentive plans. This expense is subject to future adjustments and forfeitures and will be recognized on a straight-line basis
over the remaining period listed above for each grant.
A summary of the status of our restricted stock awards as of December 31, 2019 and changes during the twelve-month period ending December 31, 2019, 2018 and
2017 is presented below:
Nonvested - beginning of year
Granted
Vested
Forfeited
Nonvested - end of year
2019
2018
2017
Shares
(000’s)
Weighted-
Average
Grant-Date
Fair Value
Shares
(000’s)
Weighted-
Average
Grant-Date
Fair Value
Shares
(000’s)
Weighted-
Average
Grant-Date
Fair Value
760 $
87 $
(418) $
(26) $
403 $
7.56
7.57
7.41
7.52
7.72
787 $
446 $
(452) $
(21) $
760 $
6.84
7.20
5.97
7.31
7.56
981 $
354 $
(509) $
(39) $
787 $
4.70
9.77
4.90
4.84
6.84
As of December 31, 2019, a total of 2.1 million shares were available for future grants from the shares authorized for award under our 2014 Equity Incentive Plan,
including cumulative forfeitures.
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Repurchase of Common Stock - We did not repurchase any of our common stock on the open market as part of a stock repurchase program during 2019; however,
our employees surrendered 130 thousand shares of our common stock to satisfy tax withholding obligations on the vesting of the restricted stock awards.
17. Defined Contribution Plan, Pension and Other Post-Retirement Benefit Plans
Defined Contribution Plan - We sponsor a defined contribution plan covering eligible employees. Eligible employees can contribute on a pre-tax basis to the plan.
In accordance with the terms of the 401(k) plan, we elect to match a certain percentage of the participants’ contributions to the plan, as defined. We recognized
expense associated with the plan of $4.6 million in 2019, $3.6 million in 2018 and $3.0 million in 2017.
Pension and Other Post-Retirement Benefit Plans - We sponsor pension and other post-retirement benefit plans that cover certain hourly and salaried employees in
the U.S. and United Kingdom. Each of the plans are frozen to new participants and to additional service credits earned. In December 2018, we consolidated the
U.S. plans. Our policy is to make annual contributions to the plans to fund the minimum contributions, as required by local regulations.
During the three months ended March 31, 2019, the Company offered employees with deferred vested balances in the U.S. defined benefit pension plan the
opportunity to voluntarily elect an early payout of their benefits. Payouts totaling $7.9 million were made during 2019 and were paid out of plan assets resulting in
a non-cash settlement charge of $2.5 million, which was recorded in interest and other expense in the Condensed Consolidated Statements of Operations and is
reflected in amortization of prior service cost in the net periodic (benefit) cost table below.
The change in benefit obligation, plan assets and funded status as of December 31 is as follows:
U.S. Pension and Other Post-Retirement
Benefit Plans
Non-U.S. Pension Plan
2019
2018
2019
2018
Change in benefit obligation:
Benefit obligation — Beginning of the year
$
45,238 $
50,072 $
40,265 $
Service cost
Interest cost
Participant contributions
Benefits paid
Actuarial (gain) loss
Exchange rate changes
Benefit obligation at end of the year
Change in plan assets:
Fair value of plan assets — Beginning of the year
Actual return on plan assets
Employer contributions
Participant contributions
Benefits paid
Exchange rate changes
Fair value of plan assets at end of the year
Funded status
—
1,483
6
(10,346)
3,196
—
39,577
42,962
6,588
835
6
(10,346)
—
40,045
—
1,664
9
(2,360)
(4,147)
—
45,238
45,046
(2,259)
2,526
9
(2,360)
—
42,962
—
1,112
—
(1,681)
3,730
1,415
44,841
30,424
3,610
887
—
(1,681)
1,081
34,321
$
468 $
(2,276) $
(10,520) $
45,737
788
1,030
—
(1,816)
(2,772)
(2,702)
40,265
35,377
(1,808)
763
—
(1,816)
(2,092)
30,424
(9,841)
Significant Obligation Loss - The projected U.S. benefit obligation includes a net loss of $3.2 million for the year ended December 31, 2019. The loss is a result of
changes in key actuarial assumptions, including the early payout of benefits decrease in the discount rate. The projected Non-U.S. benefit obligation includes a net
loss of $3.7 million for the year ended December 31, 2019 driven primarily by a decrease in the discount rate assumption.
As a result of pension legislation in the United Kingdom that was effective October 2018, the Company was required to amend its pension plan to equalize benefits
between male and female pensioners. This resulted in additional pension obligation and a reduction to accumulated other comprehensive income of $0.8 million in
2018. There are no material updates to this estimate for as of December 31, 2019.
Amounts recognized in the Consolidated Balance Sheets at December 31 consisted of:
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Noncurrent assets
Current liabilities
Noncurrent liabilities
Amount recognized
U.S. Pension and Other Post-Retirement Benefit
Plans
Non-U.S. Pension Plan
2019
2018
2019
2018
$
$
633 $
(19)
(146)
468 $
— $
(28)
(2,248)
(2,276) $
— $
—
(10,520)
(10,520) $
—
—
(9,841)
(9,841)
The components of net periodic (benefit) cost for the years ended December 31 were as follows:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost 1
Recognized actuarial loss
Net periodic cost (benefit)
U.S. Pension and Other Post-Retirement Benefit Plans
Non-U.S. Pension Plan
2019
2018
2017
2019
2018
2017
$
— $
— $
116 $
— $
— $
1,483
(2,393)
2,528
308
1,664
(3,151)
6
263
1,810
(2,684)
6
21
1,112
(1,117)
47
531
1,030
(1,210)
—
496
$
1,926 $
(1,218) $
(731) $
573 $
316 $
—
1,138
(1,196)
—
312
254
1 Includes $2.5 million non-cash settlement charge arising from the early payout of the U.S. defined benefit plan benefits.
Net periodic (benefit) cost components, not inclusive of service costs, are recognized in Other Income within the Consolidated Statements of Operations.
Amounts Recognized in Accumulated Other Comprehensive Income (Loss) - Amounts recognized in accumulated other comprehensive income (loss), before taking
into account income tax effects, at December 31 are as follows:
Net actuarial loss
Prior service cost
U.S. Pension and Other Post-Retirement Benefit Plans
Non-U.S. Pension Plan
2019
2018
2017
2019
2018
2017
10,937 $
14,767 $
13,765 $
13,783 $
12,972 $
13,454
45
51
57
747
788
—
10,982 $
14,818 $
13,822 $
14,530 $
13,760 $
13,454
$
$
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss) — Amounts recognized as other changes in plan assets
and benefit obligations in other comprehensive income (loss), before taking into account income tax effects, for the year ended December 31 are as follows:
Actuarial (gain) loss
Amortization of actuarial (loss) gain
Prior service credit
Total recognized in other comprehensive income (loss)
U.S. Pension and Other Post-Retirement Plans
Non-U.S. Pension Plan
2019
2018
2019
2018
$
$
(1,001) $
(2,829)
(6)
(3,836) $
1,266 $
(263)
(6)
997 $
968 $
(37)
(416)
515 $
245
781
(491)
535
Weighted-average assumptions used to determine benefit obligations at December 31 were as follows:
Discount rate
U.S. Pension and Other Post-Retirement
Benefit Plans
Non-U.S. Pension
Plan
2019
2018
2019
2018
2.93%
4.06%
1.95%
2.80%
Weighted-average assumptions used to determine net periodic benefit cost at December 31 were as follows:
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Discount rate
Expected return on plan assets
3.40%
5.34%
3.42%
7.00%
3.87%
7.00%
2.80%
3.70%
2.45%
3.70%
2.70%
3.70%
U.S. Pension and Other Post-Retirement Plans
Non-U.S. Pension Plan
2019
2018
2017
2019
2018
2017
The rate of return assumptions are based on projected long-term market returns for the various asset classes in which the plans are invested, weighted by the target
asset allocations. An incremental amount for active plan asset management and diversification, where appropriate, is included in the rate of return assumption. Our
pension plan investment strategy is reviewed periodically, but no less frequently than annually.
We employ a total return investment approach whereby a mix of equities, fixed income and real estate investments are intended to maximize the long-term return
of plan assets taking into consideration 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 consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio
contains a diversified blend of equity, balanced, fixed income and real estate investments. Furthermore, equity investments are diversified across U.S. and non-U.S.
stocks, as well as growth, value and large and small capitalizations. Other assets, such as real estate, are used judiciously to perhaps enhance long-term returns and
to improve 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 in light of annual
liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews. We expect to contribute approximately $1.0 million to our
pension plans and our other post-retirement benefit plans in 2020.
Our current investment allocation target for our pension plans for 2019 and our weighted-average asset allocations of our pension assets for the years ended
December 31, by asset category, are as follows:
Target Allocation
Actual Allocations as of December 31,
2019
2018
U.S. Pension Plan
Non-U.S. Pension Plan
Cash and cash equivalents
Equity/Balanced securities
Fixed income securities
Real estate
Our plan assets can be described as follows:
Non-U.S.
U.S.
—
—
55
45
—
U.S.
—
55
25
20
Non-U.S.
—
55
45
—
2019
—
28
62
10
2018
1
52
22
25
2019
1
53
46
—
2018
1
59
40
—
27
63
10
100%
100%
100%
100%
100%
100%
100%
100%
Equity Securities - Includes common stocks issued by U.S., United Kingdom and other international companies, equity funds that invest in common stocks and unit
linked insurance policies. Equity investments generally allow near-term (within 90 days of the measurement date) liquidity and are held in issues that are actively
traded to facilitate transactions at minimum cost.
Balanced Securities - Includes funds primarily invested in a mix of equity and fixed income securities where the allocations are at the discretion of the investment
manager. Investments generally allow near-term (within 90 days of the measurement date) liquidity and are held in issues that are actively traded to facilitate
transactions at minimum cost.
Fixed Income Securities - Includes U.S. dollar-denominated and United Kingdom and other international marketable bonds and convertible debt securities as well
as fixed income funds that invest in these instruments. Investments generally allow near-term liquidity and are held in issues that are actively traded to facilitate
transactions at minimum cost.
The fair value of fixed income securities is determined by either direct or indirect quoted market prices. When the value of assets held in separate accounts is not
published, the value is based on the underlying holdings, which are primarily direct quoted market prices on regulated financial exchanges.
Real Estate - Real estate provides an indirect investment into a diversified and multi-sector portfolio of property assets. The fair value of real estate investments is
determined by the fund managers. The fund managers value the real estate investments via independent third-party appraisals on a periodic basis. Assumptions
used to revalue the properties are updated every quarter.
The fair values of our pension plan assets by asset category and by level as described in Note 4 for the years ended December 31, 2019 and 2018 are as follows:
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December 31, 2019
Quoted Prices in
Active Markets for
Identical Assets
Significant
Observable Inputs
Significant
Unobservable Inputs
Cash and cash equivalents
$
332 $
332 $
— $
Total
Level 1
Level 2
Level 3
Equities:
U.S. large value
U.S. large growth
International blend
Emerging markets
Balanced
Fixed income securities:
Government bonds
Corporate bonds
Other
Real Estate:
U.S. property
2,434
2,059
4,854
1,603
18,246
24,917
12,634
3,217
4,070
2,434
2,059
—
1,603
—
—
—
—
—
Total pension fund assets
$
74,366 $
6,428 $
—
—
4,854
—
18,246
24,917
12,634
3,217
—
63,868 $
—
—
—
—
—
—
—
—
—
4,070
4,070
December 31, 2018
Quoted Prices in
Active Markets for
Identical Assets
Significant
Observable Inputs
Significant
Unobservable Inputs
Cash and cash equivalents
$
623 $
623 $
— $
Total
Level 1
Level 2
Level 3
Equities:
U.S. large value
U.S. large growth
International blend
Emerging markets
Balanced
Fixed income securities:
Government bonds
Corporate bonds
Real Estate:
U.S. property
4,815
5,270
9,134
3,093
17,952
10,240
11,297
10,962
4,815
5,270
—
3,093
—
—
—
—
Total pension fund assets
$
73,386 $
13,801 $
—
—
9,134
—
17,952
10,240
11,297
—
48,623 $
The fair value of our pension plan assets measured using significant unobservable inputs (Level 3) at December 31 are as follows:
—
—
—
—
—
—
—
—
10,962
10,962
Beginning balance
Actual return on assets held at reporting date
Purchases, sales and settlements, net
Ending balance
2019
2018
10,962 $
10,153
430
(7,322)
809
—
4,070 $
10,962
$
$
The following table summarizes our expected future benefit payments of our pension and other post-retirement benefit plans:
88
Table of Contents
Year Ending December 31,
Pension Plans
2020
2021
2022
2023
2024
2025 to 2029
$
$
$
$
$
$
4,390
4,396
4,360
4,453
4,493
22,209
18. Accumulated Other Comprehensive Loss
The activity for each item of accumulated other comprehensive loss is as follows:
Foreign
currency items
Derivative
Instruments
Pension and Other
Post-Retirement
Benefit Plans
Accumulated other
comprehensive
loss
Ending balance, December 31, 2017
Net current period change
Derivative instruments
Reclassification adjustments for losses reclassified into
income
Ending balance, December 31, 2018
Net current period change
Derivative instruments
Reclassification adjustments for losses reclassified into
income
Ending balance, December 31, 2019
$
$
$
$
(17,172) $
(5,675)
—
—
(22,847) $
(1,185) $
—
—
(24,032) $
— $
—
496
—
496
$
— $
(32)
—
464
$
(24,063) $
(1,290)
—
233
(25,120) $
2,415 $
—
323
(22,382) $
(41,235)
(6,965)
496
233
(47,471)
1,230
(32)
323
(45,950)
The related tax effects allocated to each component of other comprehensive (loss) income for the years ended December 31, 2019 and 2018 are as follows:
2019
Retirement benefits adjustment:
Net actuarial gain and prior service credit
Reclassification of actuarial loss and prior service cost to net income
Net unrealized gain
Cumulative translation adjustment
Derivative instruments
Total other comprehensive income
2018
Retirement benefits adjustment:
Net actuarial gain and prior service credit
Reclassification of actuarial loss and prior service cost to net income
Net unrealized loss
Cumulative translation adjustment
Derivative instruments
Total other comprehensive loss
Before Tax
Amount
Tax Expense
After Tax Amount
3,320 $
(905) $
323
3,643
(1,185)
(32)
—
(905)
—
—
2,426 $
(905) $
2,415
323
2,738
(1,185)
(32)
1,521
Before Tax
Amount
Tax Expense
After Tax Amount
(1,531) $
241 $
233
(1,298)
(5,675)
496
—
241
—
—
(6,477) $
241 $
(1,290)
233
(1,057)
(5,675)
496
(6,236)
$
$
$
$
89
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19. Quarterly Financial Data (Unaudited)
As further described in Note 2, the previously reported financial information for the quarters ended March 31, 2019 and 2018, June 30, 2019 and 2018 and
September 30, 2019 and 2018, have been restated. Relevant restated financial information for the first, second and third quarters of fiscal 2019 and 2018 is
included in this Annual Report on Form 10-K in the tables that follow. The unaudited interim financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the results for the interim periods presented. Restated amounts are computed independently each quarter;
therefore, the sum of the quarterly amounts may not equal the total amount for the respective year due to rounding.
