Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - Commercial Vehicle Group, Inc. | q22016exhibit322.htm |
| EX-32.1 - EXHIBIT 32.1 - Commercial Vehicle Group, Inc. | q22016exhibit321.htm |
| EX-31.2 - EXHIBIT 31.2 - Commercial Vehicle Group, Inc. | q22016exhibit312.htm |
| EX-31.1 - EXHIBIT 31.1 - Commercial Vehicle Group, Inc. | q22016exhibit311.htm |
| EX-10.2 - EXHIBIT 10.2 - Commercial Vehicle Group, Inc. | q22016exhibit102.htm |
| EX-10.1 - EXHIBIT 10.1 - Commercial Vehicle Group, Inc. | q22016exhibit101.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-34365
COMMERCIAL VEHICLE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 41-1990662 (I.R.S. Employer Identification No.) |
7800 Walton Parkway New Albany, Ohio (Address of principal executive offices) | 43054 (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 x 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.
Large accelerated filer | ¨ | Accelerated filer | x | |
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the Registrant’s common stock, par value $.01 per share, at August 3, 2016 was 30,619,069 shares.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
PART I FINANCIAL INFORMATION | |
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ITEM 1 – FINANCIAL STATEMENTS
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2016 | (As Adjusted) December 31, 2015 | ||||||
(Unaudited) | (Unaudited) | ||||||
(In thousands, except share and per share amounts) | |||||||
Assets | |||||||
Current Assets: | |||||||
Cash | $ | 124,385 | $ | 92,194 | |||
Accounts receivable, net of allowances of $4,215 and $4,539, respectively | 116,375 | 130,240 | |||||
Inventories | 66,977 | 75,658 | |||||
Other current assets | 11,273 | 10,185 | |||||
Total current assets | 319,010 | 308,277 | |||||
Property, plant and equipment, net of accumulated depreciation of $136,793 and $134,598, respectively | 66,482 | 70,961 | |||||
Goodwill | 7,720 | 7,834 | |||||
Intangible assets, net of accumulated amortization of $6,408 and $6,858, respectively | 16,197 | 16,946 | |||||
Deferred income taxes | 24,514 | 25,253 | |||||
Other assets, net | 4,504 | 4,771 | |||||
Total assets | $ | 438,427 | $ | 434,042 | |||
Liabilities and Stockholders’ Equity | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 63,184 | $ | 66,657 | |||
Accrued liabilities | 50,793 | 48,196 | |||||
Total current liabilities | 113,977 | 114,853 | |||||
Long-term debt | 232,758 | 232,363 | |||||
Pension and other post-retirement benefits | 16,598 | 17,233 | |||||
Other long-term liabilities | 3,942 | 3,663 | |||||
Total liabilities | 367,275 | 368,112 | |||||
Stockholders’ Equity: | |||||||
Preferred stock: $0.01 par value (5,000,000 shares authorized; no shares issued and outstanding) | — | — | |||||
Common stock: $0.01 par value (60,000,000 shares authorized; 29,448,779 shares issued and outstanding) | 294 | 294 | |||||
Treasury stock purchased from employees; 879,404 shares | (7,039 | ) | (7,039 | ) | |||
Additional paid-in capital | 236,141 | 234,760 | |||||
Retained loss | (117,148 | ) | (122,431 | ) | |||
Accumulated other comprehensive loss | (41,096 | ) | (39,654 | ) | |||
Total stockholders’ equity | 71,152 | 65,930 | |||||
Total liabilities and stockholders’ equity | $ | 438,427 | $ | 434,042 | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(Unaudited) (In thousands, except per share amounts) | (Unaudited) (In thousands, except per share amounts) | ||||||||||||||
Revenues | $ | 178,251 | $ | 217,617 | $ | 358,543 | $ | 437,920 | |||||||
Cost of Revenues | 153,920 | 188,111 | 308,507 | 379,340 | |||||||||||
Gross Profit | 24,331 | 29,506 | 50,036 | 58,580 | |||||||||||
Selling, General and Administrative Expenses | 15,585 | 17,585 | 32,376 | 35,124 | |||||||||||
Amortization Expense | 319 | 333 | 652 | 669 | |||||||||||
Operating Income | 8,427 | 11,588 | 17,008 | 22,787 | |||||||||||
Interest and Other Expense | 4,926 | 5,056 | 9,784 | 10,153 | |||||||||||
Income Before Provision for Income Taxes | 3,501 | 6,532 | 7,224 | 12,634 | |||||||||||
Provision for Income Taxes | 781 | 3,327 | 1,941 | 5,836 | |||||||||||
Net Income | 2,720 | 3,205 | 5,283 | 6,798 | |||||||||||
Less: Non-controlling interest in subsidiary’s income | — | — | — | 1 | |||||||||||
Net Income Attributable to CVG Stockholders | $ | 2,720 | $ | 3,205 | $ | 5,283 | $ | 6,797 | |||||||
Earnings per Common Share: | |||||||||||||||
Basic and Diluted | $ | 0.09 | $ | 0.11 | $ | 0.18 | $ | 0.23 | |||||||
Weighted Average Shares Outstanding: | |||||||||||||||
Basic | 29,449 | 29,149 | 29,449 | 29,149 | |||||||||||
Diluted | 29,756 | 29,336 | 29,632 | 29,271 | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||
(In thousands) | (In thousands) | ||||||||||||||
Net income | $ | 2,720 | $ | 3,205 | $ | 5,283 | $ | 6,798 | |||||||
Other comprehensive (loss) income: | |||||||||||||||
Foreign currency exchange translation adjustments | (713 | ) | 163 | (408 | ) | (2,845 | ) | ||||||||
Minimum pension liability, net of tax | (1,143 | ) | 126 | (1,034 | ) | 186 | |||||||||
Other comprehensive (loss) income | (1,856 | ) | 289 | (1,442 | ) | (2,659 | ) | ||||||||
Comprehensive income | $ | 864 | $ | 3,494 | $ | 3,841 | $ | 4,139 | |||||||
Less: Comprehensive income attributed to non-controlling interests | — | — | — | 1 | |||||||||||
Comprehensive income attributable to CVG stockholders | $ | 864 | $ | 3,494 | $ | 3,841 | $ | 4,138 | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock | Treasury Stock | Additional Paid In Capital | Retained Deficit | Accumulated Other Comp. Loss | Total CVG Stockholders’ Equity | |||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||
(Unaudited) (In thousands) | ||||||||||||||||||||||||||