90
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of March 31, 2019
As of June 30, 2019
As of September 30, 2019
As Restated
ASSETS
Current Assets:
Cash
Accounts receivable, net of allowances
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets, net
Goodwill
Intangible assets, net of accumulated amortization
Deferred income taxes, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Current operating lease liabilities
Accrued liabilities and other
Current portion of long-term debt
Total current liabilities
Long-term debt
Operating lease liabilities
Pension and other post-retirement liabilities
Other long-term liabilities
Total liabilities
Stockholders’ Equity:
Preferred stock, $.01 par value (5,000,000 shares authorized; no shares issued
and outstanding)
Common stock, $.01 par value (60,000,000 shares authorized)
Treasury stock, at cost: 1,334,251 shares
Additional paid-in capital
Retained deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
54,348 $
60,521 $
158,327
97,280
15,001
324,956
65,167
19,793
7,587
12,492
14,243
2,771
157,193
92,913
14,632
325,259
69,832
22,097
7,624
12,188
13,387
2,322
447,009 $
452,709 $
96,305 $
93,320 $
4,456
35,697
3,229
139,687
155,572
16,538
12,489
2,658
326,944
—
318
(10,245)
243,768
(66,099)
(47,677)
120,065
4,851
34,936
3,238
136,345
154,758
18,567
11,812
2,342
323,824
—
319
(10,245)
244,486
(59,953)
(45,722)
128,885
447,009 $
452,709 $
$
$
$
91
38,703
153,190
90,186
14,897
296,976
71,645
23,333
25,188
28,841
14,117
2,394
462,494
88,835
5,485
38,885
3,335
136,540
154,950
19,192
13,417
7,607
331,706
—
319
(10,245)
245,207
(52,773)
(51,720)
130,788
462,494
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
Current Assets:
Cash
Accounts receivable, net of allowances
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets, net
Goodwill
Intangible assets, net of accumulated amortization
Deferred income taxes, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Current operating lease liabilities
Accrued liabilities and other
Current portion of long-term debt
Total current liabilities
Long-term debt
Revolving Credit Facility
Pension and other post-retirement liabilities
Other long-term liabilities
Total liabilities
Stockholders’ Equity:
Preferred stock, $.01 par value (5,000,000 shares authorized; no shares issued
and outstanding)
Common stock, $.01 par value (60,000,000 shares authorized)
Treasury stock, at cost: 1,175,795 shares
Additional paid-in capital
Retained deficit
Accumulated other comprehensive loss
Total stockholders’ equity
$
$
As Restated
As of March 31, 2018 As of June 30, 2018
As of September 30,
2018
$
37,908 $
44,674 $
141,821
94,637
16,461
290,827
62,291
—
7,941
14,121
18,447
3,187
150,576
91,109
11,367
297,726
61,145
—
7,658
13,542
14,303
3,562
57,525
150,507
93,195
10,446
311,673
61,965
—
7,374
12,987
12,499
3,814
396,814 $
397,936 $
410,312
85,602 $
88,473 $
—
31,761
3,199
120,562
162,951
7,500
15,367
6,862
313,242
—
304
(9,114)
240,543
(108,058)
(40,103)
83,572
—
31,870
3,208
123,551
162,145
—
14,429
6,622
306,747
—
304
(9,114)
241,387
(95,387)
(46,001)
91,189
91,582
—
34,400
3,217
129,199
161,340
—
14,534
4,582
309,655
—
304
(9,114)
242,167
(84,110)
(48,590)
100,657
410,312
Total liabilities and stockholders’ equity
$
396,814 $
397,936 $
92
Table of Contents
Revenues
Cost of Revenues
Gross profit
Selling, General and Administrative Expenses
Amortization Expense
Operating Income (Loss)
Interest and Other Expense
Income before provision for income taxes
Provision for Income Taxes
Net Income (Loss)
Income (Loss) per share attributable to
common stockholders:
Basic
Diluted
Weighted average common shares
outstanding:
Basic
Diluted
$
$
$
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months
Ended
Three Months
Ended
As Restated
Six Months Ended
Three Months
Ended
Nine Months Ended
Three Months
Ended
March 31, 2019
June 30, 2019
June 30, 2019
September 30, 2019 September 30, 2019 December 31, 2019
$
243,164 $
243,190 $
486,354 $
225,399 $
711,753 $
210,075
210,754
420,829
195,955
616,784
33,089
15,199
321
17,569
4,396
13,173
3,187
32,436
16,248
322
15,866
7,490
8,376
2,230
65,525
31,447
643
33,435
11,886
21,549
5,417
29,444
17,531
437
11,476
3,800
7,676
496
94,969
48,978
1,080
44,911
15,686
29,225
5,913
9,986 $
6,146 $
16,132 $
7,180 $
23,312 $
189,485
179,317
10,168
13,571
872
(4,275)
3,394
(7,669)
(135)
(7,534)
0.33 $
0.33 $
0.20 $
0.20 $
0.53 $
0.52 $
0.23 $
0.23 $
0.76 $
0.76 $
(0.24)
(0.24)
30,513
30,694
30,547
30,824
30,530
30,731
30,581
30,852
30,547
30,829
30,758
30,758
93
Table of Contents
Revenues
Cost of Revenues
Gross profit
Selling, General and Administrative Expenses
Amortization Expense
Operating Income
Interest and Other Expense
Income before provision for income
taxes
Provision for Income Taxes
Net Income
Income per share attributable to common
stockholders:
Basic
Diluted
Weighted average common shares
outstanding:
Basic
Diluted
$
$
$
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
As Restated
Three Months
Ended
Three Months
Ended
Six Months Ended
March 31, 2018
June 30, 2018
June 30, 2018
Three Months
Ended
Nine Months Ended
September 30, 2018 September 30, 2018 December 31, 2018
Three Months
Ended
$
215,734 $
233,391 $
449,125 $
225,010 $
674,135 $
185,444
198,487
383,931
194,532
578,463
30,290
15,214
332
14,744
1,750
12,994
3,550
34,904
14,349
327
20,228
3,213
17,015
4,344
65,194
29,563
659
34,972
4,963
30,009
7,894
30,478
15,613
321
14,544
3,442
11,102
(175)
95,672
45,176
980
49,516
8,405
41,111
7,719
9,444 $
12,671 $
22,115 $
11,277 $
33,392 $
0.31 $
0.31 $
0.42 $
0.42 $
0.73 $
0.72 $
0.37 $
0.37 $
1.11 $
1.09 $
223,602
194,354
29,248
15,503
320
13,425
4,960
8,465
368
8,097
0.27
0.26
30,219
30,574
30,219
30,513
94
30,219
30,543
30,219
30,638
30,219
30,575
30,447
30,543
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
As Restated
Three Months
Ended
Three Months
Ended
Six Months Ended
March 31, 2019
June 30, 2019
June 30, 2019
Three Months
Ended
Nine Months
Ended
September 30, 2019 September 30, 2019 December 31, 2019
Three Months
Ended
Net income (loss)
$
9,986 $
6,146 $
16,132 $
7,180
$
23,312 $
(7,534)
Other comprehensive income (loss):
Foreign currency translation adjustments
Minimum pension liability, net of tax
Derivative instrument
Other comprehensive income (loss)
Comprehensive income (loss)
104
(649)
339
(206)
233
1,739
(17)
1,955
337
1,090
322
1,749
(3,388)
(2,095)
(515)
(5,998)
(3,051)
(1,005)
(193)
(4,249)
1,866
3,743
161
5,770
$
9,780 $
8,101 $
17,881 $
1,182
$
19,063 $
(1,764)
As Restated
Three Months
Ended
Three Months
Ended
Six Months Ended
March 31, 2018
June 30, 2018
June 30, 2018
Three Months
Ended
Nine Months
Ended
September 30, 2018 September 30, 2018 December 31, 2018
Three Months
Ended
Net income (loss)
$
9,444 $
12,671 $
22,115 $
11,277 $
33,392 $
8,097
Other comprehensive income (loss):
Foreign currency translation adjustments
Minimum pension liability, net of tax
Derivative instrument
Other comprehensive income (loss)
Comprehensive income (loss)
1,470
(338)
—
1,132
(5,304)
(594)
—
(5,898)
(3,834)
(932)
—
(4,766)
(1,529)
(1,060)
—
(2,589)
(5,363)
(1,992)
—
(7,355)
$
10,576 $
6,773 $
17,349 $
8,688 $
26,037 $
(312)
935
496
1,119
9,216
95
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization
Provision for doubtful accounts
Non-cash amortization of debt financing costs
Shared-based compensation expense
Deferred income taxes
Non-cash loss / (gain) on derivative contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Other operating activities, net
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of property, plant and equipment
Proceeds from disposal/sale of property, plant and equipment
Payments for acquisitions
Net cash used in investing activities
Cash Flows from Financing Activities:
Borrowings on Revolving Credit Facility
Repayment of Revolving Credit Facility
Repayment of Term Loan
Other financing activities
Net cash used in financing activities
As Restated
Three Months Ended
Six Months Ended
Nine Months Ended
March 31, 2019
June 30, 2019
September 30, 2019
$
9,986 $
16,132 $
23,312
3,681
2,350
342
761
2,298
737
6,984
3,396
685
1,479
2,263
1,823
(26,356)
(26,552)
(4,739)
(2,272)
9,548
(2,307)
(5,971)
(462)
(2,501)
6,563
(1,061)
8,749
(5,580)
(12,800)
20
—
20
—
(5,560)
(12,780)
—
—
(5,244)
(105)
(5,349)
—
—
(6,338)
(222)
(6,560)
10,865
5,000
1,030
2,200
1,840
2,092
(25,454)
1,191
(2,607)
3,272
5,767
28,508
(18,743)
20
(34,000)
(52,723)
8,500
(8,500)
(6,338)
(381)
(6,719)
Effect of Foreign Currency Exchange Rate Changes on Cash
315
199
(1,276)
Net (Decrease) Increase in Cash
(16,565)
(10,392)
(32,210)
Cash:
Beginning of period
End of period
Supplemental Cash Flow Information:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts payable
96
$
$
$
$
70,913
54,348 $
70,913
60,521 $
3,373 $
2,593 $
233 $
6,787 $
4,180 $
526 $
70,913
38,703
10,212
5,530
155
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization
Provision for doubtful accounts
Non-cash amortization of debt financing costs
Shared-based compensation expense
Deferred income taxes
Non-cash loss / (gain) on derivative contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Other operating activities, net
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of property, plant and equipment
Proceeds from disposal/sale of property, plant and equipment
Net cash used in investing activities
Cash Flows from Financing Activities:
Borrowings on Revolving Credit Facility
Repayment of Revolving Credit Facility
Repayment of Term Loan
Net cash used in financing activities
As Restated
Three Months Ended
Six Months Ended
Nine Months Ended
March 31, 2018
June 30, 2018
September 30, 2018
$
9,444 $
22,115 $
33,392
3,776
2,637
350
673
2,181
(2,489)
(34,884)
5,261
(1,496)
(2,105)
(3,363)
(20,015)
(1,716)
—
(1,716)
36,500
(29,000)
(1,094)
6,406
7,674
3,829
701
1,517
6,396
(2,161)
(47,306)
7,010
(2,507)
2,845
788
901
(5,158)
—
(5,158)
80,500
(80,500)
(2,188)
(2,188)
11,676
6,448
1,054
2,297
8,369
(2,842)
(50,389)
4,507
(2,126)
6,653
1,000
20,039
(9,823)
18
(9,805)
80,500
(80,500)
(3,281)
(3,281)
Effect of Foreign Currency Exchange Rate Changes on Cash
989
(1,125)
(1,672)
Net (Decrease) Increase in Cash
(14,336)
(7,570)
5,281
Cash:
Beginning of period
End of period
Supplemental Cash Flow Information:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts payable
97
$
$
$
$
52,244
37,908 $
52,244
44,674 $
3,408 $
808 $
49 $
6,937 $
1,693 $
416 $
52,244
57,525
10,421
2,081
132
Table of Contents
Restatement of Previously Issued Interim Condensed Consolidated Financial Statements
The following tables present the impacts of the restatement adjustments to the previously reported financial information as of and for the periods ended March 31,
2019 and 2018, June 30, 2019 and 2018, September 30, 2019 and 2018, and December 31, 2018. The restatement references identified in the following tables
directly correlate to the restatement adjustments detailed below. The restatement adjustments and error correction and their impact on previously reported
consolidated financial statements are described below.
(a) Understatement of cost of revenues and impacted balance sheet accounts - Corrections for the understatement of cost of revenues by improperly
capitalizing certain manufacturing expenses. Balance sheet accounts adjusted as a result of the improper capitalization of expenses include other current
assets, accounts receivable, net of allowances and construction in progress.
(b) Property, plant and equipment, net - We recorded an adjustment for a previously identified property, plant and equipment, net error unrelated to the
understatement of cost of revenues and related balance sheet accounts misstatements. This PPE was no longer in service as of the year ended December
31, 2016.
98
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of March 31, 2019
As of March 31, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
ASSETS
$
54,348 $
— $
54,348 $
37,908 $
— $
37,908
159,016
97,280
21,257
331,901
(689)
158,327
141,823
—
(6,256)
97,280
15,001
94,637
18,385
(2)
—
141,821
94,637
(1,924)
16,461
(6,945)
324,956
292,753
(1,926)
290,827
66,128
(961)
65,167
63,400
(1,109)
62,291
a
a
b
19,793
7,587
12,492
12,923
2,771
—
—
—
1,320
—
19,793
7,587
12,492
14,243
2,771
—
7,941
14,121
18,240
3,187
—
—
—
207
—
—
7,941
14,121
18,447
a, b
3,187
Current Assets:
Cash
Accounts receivable, net of
allowances
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
of accumulated depreciation
Operating lease right-of-use assets,
net
Goodwill
Intangible assets, net of accumulated
amortization
Deferred income taxes, net
Other assets
Total assets
$
(6,586) $
453,595 $
LIABILITIES AND STOCKHOLDERS’ EQUITY
447,009 $
399,642 $
(2,828) $
396,814
Current Liabilities:
Accounts payable
$
96,305 $
— $
96,305 $
85,602 $
— $
85,602
Current operating lease
liabilities
Accrued liabilities and other
Current portion of long-term
debt
Total current liabilities
Long-term debt
Revolving Credit Facility
Operating lease liabilities
Pension and other post-retirement
liabilities
Other long-term liabilities
Total liabilities
Stockholders’ Equity:
Preferred stock, $.01 par value
Common stock, $.01 par value
Treasury stock, at cost
Additional paid-in capital
Retained deficit
Accumulated other comprehensive
loss
Total stockholders’ equity
Total liabilities and
stockholders’ equity
4,456
35,697
3,229
139,687
155,572
—
16,538
12,489
2,658
326,944
—
318
(10,245)
243,768
(59,513)
(47,677)
126,651
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,456
35,697
3,229
139,687
155,572
—
16,538
12,489
2,658
—
31,761
3,199
120,562
162,951
7,500
—
15,367
6,862
326,944
313,242
—
318
(10,245)
243,768
(6,586)
(66,099)
—
(47,677)
(6,586)
120,065
—
304
(9,114)
240,543
(105,230)
(40,103)
86,400
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
31,761
3,199
120,562
162,951
7,500
—
15,367
6,862
313,242
—
304
(9,114)
240,543
(2,828)
(108,058)
a, b
—
(40,103)
(2,828)
83,572
$
453,595 $
(6,586) $
447,009 $
399,642 $
(2,828) $
396,814
99
Table of Contents
As of March 31, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.7 million decrease in accounts receivable, net; a $6.3 million decrease in other current assets; a $1.6 million increase in long-term deferred tax assets; and a
$5.3 million increase in retained deficit.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $1.0 million
decrease in property, plant and equipment, net, a $0.3 million decrease in long-term deferred tax assets; and a $1.2 million increase in retained deficit.
As of March 31, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in an immaterial decrease in accounts receivable, net; a $1.9 million decrease in other current assets, a $0.4 million increase in long-term deferred tax assets; and a
$1.5 million increase in retained deficit.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $1.1 million
decrease in property, plant and equipment, net, a $0.2 million decrease in long-term deferred tax assets; and a $1.3 million increase in retained deficit.
100
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of June 30, 2019
As of June 30, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
ASSETS
$
60,521 $
— $
60,521 $
44,674 $
— $
44,674
157,882
92,913
22,370
333,686
(689)
157,193
150,606
—
(7,738)
92,913
14,632
91,109
13,981
(30)
—
150,576
91,109
(2,614)
11,367
(8,427)
325,259
300,370
(2,644)
297,726
70,658
(826)
69,832
62,217
(1,072)
61,145
a
a
b
22,097
7,624
12,188
11,751
2,322
—
—
—
1,636
—
22,097
7,624
12,188
13,387
2,322
—
7,658
13,542
13,939
3,562
—
—
—
364
—
—
7,658
13,542
14,303
a, b
3,562
Current Assets:
Cash
Accounts receivable, net of
allowances
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
of accumulated depreciation
Operating lease right-of-use assets,
net
Goodwill
Intangible assets, net of accumulated
amortization
Deferred income taxes, net
Other assets
Total assets
$
(7,617) $
460,326 $
LIABILITIES AND STOCKHOLDERS’ EQUITY
452,709 $
401,288 $
(3,352) $
397,936
Current Liabilities:
Accounts payable
$
93,320 $
— $
93,320 $
88,473 $
— $
88,473
Current operating lease
liabilities
Accrued liabilities and other
Current portion of long-term
debt
Total current liabilities
Long-term debt
Operating lease liabilities
Pension and other post-retirement
liabilities
Other long-term liabilities
Total liabilities
Stockholders’ Equity:
Preferred stock, $.01 par value
Common stock, $.01 par value
Treasury stock, at cost
Additional paid-in capital
Retained deficit
Accumulated other comprehensive
loss
Total stockholders’ equity
Total liabilities and
stockholders’ equity
4,851
34,936
3,238
136,345
154,758
18,567
11,812
2,342
323,824
—
319
(10,245)
244,486
(52,336)
(45,722)
136,502
—
—
—
—
—
—
—
—
—
—
—
—
—
4,851
34,936
3,238
136,345
154,758
18,567
11,812
2,342
—
31,870
3,208
123,551
162,145
—
14,429
6,622
323,824
306,747
—
319
(10,245)
244,486
(7,617)
(59,953)
—
(45,722)
(7,617)
128,885
—
304
(9,114)
241,387
(92,035)
(46,001)
94,541
—
—
—
—
—
—
—
—
—
—
—
—
—
—
31,870
3,208
123,551
162,145
—
14,429
6,622
306,747
—
304
(9,114)
241,387
(3,352)
(95,387)
a, b
—
(46,001)
(3,352)
91,189
$
460,326 $
(7,617) $
452,709 $
401,288 $
(3,352) $
397,936
101
Table of Contents
As of June 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.7 million decrease in accounts receivable, net; a $7.7 million decrease in other current assets; a $0.1 million increase in property, plant and equipment, net;
a $1.9 million increase in long-term deferred tax assets; and a $6.4 million increase in retained deficit.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.9 million
decrease in property, plant and equipment, net; a $0.3 million decrease in long-term deferred tax assets; and a $1.2 million increase in retained deficit.
As of June 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in an immaterial decrease in accounts receivable, net; a $2.6 million decrease in other current assets, a $0.6 million increase in long-term deferred tax assets; and a
$2.0 million increase in retained deficit.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $1.1 million
decrease in property, plant and equipment, net, a $0.2 million decrease in long-term deferred tax assets; and a $1.3 million increase in retained deficit.
102
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of September 30, 2019
As of September 30, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
ASSETS
$
38,703 $
— $
38,703 $
57,525 $
— $
57,525
153,190
90,186
24,496
306,575
—
—
(9,599)
153,190
151,196
(689)
150,507
90,186
14,897
93,195
14,137
—
93,195
(3,691)
10,446
(9,599)
296,976
316,053
(4,380)
311,673
73,059
(1,414)
71,645
63,000
(1,035)
61,965
a
a
b
23,333
25,188
28,841
12,061
2,394
—
—
—
2,056
—
23,333
25,188
28,841
14,117
2,394
—
7,374
12,987
11,742
3,814
—
—
—
757
—
—
7,374
12,987
12,499
a, b
3,814
Current Assets:
Cash
Accounts receivable, net of
allowances
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
of accumulated depreciation
Operating lease right-of-use assets,
net
Goodwill
Intangible assets, net of accumulated
amortization
Deferred income taxes, net
Other assets
Total assets
$
(8,957) $
471,451 $
LIABILITIES AND STOCKHOLDERS’ EQUITY
462,494 $
414,970 $
(4,658) $
410,312
Current Liabilities:
Accounts payable
$
88,835 $
— $
88,835 $
91,582 $
— $
91,582
Current operating lease
liabilities
Accrued liabilities and other
Current portion of long-term
debt
Total current liabilities
Long-term debt
Operating lease liabilities
Pension and other post-retirement
liabilities
Other long-term liabilities
Total liabilities
Stockholders’ Equity:
Preferred stock, $.01 par value
Common stock, $.01 par value
Treasury stock, at cost
Additional paid-in capital
Retained deficit
Accumulated other comprehensive
loss
Total stockholders’ equity
Total liabilities and
stockholders’ equity
5,485
38,885
3,335
136,540
154,950
19,192
13,417
7,607
331,706
—
319
(10,245)
245,207
(43,816)
(51,720)
139,745
—
—
—
—
—
—
—
—
—
—
—
—
—
5,485
38,885
3,335
136,540
154,950
19,192
13,417
7,607
—
34,400
3,217
129,199
161,340
—
14,534
4,582
331,706
309,655
—
319
(10,245)
245,207
(8,957)
(52,773)
—
(51,720)
(8,957)
130,788
—
304
(9,114)
242,167
(79,452)
(48,590)
105,315
—
—
—
—
—
—
—
—
—
—
—
—
—
—
34,400
3,217
129,199
161,340
—
14,534
4,582
309,655
—
304
(9,114)
242,167
(4,658)
(84,110)
a, b
—
(48,590)
(4,658)
100,657
$
471,451 $
(8,957) $
462,494 $
414,970 $
(4,658) $
410,312
103
Table of Contents
As of September 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $9.6 million decrease in other current assets; a $0.5 million decrease in property, plant and equipment, net; a $2.3 million increase in long-term deferred tax
assets; a $7.8 million increase in retained deficit.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.9 million
decrease in property, plant and equipment, net; a $0.3 million decrease in long-term deferred tax assets; and a $1.2 million increase in retained deficit
As of September 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.7 million decrease in accounts receivable, net; a $3.7 million decrease in other current assets; a $1.0 million increase in long-term deferred tax assets; and a
$3.4 million increase in retained deficit.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $1.0 million
decrease in property, plant and equipment, net; a $0.3 million decrease in long-term deferred tax assets; and a $1.3 million increase in retained deficit.
104
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Revenues
Cost of Revenues
Gross profit
Selling, General and Administrative Expenses
Amortization Expense
Operating Income (Loss)
Interest and Other Expense
Income before provision for income taxes
Provision for Income Taxes
Net Income (Loss)
Income (Loss) per share attributable to common
stockholders:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Three Months Ended March 31, 2019
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
243,164 $
— $
243,164
208,604
34,560
15,199
321
19,040
4,396
14,644
3,514
1,471
(1,471)
—
—
(1,471)
—
(1,471)
(327)
$
$
$
11,130 $
(1,144) $
0.36 $
0.36 $
(0.04) $
(0.04) $
30,513
30,694
30,513
30,694
210,075
a, b
a, b
a, b
33,089
15,199
321
17,569
4,396
13,173
3,187
9,986
0.33
0.33
30,513
30,694
For the three months ended March 31, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.5 million increase in cost of revenues; a $0.3 million decrease in provision for income taxes; and a $1.1 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
decrease in cost of revenues; an immaterial increase in provision for income taxes; and an immaterial increase in net income.
105
Table of Contents
Revenues
Cost of Revenues
Gross profit
Selling, General and Administrative
Expenses
Amortization Expense
Operating Income (Loss)
Interest and Other Expense
Income before provision for
income taxes
Provision for Income Taxes
Net Income (Loss)
Income (Loss) per share attributable
to common stockholders:
Basic
Diluted
Weighted average common shares
outstanding:
Basic
Diluted
$
$
$
For the three months ended June 30, 2019
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, 2019
Six Months Ended June 30, 2019
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
243,190 $
— $
243,190 $
486,354 $
— $
486,354
209,407
33,783
16,248
322
17,213
7,490
9,723
2,546
1,347
(1,347)
—
—
(1,347)
—
(1,347)
(316)
210,754
418,011
32,436
68,343
16,248
322
15,866
7,490
8,376
2,230
31,447
643
36,253
11,886
24,367
6,060
2,818
(2,818)
—
—
(2,818)
—
(2,818)
(643)
420,829
a, b
65,525
31,447
643
33,435
11,886
21,549
5,417
a, b
a, b
7,177 $
(1,031) $
6,146 $
18,307 $
(2,175) $
16,132
0.23 $
0.23 $
(0.03) $
(0.03) $
0.20 $
0.20 $
0.60 $
0.60 $
(0.07) $
(0.07) $
0.53
0.52
30,547
30,824
30,547
30,824
30,547
30,824
30,530
30,731
30,530
30,731
30,530
30,731
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.4 million increase in cost of revenues; a $0.3 million decrease in provision for income taxes; and a $1.0 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
decrease in cost of revenues; an immaterial increase in provision for income taxes; and an immaterial increase in net income.
For the six months ended June 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $2.9 million increase in cost of revenues; a $0.7 million decrease in provision for income taxes; and a $2.2 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
decrease in cost of revenues; an immaterial increase in provision for income taxes; and a $0.1 million increase in net income.
106
Table of Contents
Revenues
Cost of Revenues
Gross profit
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended September 30, 2019
Nine Months Ended September 30, 2019
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
225,399 $
— $
225,399 $
711,753 $
— $
711,753
Selling, General and Administrative
Expenses
Amortization Expense
Operating Income (Loss)
Interest and Other Expense
Income before provision for
income taxes
Provision for Income Taxes
Net Income (Loss)
Income (Loss) per share attributable
to common stockholders:
Basic
Diluted
Weighted average common shares
outstanding:
Basic
Diluted
$
$
$
194,195
31,204
17,531
437
13,236
3,800
9,436
916
1,760
(1,760)
—
—
(1,760)
—
(1,760)
(420)
195,955
612,206
29,444
99,547
17,531
437
11,476
3,800
7,676
496
48,978
1,080
49,489
15,686
33,803
6,976
4,578
(4,578)
—
—
(4,578)
—
(4,578)
(1,063)
616,784
a, b
94,969
48,978
1,080
44,911
15,686
29,225
5,913
a, b
a, b
8,520 $
(1,340) $
7,180 $
26,827 $
(3,515) $
23,312
0.28 $
0.28 $
(0.04) $
(0.04) $
0.23 $
0.23 $
0.88 $
0.87 $
(0.12) $
(0.11) $
0.76
0.76
30,581
30,852
30,581
30,852
30,581
30,852
30,547
30,829
30,547
30,829
30,547
30,829
For the three months ended September 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.8 million increase in cost of revenues; a $0.4 million decrease in provision for income taxes; and a $1.3 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
decrease in cost of revenues; an immaterial increase in provision for income taxes; and an immaterial increase in net income.
For the nine months ended September 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $4.7 million increase in cost of revenues; a $1.1 million decrease in provision for income taxes; and a $3.6 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
decrease in cost of revenues; an immaterial increase in provision for income taxes; and a $0.1 million increase in net income.
107
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Revenues
Cost of Revenues
Gross profit
Selling, General and Administrative Expenses
Amortization Expense
Operating Income (Loss)
Interest and Other Expense
Income before provision for income taxes
Provision for Income Taxes
Net Income (Loss)
Income (Loss) per share attributable to common
stockholders:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Three Months Ended March 31, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
215,734 $
— $
215,734
184,912
30,822
15,214
332
15,276
1,750
13,526
3,673
532
(532)
—
—
(532)
—
(532)
(123)
185,444
a, b
30,290
15,214
332
14,744
1,750
12,994
3,550
a, b
a, b
9,853 $
(409)
$
9,444
0.33 $
0.32 $
(0.01)
(0.01)
$
$
0.31
0.31
30,219
30,574
30,219
30,574
30,219
30,574
$
$
$
For the three months ended March 31, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.5 million increase in cost of revenues; a $0.1 million decrease in provision for income taxes; and a $0.4 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
decrease in cost of revenues; an immaterial increase in provision for income taxes; and an immaterial increase in net income.
108
Table of Contents
Revenues
Cost of Revenues
Gross profit
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, 2018
Six Months Ended June 30, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
233,391 $
— $
233,391 $
449,125 $
— $
449,125
Selling, General and Administrative
Expenses
Amortization Expense
Operating Income (Loss)
Interest and Other Expense
Income before provision for
income taxes
Provision for Income Taxes
Net Income (Loss)
Income (Loss) per share attributable
to common stockholders:
Basic
Diluted
Weighted average common shares
outstanding:
Basic
Diluted
$
$
$
197,806
35,585
14,349
327
20,909
3,213
17,696
4,501
681
(681)
—
—
(681)
—
(681)
(157)
198,487
382,718
34,904
66,407
14,349
327
20,228
3,213
17,015
4,344
29,563
659
36,185
4,963
31,222
8,174
1,213
(1,213)
—
—
(1,213)
—
(1,213)
(280)
383,931
a, b
65,194
29,563
659
34,972
4,963
30,009
7,894
a, b
a, b
13,195 $
(524)
$
12,671 $
23,048 $
(933)
$
22,115
0.44 $
0.43 $
(0.02)
(0.02)
$
$
0.42 $
0.42 $
0.76 $
0.75 $
(0.03)
(0.03)
$
$
0.73
0.72
30,219
30,513
30,219
30,513
30,219
30,513
30,219
30,543
30,219
30,543
30,219
30,543
For the three months ended June 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.7 million increase in cost of revenues; a $0.2 million decrease in provision for income taxes; and a $0.5 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
decrease in cost of revenues; an immaterial increase in provision for income taxes; and an immaterial increase in net income.
For the six months ended June 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.3 million increase in cost of revenues; a $0.3 million decrease in provision for income taxes; and a $1.0 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
decrease in cost of revenues; an immaterial increase in provision for income taxes; and a $0.1 million increase in net income.
109
Table of Contents
Revenues
Cost of Revenues
Gross profit
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended September 30, 2018
Nine Months Ended September 30, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
225,010 $
— $
225,010 $
674,135 $
— $
674,135
Selling, General and Administrative
Expenses
Amortization Expense
Operating Income (Loss)
Interest and Other Expense
Income before provision for
income taxes
Provision for Income Taxes
Net Income (Loss)
Income (Loss) per share attributable
to common stockholders:
Basic
Diluted
Weighted average common shares
outstanding:
Basic
Diluted
$
$
$
192,833
32,177
15,613
321
16,243
3,442
12,801
218
1,699
(1,699)
—
—
(1,699)
—
(1,699)
(393)
194,532
575,551
30,478
98,584
15,613
321
14,544
3,442
11,102
(175)
45,176
980
52,428
8,405
44,023
8,392
2,912
(2,912)
—
—
(2,912)
—
(2,912)
(673)
578,463
a, b
95,672
45,176
980
49,516
8,405
41,111
7,719
a, b
a, b
12,583 $
(1,306) $
11,277 $
35,631 $
(2,239) $
33,392
0.42 $
0.41 $
(0.04) $
(0.04) $
0.37 $
0.37 $
1.18 $
1.17 $
(0.07) $
(0.07) $
1.11
1.09
30,219
30,638
30,219
30,638
30,219
30,638
30,219
30,575
30,219
30,575
30,219
30,575
For the three months ended September 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.7 million increase in cost of revenues; a $0.4 million decrease in provision for income taxes; and a $1.3 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
decrease in cost of revenues; an immaterial increase in provision for income taxes; and an immaterial increase in net income.
For the nine months ended September 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the corrections
resulted in a $3.0 million increase in cost of revenues; a $0.7 million decrease in provision for income taxes; and a $2.3 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
decrease in cost of revenues; and a $0.1 million increase in net income.
110
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Revenues
Cost of Revenues
Gross profit
Selling, General and Administrative Expenses
Amortization Expense
Operating Income (Loss)
Interest and Other Expense
Income before provision for income taxes
Provision for Income Taxes
Net Income (Loss)
Income (Loss) per share attributable to common
stockholders:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Three Months Ended December 31, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
223,602 $
— $
223,602
193,334
30,268
15,503
320
14,445
4,960
9,485
604
1,020
(1,020)
—
—
(1,020)
—
(1,020)
(236)
8,881 $
(784)
$
194,354
a, b
29,248
15,503
320
13,425
4,960
8,465
368
8,097
a, b
a, b
0.29 $
0.29 $
(0.03)
(0.03)
$
$
0.27
0.26
30,447
30,543
30,219
30,543
30,447
30,543
$
$
$
For the three months ended December 31, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.0 million increase in cost of revenues; a $0.2 million decrease in provision for income taxes; and a $0.8 million decrease in net income.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
decrease in cost of revenues; an immaterial increase in provision for income taxes; and an immaterial increase in net income.
111
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended March 31, 2019
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
Net income (loss)
$
11,130 $
(1,144) $
9,986
a, b
Other comprehensive income (loss):
Foreign currency translation adjustments
Minimum pension liability, net of tax
Derivative instrument
Other comprehensive income (loss)
Comprehensive income (loss)
104
(649)
339
(206)
—
—
—
—
—
104
(649)
339
(206)
$
10,924 $
(1,144) $
9,780
For the three months ended March 31, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.1 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
112
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, 2019
Six Months Ended June 30, 2019
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
Net Income (Loss)
$
7,177 $
(1,031) $
6,146 $
18,307 $
(2,175) $
16,132
a, b
Other comprehensive income
(loss):
Foreign currency
translation adjustments
Minimum pension liability,
net of tax
Derivative instrument
Other comprehensive income
(loss)
233
1,739
(17)
1,955
—
—
—
—
—
233
337
1,739
(17)
1,090
322
1,955
1,749
—
337
1,090
322
1,749
—
—
—
—
Comprehensive income (loss)
$
9,132 $
(1,031) $
8,101 $
20,056 $
(2,175) $
17,881
For the three months ended June 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.0 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
For the six months ended June 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $2.2 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
113
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended September 30, 2019
Nine Months Ended September 30, 2019
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
Net Income (Loss)
$
8,520 $
(1,340) $
7,180 $
26,827 $
(3,515) $
23,312
a, b
Other comprehensive income
(loss):
Foreign currency
translation adjustments
Minimum pension liability,
net of tax
Derivative instrument
Other comprehensive income
(loss)
—
—
(3,388)
—
(3,388)
(3,051)
—
(3,051)
(2,095)
(515)
—
—
(2,095)
(515)
(1,005)
(193)
—
—
(1,005)
(193)
(5,998)
—
(5,998)
(4,249)
—
(4,249)
Comprehensive income (loss)
$
2,522 $
(1,340) $
1,182 $
22,578 $
(3,515) $
19,063
For the three months ended September 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.3 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
For the nine months ended September 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $3.6 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
114
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended March 31, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
Net income (loss)
$
9,853 $
(409)
$
9,444
a, b
Other comprehensive income (loss):
Foreign currency translation adjustments
Minimum pension liability, net of tax
Derivative instrument
Other comprehensive income (loss)
Comprehensive income (loss)
1,470
(338)
—
1,132
—
—
—
—
$
10,985 $
(409)
$
—
1,470
(338)
—
1,132
10,576
For the three months ended March 31, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.4 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
115
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, 2018
Six Months Ended June 30, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
Net Income (Loss)
$
13,195 $
(524)
$
12,671 $
23,048 $
(933)
$
22,115
a, b
Other comprehensive income
(loss):
Foreign currency
translation adjustments
Minimum pension liability,
net of tax
Derivative instrument
Other comprehensive income
(loss)
Comprehensive income (loss)
$
For the three months ended June 30, 2018
—
—
(5,304)
—
(5,304)
(3,834)
—
(3,834)
(594)
—
(5,898)
7,297 $
—
—
(594)
—
(932)
—
—
—
(932)
—
—
(5,898)
(4,766)
—
(4,766)
(524)
$
6,773 $
18,282 $
(933)
$
17,349
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.5 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
For the six months ended June 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.0 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
116
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended September 30, 2018
Nine Months Ended September 30, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
Net Income (Loss)
$
12,583 $
(1,306) $
11,277 $
35,631 $
(2,239) $
33,392
a, b
Other comprehensive income
(loss):
Foreign currency translation
adjustments
Minimum pension liability,
net of tax
Derivative instrument
Other comprehensive income
(loss)
—
—
(1,529)
—
(1,529)
(5,363)
—
(5,363)
(1,060)
—
—
—
(1,060)
—
(1,992)
—
—
—
(1,992)
—
(2,589)
—
(2,589)
(7,355)
—
(7,355)
Comprehensive income (loss)
$
9,994 $
(1,306) $
8,688 $
28,276 $
(2,239) $
26,037
For the three months ended September 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.3 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
For the nine months ended September 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $2.3 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
117
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended December 31, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
Net income (loss)
$
8,881 $
(784)
$
8,097
a, b
Other comprehensive income (loss):
Foreign currency translation adjustments
Minimum pension liability, net of tax
Derivative instrument
Other comprehensive income (loss)
Comprehensive income (loss)
(312)
935
496
1,119
—
—
—
—
$
10,000 $
(784)
$
—
(312)
935
496
1,119
9,216
For the three months ended December 31, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.8 million decrease in net income. Refer to descriptions of the adjustments and their impacts to net income above.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
increase in net income. Refer to descriptions of the adjustment and its impact to net income above.
118
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to cash flows from operating
activities:
Depreciation and amortization
Provision for doubtful accounts
Non-cash amortization of debt financing costs
Shared-based compensation expense
Deferred income taxes
Non-cash loss / (gain) on derivative contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Other operating activities, net
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of property, plant and equipment
Proceeds from disposal/sale of property, plant and equipment
Net cash used in investing activities
Cash Flows from Financing Activities:
Repayment of Term Loan
Other financing activities
Net cash used in financing activities
Effect of Foreign Currency Exchange Rate Changes on Cash
Three Months Ended March 31, 2019
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
11,130 $
(1,144) $
9,986
a, b
3,718
2,350
342
761
2,625
737
(26,356)
(4,739)
(3,780)
9,548
(2,307)
(5,971)
(5,580)
20
(5,560)
(5,244)
(105)
(5,349)
315
(37)
—
—
—
(327)
—
—
—
1,508
—
—
—
—
—
—
—
—
—
—
b
a, b
a
a
3,681
2,350
342
761
2,298
737
(26,356)
(4,739)
(2,272)
9,548
(2,307)
(5,971)
(5,580)
a
20
(5,560)
(5,244)
(105)
(5,349)
315
Net Decrease in Cash
Cash:
Beginning of period
End of period
Supplemental Cash Flow Information:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts
payable
(16,565)
—
(16,565)
$
$
$
$
70,913
54,348 $
3,373 $
2,593 $
233 $
—
— $
— $
— $
— $
70,913
54,348
3,373
2,593
233
119
Table of Contents
For the three months ended March 31, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.1 million decrease in net income; a $0.3 million decrease in deferred income tax; and a $1.5 million decrease in change in prepaid expenses.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
increase in net income; an immaterial decrease in depreciation expense; and an immaterial increase in deferred income tax.
120
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to cash flows from operating
activities:
Depreciation and amortization
Provision for doubtful accounts
Non-cash amortization of debt financing costs
Shared-based compensation expense
Deferred income taxes
Non-cash loss / (gain) on derivative contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Other operating activities, net
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of property, plant and equipment
Proceeds from disposal/sale of property, plant and equipment
Net cash used in investing activities
Cash Flows from Financing Activities:
Repayment of Term Loan
Other financing activities
Net cash used in financing activities
Effect of Foreign Currency Exchange Rate Changes on Cash
Net Decrease in Cash
Cash:
Beginning of period
End of period
Supplemental Cash Flow Information:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts
payable
Six Months Ended June 30, 2019
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
18,307
$
(2,175)
$
16,132
a, b
b
a, b
a
a
a
(74)
—
—
—
(643)
—
—
—
2,990
—
—
98
(98)
—
(98)
—
—
—
—
—
—
— $
— $
— $
— $
6,984
3,396
685
1,479
2,263
1,823
(26,552)
(462)
(2,501)
6,563
(1,061)
8,749
(12,800)
20
(12,780)
(6,338)
(222)
(6,560)
199
(10,392)
70,913
60,521
6,787
4,180
526
7,058
3,396
685
1,479
2,906
1,823
(26,552)
(462)
(5,491)
6,563
(1,061)
8,651
(12,702)
20
(12,682)
(6,338)
(222)
(6,560)
199
(10,392)
$
$
$
$
70,913
60,521
6,787
4,180
526
$
$
$
$
121
Table of Contents
For the six months ended June 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $2.2 million decrease in net income; a $0.7 million decrease in deferred income tax; a $3.0 million decrease in change in prepaid expenses; and a $0.1 million
increase in purchases of property, plant and equipment.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
increase in net income; a $0.1 million decrease in depreciation expense; and an immaterial increase in deferred income tax.
122
Table of Contents
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to cash flows from operating
activities:
Depreciation and amortization
Provision for doubtful accounts
Non-cash amortization of debt financing costs
Shared-based compensation expense
Deferred income taxes
Non-cash loss / (gain) on derivative contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Other operating activities, net
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of property, plant and equipment
Proceeds from disposal/sale of property, plant and equipment
Payments for acquisitions
Net cash used in investing activities
Cash Flows from Financing Activities:
Borrowings on Revolving Credit Facility
Repayment of Revolving Credit Facility
Repayment of Term Loan
Other financing activities
Net cash used in financing activities
Effect of Foreign Currency Exchange Rate Changes on Cash
Net Decrease in Cash
Cash:
Beginning of period
End of period
Supplemental Cash Flow Information:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts
payable
Nine Months Ended September 30, 2019
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
26,827 $
(3,515) $
23,312
a, b
10,976
5,000
1,030
2,200
2,903
2,092
(24,765)
1,191
(7,458)
3,272
5,767
29,035
(19,270)
20
(34,000)
(53,250)
8,500
(8,500)
(6,338)
(381)
(6,719)
(1,276)
(111)
—
—
—
(1,063)
—
(689)
—
4,851
—
—
(527)
527
—
—
527
—
—
—
—
—
—
10,865
b
5,000
1,030
2,200
1,840
2,092
(25,454)
1,191
(2,607)
3,272
5,767
28,508
a, b
a
a
(18,743)
a
20
(34,000)
(52,723)
8,500
(8,500)
(6,338)
(381)
(6,719)
(1,276)
(32,210)
—
(32,210)
70,913
38,703 $
10,212 $
5,530 $
155 $
$
$
$
$
123
—
— $
— $
— $
— $
70,913
38,703
10,212
5,530
155
Table of Contents
For the nine months ended September 30, 2019
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $3.6 million decrease in net income; a $1.1 million decrease in deferred income tax; a $0.7 million increase in change in accounts receivable; a $4.9 million
decrease in change in prepaid expenses; and a $0.5 million decrease in purchases of property, plant and equipment.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
increase in net income; a $0.1 million decrease in depreciation expense; and an immaterial increase in deferred income tax.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to cash flows from operating
activities:
Depreciation and amortization
Provision for doubtful accounts
Non-cash amortization of debt financing costs
Shared-based compensation expense
Deferred income taxes
Non-cash loss / (gain) on derivative contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Other operating activities, net
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of property, plant and equipment
Net cash used in investing activities
Cash Flows from Financing Activities:
Borrowings on Revolving Credit Facility
Repayment of Revolving Credit Facility
Repayment of Term Loan
Net cash used in financing activities
Three Months Ended March 31, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
9,853 $
(409)
$
9,444
a, b
3,813
2,637
350
673
2,304
(2,489)
(34,884)
5,261
(2,065)
(2,105)
(3,363)
(20,015)
(1,716)
(1,716)
36,500
(29,000)
(1,094)
6,406
(37)
—
—
—
(123)
—
—
—
569
—
—
—
—
—
—
—
—
—
—
b
a, b
a
3,776
2,637
350
673
2,181
(2,489)
(34,884)
5,261
(1,496)
(2,105)
(3,363)
(20,015)
(1,716)
(1,716)
36,500
(29,000)
(1,094)
6,406
989
Effect of Foreign Currency Exchange Rate Changes on Cash
989
Net Decrease in Cash
Cash:
Beginning of period
End of period
Supplemental Cash Flow Information:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts
payable
(14,336)
—
(14,336)
$
$
$
$
52,244
37,908 $
3,408 $
808 $
49 $
—
— $
— $
— $
— $
52,244
37,908
3,408
808
49
125
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For the three months ended March 31, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $0.4 million decrease in net income; a $0.1 million decrease in deferred income tax; and a $0.5 million decrease in change in prepaid expenses.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in an immaterial
increase in net income; an immaterial decrease in depreciation expense; and an immaterial increase in deferred income tax.
126
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to cash flows from operating
activities:
Depreciation and amortization
Provision for doubtful accounts
Non-cash amortization of debt financing costs
Shared-based compensation expense
Deferred income taxes
Non-cash loss / (gain) on derivative contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Other operating activities, net
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of property, plant and equipment
Net cash used in investing activities
Cash Flows from Financing Activities:
Borrowings on Revolving Credit Facility
Repayment of Revolving Credit Facility
Repayment of Term Loan
Net cash used in financing activities
Effect of Foreign Currency Exchange Rate Changes on Cash
Net Decrease in Cash
Cash:
Beginning of period
End of period
Supplemental Cash Flow Information:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts
payable
Six Months Ended June 30, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
23,048 $
(933)
$
22,115
a, b
b
a, b
a
a
(74)
—
—
—
(280)
—
28
—
1,259
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
— $
7,674
3,829
701
1,517
6,396
(2,161)
(47,306)
7,010
(2,507)
2,845
788
901
(5,158)
(5,158)
80,500
(80,500)
(2,188)
(2,188)
(1,125)
(7,570)
52,244
44,674
6,937
1,693
416
7,748
3,829
701
1,517
6,676
(2,161)
(47,334)
7,010
(3,766)
2,845
788
901
(5,158)
(5,158)
80,500
(80,500)
(2,188)
(2,188)
(1,125)
(7,570)
$
$
$
$
52,244
44,674 $
6,937 $
1,693 $
416 $
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For the six months ended June 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $1.0 million decrease in net income; a $0.3 million decrease in deferred income tax; an immaterial increase in change in accounts receivable; and a $1.3
million decrease in change in prepaid expenses.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
increase in net income; a $0.1 million decrease in depreciation expense; and an immaterial increase in deferred income tax.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to cash flows from operating
activities:
Depreciation and amortization
Provision for doubtful accounts
Non-cash amortization of debt financing costs
Shared-based compensation expense
Deferred income taxes
Non-cash loss / (gain) on derivative contracts
Change in other operating items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Other operating activities, net
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of property, plant and equipment
Proceeds from disposal/sale of property, plant and equipment
Net cash used in investing activities
Cash Flows from Financing Activities:
Borrowings on Revolving Credit Facility
Repayment of Revolving Credit Facility
Repayment of Term Loan
Net cash used in financing activities
Effect of Foreign Currency Exchange Rate Changes on Cash
Net Decrease in Cash
Cash:
Beginning of period
End of period
Supplemental Cash Flow Information:
Cash paid for interest
Cash paid for income taxes, net
Unpaid purchases of property and equipment included in accounts
payable
Nine Months Ended September 30, 2018
As Previously
Reported
Restatement
Adjustments
As Restated
Restatement
References
$
35,631 $
(2,239) $
33,392
a, b
(111)
—
—
—
(673)
—
687
—
2,336
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
— $
11,676
b
a, b
a
a
6,448
1,054
2,297
8,369
(2,842)
—
(50,389)
4,507
(2,126)
6,653
1,000
20,039
(9,823)
18
(9,805)
80,500
(80,500)
(3,281)
(3,281)
(1,672)
5,281
52,244
57,525
10,421
2,081
132
11,787
6,448
1,054
2,297
9,042
(2,842)
(51,076)
4,507
(4,462)
6,653
1,000
20,039
(9,823)
18
(9,805)
80,500
(80,500)
(3,281)
(3,281)
(1,672)
5,281
$
$
$
$
52,244
57,525 $
10,421 $
2,081 $
132 $
129
Table of Contents
For the nine months ended September 30, 2018
(a) Understatement of cost of revenues and impacted balance sheet accounts. As a result of the understatement of cost of revenues, the correction resulted
in a $2.3 million decrease in net income; a $0.7 million decrease in deferred income tax; a $0.7 million increase in change in accounts receivable; and a $2.3
million decrease in change in prepaid expenses.
(b) Property, plant and equipment, net error correction. The immaterial error correction of property, plant and equipment, net, resulted in a $0.1 million
increase in net income; a $0.1 million decrease in depreciation expense; and an immaterial increase in deferred income tax.
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20. Cost Reduction and Manufacturing Capacity Rationalization
During 2019, the Company began implementing cost reduction and manufacturing capacity rationalization initiatives (the "Restructuring Initiatives") in response
to declines in end market volumes. These actions were initiated in 2019 and are expected to continue through 2020. The Restructuring Initiatives consist primarily
of headcount reductions in each segment and at corporate, as well as other costs associated with transfer of production and subsequent closure of facilities.
Total pre-tax costs associated with these actions are estimated to be $5 million to $7 million and are expected to lower operating costs beginning in the first quarter
of 2020. A summary of the costs incurred in the year ended December 31, 2019 follows:
Electrical Systems
Global Seating
Corporate
Total
Employee Costs
2019
Facility Exit and
Other Costs
$
$
1,820
$
489
310
2,619 $
339 $
—
—
339 $
Total
2,159
489
310
2,958
Of the $3.0 million incurred in the year ended December 31, 2019, $2.2 million was recorded in cost of revenues and $0.8 million was recorded in selling, general
and administrative expenses.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no disagreements with our independent accountants on matters of accounting and financial disclosures or reportable events.
Item 9A.
Restatement of Previously Issued Financial Statements
Controls and Procedures
As described in Note 2 of the Notes to the Consolidated Financial Statements included within this Annual Report on Form 10-K, on March 12, 2020, the Audit
Committee of the Board of Directors of the Company, after considering the recommendations of management, and discussing such recommendations with outside
SEC counsel and KPMG, LLP, the Company's independent registered public accounting firm, concluded that our audited consolidated financial statements as of
and for the year ended December 31, 2018, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and our unaudited
consolidated financial statements as of and for the quarterly periods ended March 31, 2019 and 2018, June 30, 2019 and 2018, and September 30, 2019 and 2018,
included in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2019, June 30, 2019 and September 30, 2019, should no longer be
relied upon due to misstatements. Accordingly, the consolidated financial statements for the year ended December 31, 2018, selected financial data (Item 6.
"Selected Financial Data") and relevant unaudited interim financial information for the quarterly periods ended March 31, 2019 and 2018, June 30, 2019 and 2018,
September 30, 2019 and 2018, and December 31, 2018 included within this Annual Report on Form 10-K have been restated.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the "Exchange Act,") as of the end of the
period covered by this Annual Report on Form 10-K. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of
December 31, 2019 our disclosure controls and procedures were not effective as a result of the material weaknesses discussed below.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining, under the direction of our chief executive officer and chief financial officer and supervision of the
Board of Directors, adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Management conducted an assessment
of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
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We have excluded from our assessment of internal control over financial reporting at December 31, 2019 the internal control over financial reporting of FSE, the
assets of which were acquired in 2019 (see Note 5 in Item 8 of this Annual Report on Form 10-K). As of and for the year ended December 31, 2019, the assets and
revenue represented by the acquired business was $46.9 million and $12.8 million, respectively.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Based on our assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2019 as a result of the
material weaknesses discussed below.
A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The Company identified errors in the accounting for prepaid production tooling (presented in other current assets in the Consolidated Balance Sheets),
construction-in-progress and miscellaneous accounts receivable (presented in accounts receivable, net in the Consolidated Balance Sheets) in one manufacturing
facility. These errors resulted from material weaknesses due to an ineffective risk management process that resulted in ineffectively designed controls over balance
sheet account reconciliations and review of manual journal entries.
The three material weaknesses identified resulted in material misstatements that have been corrected in the consolidated financial statements filed as part of this
Annual Report on Form 10-K (Item 8. “Financial Statements and Supplementary Data”, Note 2).
KPMG LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this annual report, has issued an
attestation report on our internal control over financial reporting, which expressed an adverse opinion on the effectiveness of our internal control over financial
reporting
Remediation Plan and Status
The Company has developed a remediation plan which includes, but is not limited to, an assessment of the Company’s processes and controls over balance sheet
account reconciliations, manual journal entries and risk assessment. Based on the results of that assessment, we intend to undertake such measures as deemed
necessary, including:
1) enhancing the design of the balance sheet account reconciliation process to better enable the proper and timely review of balance sheet account
reconciliations, including the supporting documentation thereto;
2) enhancing the design of the manual journal entry process to better enable the proper and timely review of manual journal entries, including the
supporting documentation thereto; and
3) enhancing the Company’s risk assessment process to reduce the risk of financial misstatements.
While the foregoing measures are intended to effectively remediate the material weaknesses described in this Item 9A, it is possible that additional remediation
steps will be necessary. As we continue to evaluate and implement our plan to remediate the material weaknesses, our management may decide to take additional
measures to address the material weaknesses or modify the remediation steps described above. Until these material weaknesses are remediated, we plan to continue
to perform additional analyses and other procedures to help ensure that our consolidated financial statements are prepared in accordance with GAAP.
Changes in Internal Control Over Financial Reporting
Other than described above in this Item 9A, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2019 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Commercial Vehicle Group, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Commercial Vehicle Group, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance
sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and
cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule II; Valuation and
Qualifying Accounts and Reserves (collectively, the consolidated financial statements), and our report dated March 16, 2020 expressed an unqualified opinion on
those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses related to
an ineffective risk assessment process that resulted in ineffectively designed controls over balance sheet account reconciliations and review of manual journal
entries have been identified and included in management’s assessment. The material weaknesses were considered in determining the nature, timing, and extent of
audit tests applied in our audit of the consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
The Company acquired First Source Electronics, LLC (FSE) during 2019, and management excluded from its assessment of the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2019, FSE’s internal control over financial reporting associated with total assets of $46.9 million and
total revenues of $12.8 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2019. Our audit of
internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of FSE.
Basis for Opinion
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, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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
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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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ KPMG LLP
Columbus, Ohio
March 16, 2020
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Item 9B.
Other Information
On March 12, 2020, the Board of Directors of the Company, approved adjustments to the Company’s manufacturing facility footprint and capacity utilization, and
selling, general and administrative costs. These restructuring and cost reduction actions are expected to lower operating costs by $5 million to $7 million annually
when fully implemented by early 2021. Pre-tax costs associated with these actions are expected to be $6 million to $8 million, the majority of which is employee-
related separation costs and other costs associated with the transfer of manufacturing production and subsequent closure of facilities.
The amounts and timing may vary materially based upon various factors. See “Forward-Looking Information” and Risk Factors in this Annual Report on Form 10-
K.
Item 10.
Directors, Executive Officers and Corporate Governance
A. Directors of the Registrant
The following table sets forth certain information with respect to our directors as of March 16, 2020:
PART III
Name
Robert C. Griffin
Patrick E. Miller
Harold C. Bevis
Roger L. Fix
Wayne M. Rancourt
Janice E. Stipp
Age Principal Position(s)
72 Chairman and Director
52 President, Chief Executive Officer and Director
60 Director
65 Director
57 Director
60 Director
The following biographies describe the business experience of our directors:
Robert C. Griffin has served as a Director since July 2005, and was elected Chairman in 2019. Mr. Griffin’s career spanned over 25 years in the financial sector
until he retired from Barclays Capital, where from June 2000 to March 2002 he was Head of Investment Banking, Americas and a member of the Management
Committee. Prior to joining Barclays Capital, Mr. Griffin was a member of the Executive Committee for the Montgomery Division of Banc of America Securities
and held a number of positions with Bank of America, including Group Executive Vice President and Head of Global Debt Capital Raising and as a Senior
Management Council Member. Since 2005, he has served on a number of boards, both public and private, including during the last five years, the boards of the
following public companies: The J.G. Wentworth Company (ending in 2018), and Builders FirstSource, Inc. (ending in 2019).
Qualifications: Mr. Griffin has a broad understanding of the financial and investment world. He has over sixteen years of experience in senior and executive
management positions with large corporations which included responsibility for determining and executing successful strategies. Mr. Griffin has also served as
Chairman of the Board of Directors of another public company, been on numerous committees of each company where he has served as a Director and brings a
depth of knowledge about corporate governance from those roles to his service on the Board of Commercial Vehicle Group. Mr. Griffin earned a Master of
Business Administration degree from Northwest University and a Bachelor of Science degree in Finance from Miami University.
Patrick E. Miller has served as President and Chief Executive Officer and a Director since November 2015. Mr. Miller, who most recently was President of the
Company’s Global Truck & Bus Segment, has been with the Company since 2005. During this time, he served in the capacity of Senior Vice President & General
Manager of Aftermarket; Senior Vice President of Global Purchasing; Vice President of Global Sales; Vice President & General Manager of North American
Truck and Vice President & General Manager of Structures. As of December 2018, Mr. Miller was appointed to the board of directors for Federal Signal
Corporation, where he serves as a member of the Audit Committee. Prior to joining the Company, Mr. Miller held engineering, sales, and operational leadership
positions with Hayes Lemmerz International, Alcoa, Inc. and ArvinMeritor.
Qualifications: Mr. Miller has broad operational and management experience. He has over 21 years of experience in senior and executive management positions
with multi-national corporations including responsibility for determining and executing successful strategies. Prior to becoming President and Chief Executive
Officer, Mr. Miller managed many aspects of the Company’s operations and commercial activities at a senior level. Mr. Miller holds a Master of Business
Administration degree from the Harvard University Graduate School of Business and a Bachelor of Science degree in Industrial Engineering from Purdue
University.
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Harold C. Bevis has served as a Director since June 2014. He has 25 years of business leadership experience, 21 years of Director experience, including over 15
years as a CEO. He was a business leader at both GE and Emerson Electric. He has led or directed 8 businesses in 6 industries, 150+ operating facilities in 22
countries, 12 new business/new plant startups, 11 acquisitions, 25+ global refinancings, and 24 business/plant expansions. Mr. Bevis has been Chairman and CEO
of Boxlight Corporation since January 2020 and has been a Director since March 2018. From October 2017 to February 2019, Mr. Bevis served as President of
OmniMax International. From August 2012 to April 2017, Mr. Bevis served as President, Chief Executive Officer and Director of Xerium Technologies, Inc.
Qualifications: Mr. Bevis has broad operational, management and governance experience. He has over 25 years of experience in senior and executive management
positions with multi-national corporations including responsibility for determining and executing successful strategies. Mr. Bevis has also served on eight Boards
of Directors and on Audit, Compensation and Governance Committees of Boards. Mr. Bevis earned a Master of Business Administration degree from Columbia
Business School and a Bachelor of Science degree in Industrial Engineering from Iowa State University.
Roger L. Fix has served as a Director since June 2014. He served as a member of the Board of Directors of Standex International Corporation from 2001 until
2017, when he retired from the Standex board. He served as Non-Executive Chairman from 2014 to 2016, and President and Chief Executive Officer of Standex
from 2003 to 2014. He was Standex’s President and Chief Operating Officer from 2001 to 2003. Prior to joining Standex, Mr. Fix held a number of general
management positions at Emerson Electric, the TI Group, plc and TRW over a period of more than 20 years. Mr. Fix has served as a Director of Flowserve
Corporation since 2006 where he was Chairman of the Corporate Nominating and Governance Committee and a member of the Compensation, Finance and Audit
Committees. Mr. Fix currently serves as the Non-Executive Chairman of the Board of Flowserve Corporation. Mr. Fix currently serves as a Director of Thermon
Holdings, where he serves as a member of the Compensation, Finance and Corporate Governance Committees.
Qualifications: Mr. Fix has broad operational, management and governance experience. He has over 35 years of experience in senior and executive management
positions with multi-national corporations which included responsibility for determining and executing successful strategies. Mr. Fix has also served on several
public company Boards and on Audit, Compensation, Finance and Governance Committees of Boards. Mr. Fix earned a Master’s degree in Mechanical
Engineering from the University of Texas and a Bachelor of Science degree in Mechanical Engineering from the University of Nebraska.
Wayne M. Rancourt has served as a Director since July 2016. Mr. Rancourt has served as Executive Vice President, Chief Financial Officer & Treasurer of Boise
Cascade Company since August 2009, a $4.4 billion in revenues North American based manufacturing and distribution company. Mr. Rancourt has over 30 years
of experience in various finance roles including chief financial officer, treasurer, investor relations, strategic planning, as well as internal audit.
Qualifications: Mr. Rancourt brings strong financial expertise to the Board through his experience in various finance roles. He has over 30 years of experience in
senior and executive management positions in the finance field which includes responsibility for determining and executing successful strategies. Mr. Rancourt, in
addition to being a member of Audit and Compensation Committees, has also served on the Nominating and Governance Committee of the Company. Mr.
Rancourt received a Bachelor of Science degree in Accounting from Central Washington University.
Janice E. Stipp has served as a Director since February 2019. Ms. Stipp has over 36 years of financial and accounting experience including as chief financial
officer of both public and private companies. In May 2018, Ms. Stipp retired as Senior Vice President, Chief Financial Officer and Treasurer for Rogers
Corporation, a global leader in engineered materials solutions. Prior to joining Rogers Corporation in November 2015, Ms. Stipp was Executive Vice President,
Chief Financial Officer and Treasurer for Tecumseh Products Company. She has also previously served as the Chief Financial Officer for Revstone Industries
LLC; Acument Global Technologies, Inc., a Platinum Equity portfolio company; and GDX Automotive, a Cerberus Equity portfolio company. Ms. Stipp currently
serves as a Director of ArcBest Corporation, SAPPI, and is on the Michigan State University Foundation Board.
Qualifications: Ms. Stipp brings strong financial expertise to the Board through her experience in various finance and accounting roles at both public and private
companies. She has over 36 years of experience in senior and executive management positions in finance and accounting fields that included responsibility for
determining and executing successful strategies. Ms. Stipp earned a Master of Business Administration degree from Wayne State University and a Bachelor of Arts
degree in Accounting from Michigan State University. Ms. Stipp also received her Certified Public Accountant certification and Chartered Global Management
Accountant certification.
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Table of Contents
B.
Executive Officers
Information regarding our executive officers is set forth in Item 1 of Part I of this Annual Report on Form 10-K under the heading “Executive Officers of the
Registrant.”
There are no family relationships between any of our directors or executive officers.
C.
Section 16(a) Beneficial Ownership Reporting Compliance and Corporate Governance
The information required by Item 10 with respect to compliance with reporting requirements is incorporated herein by reference to the sections labeled “Section
16(a) Beneficial Ownership Reporting Compliance” and “Proposal No. 1 - Election of Directors - Corporate Governance,” which appear in CVG’s 2020 Proxy
Statement.
Item 11.
Executive Compensation
The information required by Item 11 is incorporated herein by reference to the sections labeled “Executive Compensation - 2019 Director Compensation Table”
and “Executive Compensation” and “Proposal No. 1 - Election of Directors - Corporate Governance,” which appear in CVG’s 2020 Proxy Statement, including
information under the heading “Compensation Discussion and Analysis.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
There are no outstanding options, warrants or rights associated with the Company's Equity Incentive Plans. The following table summarizes the number of
securities remaining to be issued under the outstanding equity compensation plan as of December 31, 2019:
Number of Securities to be
Issued upon Exercise of
Outstanding Options,
Warrants and Rights
Weighted-average
Exercise Price of
Outstanding
Options, Warrants
and Rights
Number of
Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
2014 Equity Incentive Plan approved by security holders
— $
—
2,067,434
The information required by Item 12 is incorporated herein by reference to the section labeled “Security Ownership of Certain Beneficial Owners and
Management,” which appears in CVG’s 2020 Proxy Statement.
Item 13
Certain Relationships, Related Transactions and Director Independence
The information required by Item 13 is incorporated herein by reference to the sections labeled “Certain Relationships and Related Transactions” and “Proposal
No. 1 - Election of Directors - Corporate Governance,” which appear in CVG’s 2020 Proxy Statement.
Item 14.
Principal Accountant Fees and Services
The information required by Item 14 is incorporated herein by reference to the section labeled “Proposal No. 3 - Ratification of Appointment of the Independent
Registered Public Accounting Firm,” which appears in CVG’s 2020 Proxy Statement.
137
Table of Contents
PART IV
Item 15.
Exhibits, Financial Statements Schedules
(1)
LIST OF FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of the Corporation and its subsidiaries is included herein:
Schedule II - Valuation and Qualifying Accounts and Reserves.
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
December 31, 2019, 2018 and 2017
Accounts Receivable Allowances:
Activity for the years ended December 31 is as follows (in thousands):
Balance - Beginning of the year
Provisions
Utilizations
Currency translation adjustment
Balance - End of the year
Income Tax Valuation Allowance:
Activity for the years ended December 31 is as follows (in thousands):
Balance - Beginning of the year
Provisions
Utilizations
Balance - End of the year
2019
2018
2017
5,139 $
5,242 $
6,861
(7,357)
(9)
7,327
(7,392)
(38)
4,634 $
5,139 $
3,881
5,488
(4,264)
137
5,242
$
$
2019
2018
2017
14,665 $
15,021 $
706
(3,379)
874
(1,230)
11,992 $
14,665 $
12,546
2,506
(31)
15,021
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
(2) LIST OF EXHIBITS
The following exhibits are either included in this report or incorporated herein by reference as indicated below:
138
Table of Contents
Exhibit No.
2.1**
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
EXHIBIT INDEX
Description
Asset Purchase Agreement, dated as of January 28, 2011, by and among CVG Alabama LLC and Bostrom Seating, Inc., (incorporated by
reference to the Company’s annual report on Form 10-K (File No. 000-34365), filed on March 15, 2011).
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s quarterly report on Form 10-
Q (File No. 000-50890), filed on September 17, 2004).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated as of May 12, 2011 (incorporated
by reference to the Company’s current report on Form 8-K (File No. 001-34365), filed on May 13, 2011).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated as of May 15, 2015 (incorporated
by reference to the Company’s current report on Form 8-K (File No. 001-34365), filed on May 15, 2015).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated as of May 17, 2018 (incorporated
by reference to the Company’s current report on Form 8-K (File No. 001-34365), filed on May 18, 2018).
Amended and Restated By-laws of the Company (incorporated by reference to the Company’s quarterly report on Form 10-Q (File No. 000-
50890), filed on September 17, 2004).
Certificate of Designations of Series A Preferred Stock (included as Exhibit A to the Rights Agreement incorporated by reference to Exhibit
4.8) (incorporated by reference to the Company’s current report on Form 8-K (File No. 000-50890), filed on May 22, 2009.
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).
Commercial Vehicle Group, Inc. Rights Agreement, dated as of May 21, 2009, by and between the Company and Computershare Trust
Company, N.A. (incorporated by reference to the Company’s current report on Form 8-K (File No. 000-50890), filed on May 22, 2009).
Form of Rights Certificate (included as Exhibit B to the Rights Agreement) (incorporated by reference to the Company’s current report on
Form 8-K (File No. 000-50890), filed on May 22, 2009).
Form of Summary of Rights to Purchase (included as Exhibit C to the Rights Agreement) (incorporated by reference to the Company’s current
report on Form 8-K (File No. 000-50890), filed on May 22, 2009).
Commercial Vehicle Group, Inc. Amendment No. 1 to Rights Agreement, dated as of March 9, 2011, by and between the Company and
Computershare Trust Company, N.A. (incorporated by reference to the Company’s current report on Form 8-K (File No. 001-34365), filed on
March 9, 2011).
Form of Certificate of Common Stock of the Company (incorporated by reference to the Company’s registration statement on Form S-1/A
(File No. 333-115708), filed August 3, 2004).
Amended and Restated Loan and Security Agreement, dated as of April 26, 2011, by and among the Company, certain of the Company’s
subsidiaries, as borrowers, and Bank of America, N.A. as agent and lender (incorporated by reference to the Company’s current report on
Form 8-K (File No. 001-34365), filed on April 28, 2011.
Second Amended and Restated Loan and Security Agreement, dated as of November 15, 2013, by and among the Company, certain of the
Company’s subsidiaries, as borrowers, and Bank of America, N.A. as agent and lender, (incorporated by reference to the Company’s current
report on Form 8-K (File No. 001-34365), filed on November 21, 2013).
Third Amended and Restated Loan and Security Agreement, dated as of April 12, 2017, by and among the Company, certain of the
Company’s subsidiaries, as borrowers, and Bank of America, N.A. as agent and other lender parties thereto (incorporated by reference to the
Company’s current report on Form 8-K (File No. 001-34365), filed on April 13, 2017).
Term Loan Agreement, dated as of April 12, 2017, by and among the Company, Bank of America, N.A., as administrative agent, and other
lender parties thereto (incorporated by reference to the Company’s current report on Form 8-K (File No. 001-34365), filed on April 13, 2017).
Description of Securities.
139
Table of Contents
Exhibit No.
Description
10.1*
10.2*
10.3*
10.4*
10.5*
10.6
10.7
10.8
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
Commercial Vehicle Group, Inc. Fourth Amended and Restated Equity Incentive Plan (incorporated by reference to the Company’s current
report on Form 8-K (File No. 001-34365), filed on May 13, 2011).
Commercial Vehicle Group, Inc. 2014 Equity Incentive Plan (incorporated by reference from the Company proxy statement on Form Schedule
14A (File No. 001-34365), filed on April 11, 2014).
Amended and Restated Commercial Vehicle Group, Inc. 2014 Equity Incentive Plan (incorporated by reference from the Company's current
report on Form 8-K (File No. 001-34365), filed on May 17, 2017).
Commercial Vehicle Group, Inc. 2017 Annual Incentive Plan (incorporated by reference from the Company current report on Form 10-Q (File
No. 001-34365), filed on May 5, 2017).
Commercial Vehicle Group, Inc. Annual Incentive Plan (incorporated by reference to the Company’s current report on Form 8-K (File No.
001-34365), filed on March 14, 2018).
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. 333-115708), 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).
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).
Form of Cash Performance Award pursuant to the Commercial Vehicle Group, Inc. Fourth Amended and Restated Equity Incentive Plan
(incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 001-34365), filed on March 11, 2013).
Form of Restricted Stock Agreement pursuant to the Commercial Vehicle Group, Inc. 2014 Equity Incentive Plan (incorporated by reference
from the Company quarterly report on Form 10-Q (File No. 001-34365), filed on November 7, 2014).
Offer letter, dated September 27, 2013, to C. Timothy Trenary (incorporated by reference to the Company’s current report on Form 8-K (File
No. 001-34365), filed on September 30, 2013).
Change in Control & Non-Competition Agreement dated January 23, 2014 with C. Timothy Trenary (incorporated by reference to the
Company’s current report on Form 8-K (File No. 001-34365), filed on January 24, 2014).
Amended and Restated Deferred Compensation Plan dated November 5, 2008 (incorporated by reference to the Company’s annual report on
Form 10-K (File No. 000-50890), filed on March 16, 2009).
Form of indemnification agreement with directors and executive officers (incorporated by reference to the Company’s annual report on Form
10-K (File No. 000-50890), filed on March 14, 2008).
Change in Control & Non-Competition Agreement dated October 24, 2014 with Patrick Miller (incorporated by reference to the Company’s
current report on Form 8-K (File No. 001-34365), filed on October 28, 2014).
Employment Agreement, dated as of March 22, 2016, between the Company and Patrick E. Miller (incorporated by reference to the
company’s current report on form 8-K (File No. 001-34365), filed on March 24, 2016).
Change in Control & Non-Competition Agreement dated October 24, 2014 with Stacie Fleming (incorporated by reference to the Company’s
current report on Form 8-K (File No. 001-34365), filed on October 28, 2014).
Change in Control & Non-Competition Agreement dated February 1, 2016 with Dale McKillop (incorporated by reference to the Company's
Annual Report on Form 10-K (File No. 001-34365), filed on March 12, 2018).
Retention Bonus Agreement between the Company and Mr. Trenary effective March 22, 2016 (incorporated by reference to the Company’s
quarterly report on Form 10-Q (File No. 001-34365), filed on August 3, 2016).
Offer letter, dated May 25, 2017, to Douglas Bowen.
Change in Control & Non-Competition Agreement dated November 7, 2017 with Douglas Bowen.
140
Table of Contents
Exhibit No.
21.1
23.1
31.1
31.2
32.1
32.2
Subsidiaries of Commercial Vehicle Group, Inc.
Consent of KPMG LLP.
Description
302 Certification by Patrick E. Miller, President and Chief Executive Officer.
302 Certification by C. Timothy Trenary, Executive Vice President and Chief Financial Officer.
906 Certification by Patrick E. Miller pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002.
906 Certification by C. Timothy Trenary pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Schema Document
101.CAL
XBRL Calculation Linkbase Document
101.LAB
XBRL Label Linkbase Document
101.PRE
XBRL Presentation Linkbase Document
101.DEF
XBRL Definition Linkbase Document
*
**
Management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10-K.
The schedules and exhibits to the Asset Purchase Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S—K. The
Company will furnish supplementally a copy of any such omitted schedules or exhibits to the SEC upon request.
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.
141
Table of Contents
SIGNATURES
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.
COMMERCIAL VEHICLE GROUP, INC.
By:
/s/ Patrick E. Miller
Patrick E. Miller
President and Chief Executive Officer
Date: March 16, 2020
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 indicated on March 16, 2020.
Signature
/s/ Robert C. Griffin
Robert C. Griffin
/s/ Patrick E. Miller
Patrick E. Miller
/s/ Harold C. Bevis
Harold C. Bevis
/s/ Roger L. Fix
Roger L. Fix
/s/ Wayne M. Rancourt
Wayne M. Rancourt
/s/ Janice E. Stipp
Janice E. Stipp
/s/ C. Timothy Trenary
C. Timothy Trenary
/s/ Stacie N. Fleming
Stacie N. Fleming
Title
Chairman and Director
President, Chief Executive Officer
(Principal Executive Officer) and Director
Director
Director
Director
Director
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
142
DESCRIPTION OF SECURITIES
Exhibit 4.11
Description of Capital Stock
General
The following is a summary of information concerning capital stock of Commercial Vehicle Group, Inc. The summary and descriptions below do not purport to be
complete and are subject to, and qualified in their entirety by, our certificate of incorporation (the “Charter”) and Code of Regulations (“By-laws”) and by
provisions of applicable law.
Common Stock
Shares Outstanding. The Company is authorized to issue up to 60,000,000 shares of common stock, par value $0.01 per share (the “Common Stock”).
Dividend Rights. Subject to preferences that may apply to shares of Preferred Stock (defined below) outstanding at the time, holders of outstanding shares of
Common Stock are entitled to receive dividends out of assets legally available at the times and in the amounts as the board of directors may from time to time
determine.
Voting Rights. Each outstanding share of Common Stock is entitled to one vote on all matters submitted to a vote of stockholders. Holders of shares of Common
Stock do not have cumulative voting rights.
Preemptive or Similar Rights. Our Common Stock is not entitled to preemptive or other similar subscription rights to purchase any of our securities.
Conversion Rights. Our Common Stock is not convertible.
Right to Receive Liquidation Distributions. Upon our liquidation, dissolution or winding up, the holders of our Common Stock are entitled to receive pro rata our
assets which are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding.
Nasdaq Listing. Our Common Stock is listed on The Nasdaq Global Select Market under the symbol “CVGI.”
Fully Paid. The issued and outstanding shares of Common Stock are fully paid and non-assessable. This means the full purchase price for the outstanding shares of
Common Stock has been paid and the holders of such shares will not be assessed any additional amounts for such shares. Any additional shares of Common Stock
that the Company may issue in the future will also be fully paid and non-assessable.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of Preferred Stock, par value $0.01 per share (the “Preferred Stock”). The Company’s board of
directors may, without further action by the Company’s stockholders, from time to time, direct the issuance of shares of Preferred Stock in series and may, at the
time of issuance, determine the rights, preferences and limitations of each series.
Anti-Takeover Effects of our Charter and By-laws
Our Charter and By-laws contain certain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the board of
directors and which may have the effect of delaying, deferring or preventing a future takeover or change in control of the Company unless such takeover or change
in control is approved by the board of directors.
These provisions are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons
seeking to acquire control of the Company to first negotiate with the board of directors. The Company believes that the benefits of increased protection give it the
potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure us and outweigh the disadvantages of discouraging those proposals because negotiation of them
would result in an improvement of their terms.
These provisions include:
Action by Written Consent; Special Meetings of Stockholders. Our Charter provides that stockholder action can be taken only at an annual or special meeting of
stockholders and cannot be taken by written consent in lieu of a meeting. Our Charter and the By-laws provide that, except as otherwise required by law, special
meetings of the stockholders can only be called by the chairman of the board, or pursuant to a resolution adopted by a majority of the board of directors.
Stockholders are not permitted to call a special meeting or to require the board of directors to call a special meeting.
Advance Notice Procedures. Our By-laws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our
stockholders, including proposed nominations of persons for election to the board of directors. Stockholders at an annual meeting are only able to consider
proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors or by a stockholder (i) who
was a stockholder of record on the record date for the meeting, (ii) who is entitled to vote at the meeting, and (iii) who has given our Secretary timely written
notice, in proper form, of the stockholder’s intention to bring that business before the meeting. Although the By-laws do not give the board of directors the power
to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, the By-laws
may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential
acquiror from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company.
Super Majority Approval Requirements. The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to
vote on any matter is required to amend a corporation’s certificate of incorporation or by-laws, unless either a corporation’s certificate of incorporation or by-laws
require a greater percentage. Our Charter and By-laws provide that the affirmative vote of holders of at least 66 2/3% of the total votes eligible to be cast in the
election of directors will be required to amend, alter, change or repeal specified provisions. This requirement of a super-majority vote to approve amendments to
our Charter and By-laws could enable a minority of our stockholders to exercise veto power over any such amendments.
Authorized but Unissued Shares. Our authorized but unissued shares of Common Stock and Preferred Stock are available for future issuance without stockholder
approval. These additional shares may be utilized for a variety of corporate purposes, including public offerings to raise additional capital, corporate acquisitions,
and employee benefit plans. The existence of authorized but unissued shares of Common Stock and Preferred Stock could render more difficult or discourage an
attempt to obtain control of a majority of our Common Stock by means of a proxy contest, tender offer, merger or otherwise.
Anti-takeover Effects of Delaware Law
The Company is subject to Section 203 of the Delaware General Corporation Law (“Section 203”), an anti-takeover law. Section 203 provides that, subject to
exceptions specified therein, an “interested stockholder” of a Delaware corporation shall not engage in any “business combination,” including but not limited to
general mergers or consolidations or acquisitions of additional shares of the corporation, with the corporation for a three-year period following the time that such
stockholder becomes an interested stockholder unless:
•
•
•
prior to such time, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
upon consummation of the transaction which resulted in the stockholder becoming an “interested stockholder,” the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding specified shares); or
on or subsequent to such time, the business combination is approved by the board of directors of the corporation and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock not owned by the
interested stockholder.
Under Section 203, the restrictions described above also do not apply to specified business combinations proposed by an interested stockholder following the
announcement or notification of one of the specified transactions involving the corporation and a person who had not been an interested stockholder during the
previous three years or who became an interested stockholder with the approval of a majority of the corporation’s directors, if such transaction is approved or not
opposed by a majority of the directors who were directors prior to any person becoming an interested stockholder during the previous three years or were
recommended for election or elected to succeed such directors by a majority of such directors.
Except as otherwise specified in Section 203, an “interested stockholder” is defined to include:
•
•
any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the date of determination;
and
the affiliates and associates of any such person.
Under some circumstances, Section 203 makes it more difficult for a person who is an interested stockholder to effect various business combinations with a
corporation for a three-year period. We have not elected to be exempt from the restrictions imposed under Section 203.
Transfer Agent and Registrar
Computershare Trust Company has been appointed as the transfer agent and registrar for our Common Stock.
May 25, 2017
Mr. Douglas Bowen
Subject: Commercial Vehicle Group Employment Offer
Dear Doug:
Exhibit 10.20
On behalf of Pat Miller, I am pleased to extend the following offer of employment with Commercial Vehicle Group, Inc. (The “Company”).
Job Title
Senior Vice President and Managing Director – Global Construction, Agriculture & Military Markets.
Start Date Monday, June 12, 2017.
Reports To Patrick Miller, President and Chief Executive Officer.
Salary
$265,000 if annualized, payable bi-weekly in accordance with the Company’s standard payroll processes.
Relocation
To support your relocation to the central Ohio market, the Company will arrange for up to 90 days of furnished temporary housing in
the Columbus area.
Additionally, you will be eligible for a one time, taxable, relocation bonus of $35,000 to offset out-of-pocket expenses associated with
your move. This taxable bonus will be paid in the first regularly scheduled payroll following 30 days of employment, and is subject to
recovery if you resign or are terminated for cause within 12 months of the payment date. The amount recoverable will be equal to 1/12th
of the relocation bonus for each full month left in the repayment period at the time of separation.
Signing
Incentive
As soon as administratively feasible following 30 days of employment, you will be granted a restricted stock award valued at $50,000,
pursuant to the terms of the Company’s Equity Incentive Plan. One third of these shares will vest on October 20, 2017 and the balance
will vest ratably on October 20, 2018 and October 20, 2019. The terms and conditions of the award shall be governed in all respects by
the definitive documentation related to the grant of such award.
Annual Bonus You will be eligible for an annual discretionary award targeted at 50% of your base compensation, pro-rated for 2017 based on your
start date.
7800 Walton Parkway / New Albany, OH / 43054 / 614.289.5360
Our Annual Incentive Plan (“AIP”) measures for 2017 are exclusively financial in nature and are tied to corporate and divisional Net
Sales, Operating Profit Margin and Return on Average Invested Capital. Payouts range from 0% - 200% of target, based on actual
performance against plan.
For the 2017 plan year only, the Company will guarantee a minimum, pro-rated AIP payout at target.
Long Term
Incentives
You will be eligible to receive equity and other long-term incentive awards under any applicable plan adopted by the Company during
your employment term for which similarly situated employees are generally eligible. The level of participation in any such plan shall be
determined at the sole discretion of the Board from time to time, but will be no less than 50% of your base salary for 2017.
Awards under the Plan may be issued in restricted stock and/or restricted cash awards under terms and conditions that are no
less favorable than those awards granted to similarly situated officers of the Company.
Vacation
Four weeks per calendar year, pro-rated for 2017 at 13.33 hours per month.
Holidays
Ten days, in accordance with annual observation calendar, which typically includes New Year’s Day, Spring Break (Good Friday),
Memorial Day, Independence Day, Labor Day, Thanksgiving (2 days), Christmas Eve, Christmas Day and New Year’s Eve.
Group Benefits Hospital/Surgical/Medical, Dental and Vision insurance is available for you and your eligible dependents. Coverage is effective on the
first day of the month following your date of hire. A bi-weekly payroll deduction will apply based on the type of coverage you select.
Group life insurance coverage equal to $750,000 is provided at no cost to you and with no medical exam required. This
coverage is also effective on the first day of the month following your date of hire.
Short term disability coverage applies after 180 days of employment and provides disability pay at 100% of your base salary
for the first two weeks of a qualifying event and up to an additional 24 weeks thereafter at 60% of base salary.
Long term disability coverage takes effect following the exhaustion of your short term disability coverage as a source of long
term wage replacement resulting from a covered injury or illness.
All associates over the age of eighteen are eligible for enrollment in our 401(k) Savings Plan on the first day of the month
following 30 days of service. New employees are automatically enrolled in the CVG 401(k) Plan, unless they specifically opt out. The
Company matches 100% of the first 3% of employee contributions, and 50% of the next 2% of employee contributions. All matching
dollars vest immediately under the Plan.
You will also be eligible to enroll in Commercial Vehicle Group’s Deferred Compensation Plan, with an annual enrollment
window in the fourth quarter of each year.
Details on all of our salaried benefit programs are enclosed with this letter. Notwithstanding the foregoing, the Company may
modify or terminate any employee benefit plan at any time.
7800 Walton Parkway / New Albany, OH / 43054 / 614.289.5360
Stock
Ownership
Pursuant to the Company’s Stock Ownership Guidelines, Section 16 Officers are expected to own and hold shares of the Company’s
common stock with a Value (as defined in the Stock Ownership Policy) equal to two times base salary. Covered executives do not have
a timeframe to achieve compliance but are unable to trade CVG securities until compliance is achieved, other than the surrender of
shares as needed to satisfy tax withholding obligations on vested stock awards.
Conditional
This offer is contingent upon you successfully passing a pre-employment background check, reference check, and drug screen.
This offer will remain open through close of business on Tuesday, May 30, 2017. If you have any questions, please contact me directly at 614-289-0253.
On behalf of Pat Miller, and all of us at CVG, we look forward to welcoming you to the organization soon and working with you in this new role. If there
is anything I can do to support your transition in the coming weeks, please don’t hesitate to ask.
Sincerely,
/s/ Laura L. Macias
Laura L. Macias
Chief Human Resources Officer
Acknowledged and Accepted:
/s/ Douglas Bowen
Douglas Bowen
Acknowledgement and Acceptance Effective Date: May 30, 2017
cc: Patrick Miller
Kathleen Tamayo – Spencer Stuart
7800 Walton Parkway / New Albany, OH / 43054 / 614.289.5360
Exhibit 10.21
CHANGE IN CONTROL &
NON-COMPETITION AGREEMENT
This Agreement is made as of this 7th day of November, 2017, by and between Douglas F. Bowen (“Executive”) and Commercial Vehicle Group, Inc.,
a Delaware corporation with its principal office at 7800 Walton Parkway, New Albany, Ohio 43054, its subsidiaries, successors and assigns (the
“Company”).
Recitals
A. The Company is engaged in the business of developing, manufacturing, and marketing of interior systems, vision safety solutions and other cab-
related related products for the global commercial vehicle market, including the heavy-duty (Class 8) truck market, the construction market and
other specialized transportation markets and in connection therewith develops and uses valuable technical and nontechnical trade secrets and
other confidential information which it desires to protect.
B. You will continue to be employed as an officer or key employee of the Company.
C. The Company considers your continued services to be in the best interest of the Company and desires, through this Agreement, to assure your
continued services on behalf of the Company on an objective and impartial basis and without distraction or conflict of interest in the event of an
attempt to obtain control of the Company.
D. You are willing to remain in the employ of the Company on the terms set forth in this agreement.
NOW, THEREFORE, the parties agree as follows:
Agreement
1. Consideration. As consideration for your entering into this Agreement and your willingness to remain bound by its terms, the Company shall
continue to employ you and provide you with access to certain Confidential Information as defined in this Agreement and other valuable
consideration as provided for throughout this Agreement, including in Sections 3 and 4 of this Agreement.
2. Employment
a) Position. You will continue to be employed as Senior Vice President and Managing Director of Global Construction, Agriculture &
Military, reporting to the President and Chief Executive Officer of the Company. You shall continue to perform the duties, undertake
the responsibilities and exercise the authority customarily performed, undertaken and exercised by persons employed in similar
executive capacities.
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b) Restricted Employment. While employed by the Company, you shall devote your best efforts to the business of the Company and
shall not engage in any outside employment or consulting work without first securing the approval of the Company’s Board of
Directors. Furthermore, so long as you are employed under this Agreement, you agree to devote your full time and efforts exclusively
on behalf of the Company and to competently, diligently, and effectively discharge your duties hereunder. You shall not be prohibited
from engaging in such personal, charitable, or other non-employment activities that do not interfere with your full time employment
hereunder and which do not violate the other provisions of this Agreement. You further agree to comply fully with all policies and
practices of the Company as are from time to time in effect.
3. Compensation
a) Your compensation will be continued at your current annual base rate (“Basic Salary), payable in accordance with the normal payroll
practices of the Company. Your base salary may be increased from time to time by action of the Board of Directors of the Company.
You will also be eligible for a cash bonus under a performance bonus plan which is determined annually by the Board of Directors of
the Company.
b) You will be entitled to receive equity and other long term incentive awards (including but not limited to stock awards) pursuant to the
terms of the Company’s Equity Incentive Plan or other plan adopted by the Board of Directors of the Company from time to time. If a
“Change in Control,” as defined in Section 8(e)(v) shall occur (i) in which the Company does not survive as a result of such Change in
Control, or substantially all of the assets of the Company are sold as a result of such Change in Control, and (ii) in which the surviving
entity does not assume the obligations of your outstanding stock options upon the Change in Control, then all outstanding stock options
and restricted stock issued to you prior to the Change in Control will be immediately vested upon such Change of Control and such
options will be exercisable for a period of at least 12 months from the date of the Change in Control, but, in no event, following the
expiration date of the term of such stock options.
c) Subject to applicable Company policies, you will be reimbursed for necessary and reasonable business expenses incurred in connection
with the performance of your duties hereunder or for prompting, pursuing or otherwise furthering the business or interest of the
Company.
4. Fringe Benefits. You will be entitled to receive employee benefits and participate in any employee benefit plans, in accordance with their
terms as from time to time amended, that the Company maintains during your employment and which are made generally available to all other
executive management employees in like positions. This includes medical and dental insurance, life insurance, disability insurance,
supplemental medical insurance and 401(k) plan including all executive benefits as approved by the Board of Directors’ Compensation
Committee.
5. Confidential Information
a) As used throughout this Agreement, the term “Confidential Information” means any information you acquire during employment by the
Company (including information you conceive, discover or develop) which is not readily available to the general public and which
relates to the business, including research and development projects, of the Company, its subsidiaries or its affiliated companies.
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b) Confidential Information includes, without limitation, information of a technical nature (such as trade secrets, inventions, discoveries,
product requirements, designs, software codes and manufacturing methods), matters of a business nature (such as customer lists, the
identities of customer contacts, information about customer requirements and preferences, the terms of the Company’s contracts with its
customers and suppliers, and the Company’s costs and prices), personnel information (such as the identities, duties, customer contacts,
and skills of the Company’s employees) and other financial information relating to the Company and its customers (including credit
terms, methods of conducting business, computer systems, computer software, personnel data, and strategic marketing, sales or other
business plans.) Confidential Information may or may not be patentable.
c) Confidential Information does not include information which you learned prior to employment with the Company from sources other
than the Company, information you develop after employment from sources other than the Company’s Confidential Information or
information which is readily available to persons with equivalent skills, training and experience in the same fields or fields of endeavor
as you. You must presume that all information that is disclosed or made accessible to you during employment by the Company is
Confidential Information if you have a reasonable basis to believe the information is Confidential Information or if you have notice that
the Company treats the information as Confidential Information.
d) Except in conducting the Company’s business, you shall not at any time, either during or following your employment with the
Company, make use of, or disclose to any other person or entity, any Confidential Information unless (i) the specific information
becomes public from a source other than you or another person or entity that owes a duty of confidentiality to the Company and (ii)
twelve months have passed since the specific information became public. However, you may discuss Confidential Information with
employees of the Company when necessary to perform your duties to the Company. Notwithstanding the foregoing, if you are ordered
by a court of competent jurisdiction to disclose Confidential Information, you will officially advise the Court that you are under a duty
of confidentiality to the Company hereunder, take reasonable steps to delay disclosure until the Company may be heard by the Court,
give the Company prompt notice of such Court order, and if ordered to disclose such Confidential Information you shall seek to do so
under seal or in camera or in such other manner as reasonably designed to restrict the public disclosure and maintain the maximum
confidentiality of such Confidential Information.
e) Upon Employment Separation, you shall deliver to the Company all originals, copies, notes, documents, computer data bases, disks,
and CDs, or records of any kind that reflect or relate to any Confidential Information. As used herein, the term “notes” means written or
printed words, symbols, pictures, numbers or formulae. As used throughout this Agreement, the term “Employment Separation” means
the separation from and/or termination of your employment with the Company, regardless of the time, manner or cause of such
separation or termination.
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6.
Inventions.
a) As used throughout this Agreement, the term “Inventions” means any inventions, improvements, designs, plans, discoveries or
innovations of a technical or business nature, whether patentable or not, relating in any way to the Company’s business or contemplated
business if the Invention is conceived or reduced to practice by you during your employment by the Company. Inventions include all
data, records, physical embodiments and intellectual property pertaining thereto. Inventions reduced to practice within one year
following Employment Separation shall be presumed to have been conceived during employment.
b)
Inventions are the Company’s exclusive property and shall be promptly disclosed and assigned to the Company without additional
compensation of any kind. If requested by the Company, you, your heirs, your executors, your administrators or legal representative
will provide any information, documents, testimony or other assistance needed for the Company to acquire, maintain, perfect or
exercise any form of legal protection that the Company desires in connection with and Invention.
c) Upon Employment Separation, you shall deliver to the Company all copies of and all notes with respect to all documents or records of
any king that relate to any Inventions.
7. Non-competition and Non-solicitation.
a) By entering into this Agreement, you acknowledge that the Confidential Information has been and will be developed and acquired by
the Company by means of substantial expense and effort, that the Confidential Information is a valuable asset of the Company’s
business, that the disclosure of the Confidential Information to any of the Company’s competitors would cause substantial and
irreparable injury to the Company’s business, and that any customers of the Company developed by you or others during your
employment are developed on behalf of the Company. You further acknowledge that you have been provided with access to
Confidential Information, including Confidential Information concerning the Company’s major customers, and its technical, marketing
and business plans, disclosure or misuse of which would irreparably injure the Company.
b)
In exchange for the consideration specified in Section 1 of this Agreement — the adequacy of which you expressly acknowledge —
you agree that during your employment by the Company and for a period of twelve (12) months following Employment Separation, you
shall not, directly or indirectly, as an owner, shareholder, officer, employee, manager, consultant, independent contractor, or otherwise:
(i)
(ii)
Attempt to recruit or hire, interfere with or harm, or attempt to interfere with or harm, the relationship of the Company, its
subsidiaries or affiliates, with any person who is an employee, customer or supplier of the Company, its subsidiaries or
affiliates;
Contact any employee of the Company for the purpose of discussion or suggesting that such employee resign form
employment with the Company for the purpose of becoming employed elsewhere or provide information about individual
employees of the Company or personnel policies or procedures of the Company to any person
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or entity, including any individual, agency or company engaged in the business of recruiting employees, executives or
officer; or
(iii) Own, manage, operate, join control, be employed by, consult with or participate in the ownership, management, operation
or control of, or be connected with (as a stockholder, partner, or otherwise), any business, individual, partner, firm,
corporation, or other entity that competes or plans to compete, directly or indirectly, with the Company, its products, or
any division, subsidiary or affiliate of the Company; provided, however, that your “beneficial ownership,” either
individually or as a member of a “group” as such terms are used in Rule 13d of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of not more than two percent (2%) of the voting
stock of any publicly held corporation, shall not be a violation of this Agreement.
8. Termination of Employment
a) Termination Upon Death or Disability. Your employment will terminate automatically upon your death. The Company will be entitled
to terminate your employment because of your disability upon 30 days written notice. “Disability” will mean “total disability” as
defined in the Company’s long term disability plan or any successor thereto. In the event of a termination under this Section, 8 (a), the
Company will pay you the earned but unpaid portion of your Basic Salary through the termination date. Additionally, you will be
entitled to any Annual Bonus earned with respect to the previous calendar year, but unpaid as of the employment termination date; and
a prorated amount of the Annual Bonus for the calendar year in which the termination occurs, calculated by multiplying the Annual
Bonus that the Executive would have received for such year had Executive’s employment continued through the end of such calendar
year by a fraction, the numerator of which is the number of days the Executive was employed during the applicable year and the
denominator of which is 365.
b) Termination by Company for Cause. An Employment Separation for Cause will occur upon a determination by the Company that
“Cause” exists for your termination and the Company serves you written notice of such termination. As used in this Agreement, the
term “Cause” shall refer only to any one or more of the following grounds:
(i)
(ii)
Commission of an act of dishonesty involving the Company, its business or property, including, but not limited to,
misappropriation of funds or any property of the Company;
Engagement in activities or conduct clearly injurious to the best interest or reputation of the Company;
(iii) Willful and continued failure substantially to perform your duties under this Agreement (other than as a result of physical
or mental illness or injury), after the Board of Directors of the Company delivers to you a written demand for substantial
performance that specifically identifies the manner in which the Board believes that you have not substantially performed
your duties;
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(iv)
(v)
(vi)
Illegal conduct or gross misconduct that is willful and results in material and demonstrable damage to the business or
reputation of the Company;
The clear and willful violation of any of the material terms and conditions of this Agreement or any other written
agreement or agreements you may from time to time have with the Company;
The clear and willful violation of the Company’s code of business conduct or the clear violation of any other rules of
behavior as may be provided in any employee handbook which would be grounds for dismissal of any employee of the
Company or;
(vii) Commission of a crime which is a felony, a misdemeanor involving an act of moral turpitude, or a misdemeanor
committed in connection with your employment by the Company which causes the Company a substantial detriment.
(viii) No act or failure to shall be considered “willful” unless it is done, or omitted to be done, by you in bad faith or without
reasonable belief that your action or omission was in the best interests of the Company. Any act or failure to act that is
based upon authority given pursuant to a resolution duly adopted by the Board of Directors, or the advice of counsel for
the Company, shall be conclusively presumed to be done, or omitted to be done, by you in the good faith and in the best
interest of the Company.
(ix)
(x)
In the event of a termination under this Section 8 (b), the Company will pay you only the earned but unpaid portion of
your Basic Salary through the termination date.
Following a termination for Cause by the Company, if you desire to contest such determination, your sole remedy will be
to submit the Company’s determination of Cause to arbitration in Columbus, Ohio before a single arbitrator under the
commercial arbitration rules of the American Arbitration Association. If the arbitrator determines that the termination was
other than for Cause, the Company’s sole liability to you will be the amount that would be payable to you under Section
8.d) of this Agreement for a termination of your employment by the Company without Cause. Each party will bear his or
its own expenses of the arbitration.
c) Termination by You. In the event of an Employment Separation as a result of a termination by your for any reason, you must provide
the Company with a least 14 days advance written notice (“Notice of Termination”) and continue working for the Company during the
14-day notice period, but only if the Company so desires to continue your employment and to compensate you during such period.
In the event of such termination under this Section, the Company will pay you the earned but unpaid portion of your Basic Salary
through the termination date.
d) Termination by Company Without Cause. In the event of an Employment Separation as a result of termination by the Company without
Cause, the Company will pay you the earned but unpaid
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portion of your Basic Salary through the termination date and will continue to pay you your Basic Salary in accordance with the
Company’s payroll practices in effect at the time of the Employment Separation for an additional twelve (12) months (the “Severance
Period”); provided, however, any such payments will immediately end if (i) you are in violation of any of your obligations under this
Agreement, including Sections 5, 6 or 7 ; or (ii) the Company, after your termination, learns of any facts about your job performance or
conduct that would have given the Company Cause, as defined in Section 8.b), to terminate your employment. Additionally, you will be
entitled to any Annual Bonus earned with respect to the previous calendar year, but unpaid as of the employment termination date; and
a prorated amount of the Annual Bonus for the calendar year in which the termination occurs, calculated by multiplying the Annual
Bonus that the Executive would have received for such year had Executive’s employment continued through the end of such calendar
year by a fraction, the numerator of which is the number of days the Executive was employed during the applicable year and the
denominator of which is 365.
e) Termination Following Change of Control. If a “Change in Control” as defined in Section 8 (e) (v), shall have occurred and within 13
months following such Change in Control the Company terminates your employment other than for Cause, as defined in Section 8 (b),
or you terminate your employment for Good Reason, as that term is defined in Section 8(e) (vi), then you shall be entitled to the
benefits described below:
(i)
(ii)
(iii)
You shall be entitled to the unpaid portion Basic Salary plus credit for any vacation accrued but not taken and the amount
of any earned but unpaid portion of any bonus, incentive compensation, or any other Fringe Benefit to which you are
entitled under this Agreement through the date of the termination as a result of a Change in Control (the “Unpaid Earned
Compensation”), plus 1.0 times your “Current Annual Compensation” as defined in this Section 8e (i) (the “Salary
Termination Benefit”). “Current Annual Compensation” shall mean the total of your Basic Salary in effect at the
Termination Date, plus the average annual performance bonus actually received by you over the last three years fiscal
years (or if you have been employed for a shorter period of time over such period during which you performed services
for the Company) plus any medical, financial and insurance coverage provided presently under your current annual
compensation plan, and shall not include the value of any stock options granted or exercised, restricted stock awards
granted or vested, contributions to 401 (k) or other qualified plans.”
Immediate vesting of all outstanding stock options and restricted stock awards issued to you, and thereafter shall be
exercisable for a period of at least 12 months after the Termination Date but, in no event following the expiration date of
eh term of such options.
The Company shall maintain for your benefit (or at your election make COBRA payments for your benefit), until the
earlier of (A) 12 months after termination of employment following a Change in Control, or (B) your commencement of
full-time employment with a new employer with comparable benefits, all life insurance, medical, health and accident, and
disability plans or programs, such plans or programs to be maintained at the then current standards of the Company, in
which you shall have been entitled to participate prior to termination of employment
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(iv)
(v)
following a Change in Control, provided your continued participation is permitted under the general terms of such plans
and programs after the Change in Control (“Fringe Termination Benefit”); (collectively the Salary Termination Benefit
and the Fringe Termination Benefit are referred to as the “Termination Benefits”).
The Unpaid Earned Compensation shall be paid to you within 15 days after termination of employment, one-half of the
Salary Termination Benefit shall be payable to you as severance pay in a lump sum payment within 30 days after
termination of employment, and one-half of the Salary Termination Benefit shall be payable to you as severance pay in
equal monthly payments commencing 30 days after termination of employment and ending on the date that is the earlier
of two and one-half months after the end of the Company’s fiscal year in which termination occurred or your death;
provided, however, the Company may immediately discontinue the payment of the Termination Benefits if (i) you are in
violation of any of your obligations under this Agreement, including in Sections 5, 6 or 7; and/or (ii) the Company, after
your termination, learns of any facts about your job performance or conduct that would have given the Company Cause as
defined in Section 8 (b) to terminate your employment. You shall have no duty to mitigate your damages by seeking other
employment, and the Company shall not be entitled to set off against amounts payable hereunder any compensation
which you may receive from future employment. To the extent necessary, the parties hereto agree to negotiate in good
faith should any amendment to this Agreement required in order to comply with Section 409A of the Code, provided,
however, no amendment shall be effected after the occurrence of a Change in Control.
A “Change in Control” shall be deemed to have occurred if and when, after the date hereof, (i) any “person” (as that term
is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on the date
hereof), including any “group” as such term is used in Section 13(d)(3) of the Exchange Act on the date hereof, shall
acquire (or disclose the previous acquisition of) beneficial ownership (as that term is defined in Section 13(d) of the
Exchange Act and the rules thereunder on the date hereof) of shares of the outstanding stock of any class or classes of the
Company which results in such person or group possessing more than 50% of the total voting power of the Company’s
outstanding voting securities ordinarily having the right to vote for the election of directors of the Company; or (ii) as the
result of, or in connection with, any tender or exchange offer, merger or other business combination, or contested
election, or any combination of the foregoing transactions (a “Transaction”), the owners of the voting shares of the
Company outstanding immediately prior to such Transaction own less than a majority of the voting shares of the
Company after the Transaction; or (iii) during any period of two consecutive years during the term of this Agreement,
individuals who at the beginning of such period constitute the Board of Directors of the Company (or who take office
following the approval of a majority of the directors then in office who were directors at the beginning of the period)
cease for any reason to constitute at least one-half thereof, unless the election of each director who was not a director at
the beginning of such period has been approved in advance by directors of the Company representing at least one-half of
the directors then in
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office who were directors at the beginning of the period; or (iv) the sale, exchange, transfer, or other disposition of all or
substantially all of the assets of the Company (a “Sale Transaction”) shall have occurred. Notwithstanding the foregoing,
an event shall not be treated as a “Change in Control” hereunder unless such event also constitutes a change in the
ownership of a substantial portion of the assets of a corporation pursuant to the Section 409A of the Internal Revenue
Code of 1986, as amended (the “Code”) and the treasury regulations and other official guidance promulgated thereunder
(collectively, “Code Section 409A”).
(vi) As used in this Agreement, the term “Good Reason” means without your written consent:
(A)a material change in our status, position or responsibilities which, in your reasonable judgment, does not
represent a promotion from your existing status, position or responsibilities as in effect
immediately prior to the Change in Control; the assignment of any duties or responsibilities or
the removal or termination of duties or responsibilities (except in connection with the
termination of employment for total and permanent disability, death, or Cause, or by you other
than for Good Reason), which, in your reasonable judgment, are materially inconsistent with
such status, position or responsibilities;
(B)a reduction by the Company in your Basic Salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the Company’s failure to
increase (within twelve months of your last increase in Basic Salary) your Basic Salary after a
Change in Control in an amount which at least equals, on a percentage basis, the average
percentage increase in Basic Salary for all executive and senior officers of the Company, in
like position, which were effected in the preceding twelve months;
(C)the relocation of the Company’s principal executive office to a location outside the greater Columbus
metropolitan area or the relocation of you by the Company to any place other than the location
at which you performed duties prior to a Change in Control, except for required travel on the
Company’s business to an extent consistent with business travel obligations at the time of a
Change in Control;
(D)the failure of the Company to continue in effect, or continue or materially reduce your participation in, any
incentive, bonus or other compensation plan in which you participate, including but not limited
to the Company’s stock option plans, unless an equitable arrangement (embodied in ongoing
substitute or alternative plan), has been made or offered with respect to such plan in connection
with the Change in Control;
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(E)the failure by the company to continue to provide you with benefits substantially similar to those enjoyed or to
which you are entitled under any of the Company’s deferred compensation, pension, profit
sharing, life insurance, medical, dental, health and accident, or disability plans at the time of a
Change in Control, the taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed or
to which you are entitled at the time of the Change in Control, or the failure by the Company to
provide the number of paid vacation and sick leave days to which you are entitled on the basis
of years of service with the Company in accordance with the Company’s normal vacation
policy in effect on the date hereof;
(F)the failure of the Company to obtain a satisfactory agreement from any successor or assign of the Company to
assume and agree to perform this Agreement;
(G)any request by the Company that you participate in an unlawful act or take any action constituting a breach of
your professional standard of conduct; or
(H)any breach of the Agreement on the part of the Company, Notwithstanding anything in this Section to the
contrary, your right to terminate your employment pursuant to this Section shall not be affected
by incapacity due to physical or mental illness.
(vii) Upon any termination or expiration of the Agreement or any cessation of your employment hereunder, the Company shall
have no further obligations under this Agreement and no further payments shall be payable by the Company to you,
except as provided in Section 8 above and except as required under any benefit plans or arrangements maintained by the
Company and applicable to you at the time of such termination, expiration or cessation of your employment.
(viii) Enforcement of Agreement. The Company is aware that upon the occurrence of a Change in Control, the Board of
Directors or a shareholder of the Company may then cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company to institute, or may institute litigation
seeking to have this Agreement declared unenforceable, or may take or attempt to take other action to deny you the
benefits intended under this Agreement. In these circumstances, the purpose of this Agreement could be frustrated.
Accordingly, if following a Change in Control it should appear to you that the Company has failed to comply with any of
its obligations under Section 8 of this Agreement or in the event that the Company or any other person takes any action to
declare Section 8 of this Agreement void or enforceable , or institutes any litigation or other legal action designed to deny,
diminish or to recover from you the benefits entitled to be provided to you under Section 8, and that you have complied
with all your obligations under this Agreement, the Company authorizes
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you to retain counsel of your choice, at the expense of the Company as provided in this Section 8(e)(viii), to represent you
in connection with the initiation or defense of any pre-suit settlement negotiations, litigation or other legal action, whether
such action is by or against the Company or any Director, officer, shareholder, or other person affiliated with the
Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company
and such counsel, the Company consents to you entering into an attorney-client relationship with such counsel, and in that
connection the Company and you agree that a confidential relationship shall exist between you and such counsel, except
with respect to any fee and expense invoices generated by such counsel. The reasonable fees and expenses of counsel
selected by you as hereinabove provided shall be paid or reimbursed to you by the Company on a regular, periodic basis
upon presentation by you of a statement or statements prepared by such counsel in accordance with its customary
practices, up to a maximum aggregate amount of $50,000. Any legal expenses incurred by the Company by reason of any
dispute between the parties as to enforceability of Section 8 or the terms contained in Section 8 (f) notwithstanding the
outcome of any such dispute, shall be the sole responsibility of the Company, and the Company shall not take any action
to seek reimbursement from you for such expenses.
f) The non-competition periods described in Section 7 of this Agreement shall be suspended while you engage in any activities in breach
of this Agreement. In the event that a court grants injunctive relief to the Company for your failure to comply with Section 7, the
noncompetition period shall begin again on the date such injunctive relief is granted.
g) Nothing contained in this Section 8 shall be construed as limiting your obligations under Sections 5, 6 or 7 of this Agreement
concerning Confidential Information, Inventions, or Non-competition and Non-solicitation.
9. Remedies; Venue; Process.
a) You hereby acknowledge and agree that the Confidential Information disclosed to you prior to and during the term of this Agreement is
of a special, unique and extraordinary character, and that any breach of this Agreement will cause the Company irreparable injury and
damage, and consequently the Company shall be entitled, in addition to all other legal and equitable remedies available to it, to
injunctive and any other equitable relief to prevent or cease a breach of Sections 5, 6 or 7 of this Agreement without further proof of
harm and entitlement; that the terms of this Agreement, if enforced by the Company, will not unduly impair your ability to earn a living
or pursue your vocation; and further, that the Company may cease paying any compensation and benefits under Section 8 if you fail to
comply with this Agreement, without restricting the Company from other legal and equitable remedies. The parties agree that the
prevailing party in litigation concerning a breach of this Agreement shall be entitled to all costs and expenses (including reasonable
legal fees and expenses) which it incurs in successfully enforcing this Agreement and in prosecuting or defending any litigation
(including appellate proceedings) concerning a breach of this Agreement.
b) Except for actions brought under Section 8 (b) of this Agreement, the parties agree that jurisdiction and venue in any action brought
pursuant to this Agreement to enforce its terms or otherwise with
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respect to the relationships between the parties shall properly lie in either the United States District Court for the Southern District of
Ohio, Eastern Division, Columbus, Ohio, or the Court of Common Pleas of Franklin County, Ohio. Such jurisdiction and venue is
exclusive, except that the Company may bring suit in any jurisdiction and venue where jurisdiction and venue would otherwise be
proper if you may have breached Sections 5, 6 or 7 of this Agreement. The parties further agree that the mailing by certified or
registered mail, return receipt requested, of any process required by any such court shall constitute valid and lawful service of process
against them, without the necessity for service by any other means provided by statute or rule of court.
10. Exit Interview. Prior to Employment Separation, you shall attend an exit interview if desired by the Company and shall, in any event, inform
the Company at the earliest possible time of the identify of your future employer and of the nature of your future employment.
11. No Waiver. Any failure by the Company to enforce any provision of the Agreement shall not in any way affect the Company’s right to enforce
such provision or any other provision at a later time.
12. Saving. If any provision of this Agreement is later found to be completely or partially unenforceable, the remaining part of that provision of any
other provision of this Agreement shall still be valid and shall not in any way be affected by the finding. Moreover, if any provision is for any
reason held to be unreasonably broad as to time, duration, geographical scope, activity or subject, such provision shall be interpreted and
enforced by limiting and reducing it to preserve enforceability to the maximum extent permitted by law.
13. No Limitation. You acknowledge that your employment by the Company may be terminated at any time by the Company or by you with or
without cause in accordance with the terms of this Agreement. This Agreement is in addition to and not in place of other obligations of trust,
confidence and ethical duty imposed on you by law.
14. Governing Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Ohio without reference to its
choice of law rules.
15. Final Agreement. This Agreement replaces any existing agreement between you and the Company relating to the same subject matter and may
be modified only by an agreement in writing signed by both you and a duly authorized representative of the Company.
16. Further Acknowledgements. YOU ACKNOWLEDGE THAT YOU HAVE RECEIVED A COPY OF THIS AGREEMENT, THAT YOU
HAVE READ AND UNDERSTOOD THIS AGREEMENT, THAT YOU UNDERSTAND THIS AGREEMENT AFFECTS YOUR RIGHTS,
AND THAT YOU HAVE ENTERED INTO THIS AGREEEMENT VOLUNTARILY.
17. Code of Section 409A Compliance
a) The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A and, accordingly, to the
maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. To the extent that any provision hereof is
modified in order to comply with Code Section 409A, such modification shall be made in good faith and shall, to the maximum extent
reasonably possible, maintain the original intent and economic benefit to the parties hereto of the applicable provision without violating
the provisions of Code Section 409A. In no event whatsoever shall the Company be liable for any additional tax, interest
Page 12 of 12 Change in Control & Non-competition Agreement | Bowen
or penalty that may be imposed on the Executive by Code Section 409A or damages for failing to comply with Code Section 409A.
b) An “Employment Separation: shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the
payment of any amounts or benefits upon or following an Employment Separation unless such Employment Separation is also a
“separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement,
references to an Employment Separation or like terms shall mean “separation from service.” If the Executive is deemed on the date of
termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any
payment or the provision of any benefit that is considered deferred compensation under Code Section 409A payable on account of a
“separation from service,” such payment or benefit shall be made or provided at the date which is the earlier of (i) the expiration of the
six (6)-month period measured from the date of such “separation from service” of the Executive, and (ii) the date of the Executive’s
death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section
(whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or
reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or
provided in accordance with the normal payment dates specified for them herein.
c) All expenses or other reimbursements under this Agreement shall be made on or prior to the last day of the taxable year following the
taxable year in which such expenses were incurred by the Executive (provided that if any such reimbursements constitute taxable
income to the Executive, such reimbursements shall be paid no later than March 15th of the calendar year following the calendar year in
which the expenses to be reimbursed were incurred), and no such reimbursement or expenses eligible for reimbursement in any taxable
year shall in any way affect the expenses eligible for reimbursement in any other taxable year.
d) For purpose of Code Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement shall be
treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment
period with reference to a number of days (e.g., “payment shall be made within thirty (30) days”), the actual date of payment within the
specified period shall be within the sole discretion of the Company.
e)
In no event shall any payment under this Agreement that constitutes “deferred compensation” for purposes of Code Section 409A be
offset by any other payment pursuant to this Agreement or otherwise.”
Page 13 of 13 Change in Control & Non-competition Agreement | Bowen
Commercial Vehicle Group, Inc.:
By /s/ Laura L. Macias
Laura L. Macias
Chief Human Resources Officer
Executive:
By /s/ Douglas F. Bowen
Douglas F. Bowen
Senior Vice President and Managing Director, GCAM
Page 14 of 14 Change in Control & Non-competition Agreement | Bowen
Subsidiaries of Commercial Vehicle Group, Inc.
EXHIBIT 21.1
Entity
C.I.E.B. Kahovec, spol. s r.o.
Cabarrus Plastics, Inc.
Comercial Vehicle Group México, S. de R.L. de C.V.
Commercial Vehicle Group (Thailand) Company Limited
CVG Alabama, LLC
CVG AR LLC
CVG CS LLC
CVG CVS Holdings, LLC
CVG European Holdings, LLC
CVG FSE, LLC
CVG Global S.à r.l.
CVG International Holdings, Inc.
CVG International S.à r.l.
CVG Logistics, LLC
CVG Management Corporation
CVG Monona Wire, LLC
CVG Monona, LLC
CVG National Seating Company, LLC
CVG Seating (India) Private Limited
CVG Sprague Devices, LLC
CVG Ukraine LLC
CVG Vehicle Components (Beijing) Co., Ltd.
CVG Vehicle Components (Shanghai) Co., Ltd.
CVS Holdings Limited
EMD Servicios, S.A. de C.V.
KAB Seating Limited
KAB Seating Pty. Ltd.
KAB Seating S.A.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29 Mayflower Vehicle Systems, LLC
30 Monona (Mexico) Holdings LLC
31 MWC de México, S. de R.L. de C.V.
32
33
34
35
PEKM Kabeltechnik s.r.o.
T.S. México, S. de R.L. de C.V.
Trim Systems Operating Corp.
Trim Systems, Inc.
Jurisdiction
Czech Republic
North Carolina, United States
Mexico
Thailand
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Luxembourg
Barbados
Luxembourg
Delaware, United States
Delaware, United States
Iowa, United States
Delaware, United States
Delaware, United States
India
Delaware, United States
Ukraine
China
China
United Kingdom
Mexico
United Kingdom
Australia
Belgium
Delaware, United States
Illinois, United States
Mexico
Czech Republic
Mexico
Delaware, United States
Delaware, United States
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Commercial Vehicle Group, Inc.:
We consent to the incorporation by reference in the registration statements (333-176020, 333-198312, 333-222081) on Form S-8 and the registration statement
(No. 333-163276) on From S-3 of Commercial Vehicle Group, Inc. of our reports dated March 16, 2020, with respect to the consolidated balance sheets of
Commercial Vehicle Group, Inc. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule
II: Valuation and Qualifying Accounts and Reserves (collectively, the “consolidated financial statements”), and the effectiveness of internal control over financial
reporting as of December 31, 2019, which reports appear in the December 31, 2019 annual report on Form 10‑K of Commercial Vehicle Group, Inc.
Our report dated March 16, 2020 contains an explanatory paragraph that refers to the restatement of the 2018 consolidated financial statements to correct
misstatements and an explanatory paragraph that refers to a change in the method of accounting for leases.
Our report dated March 16, 2020 on the effectiveness of internal controls over financial reporting as of December 31, 2019, expresses our opinion that the
Company did not maintain effective internal control over financial reporting as of December 31, 2019, because of the effect of material weaknesses related to an
ineffective risk management process that resulted in the ineffective design of controls over balance sheet account reconciliations and review of manual journal
entries.
/s/ KPMG LLP
Columbus, Ohio
March 16, 2020
I, Patrick E. Miller, certify that:
SECTION 302 CEO CERTIFICATION
Exhibit 31.1
1.
2.
3.
4.
5.
I have reviewed this Form 10-K of Commercial Vehicle Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and we have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
(b)
(c)
(d)
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
(b)
March 16, 2020
/s/ Patrick E. Miller
Patrick E. Miller
Chief Executive Officer
(Principal Executive Officer)
I, C. Timothy Trenary, certify that:
SECTION 302 CFO CERTIFICATION
Exhibit 31.2
1.
2.
3.
4.
5.
I have reviewed this Form 10-K of Commercial Vehicle Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and we have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
(b)
(c)
(d)
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
(b)
March 16, 2020
/s/ C. Timothy Trenary
C. Timothy Trenary
Chief Financial Officer
(Principal Financial Officer)
Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Patrick E. Miller, President and CEO of Commercial Vehicle Group, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, that:
(1)
the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 containing the financial statements of the Company (the “Periodic
Report”), which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78m or 78o(d)); and
(2)
the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 16, 2020
Exhibit 32.1
/s/ Patrick E. Miller
Patrick E. Miller
Chief Executive Officer
(Principal Executive Officer)
Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, C. Timothy Trenary, Chief Financial Officer of Commercial Vehicle Group, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, that:
(1)
the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 containing the financial statements of the Company (the “Periodic
Report”), which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78m or 78o(d)); and
(2)
the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 16, 2020
Exhibit 32.2
/s/ C. Timothy Trenary
C. Timothy Trenary
Chief Financial Officer
(Principal Financial Officer)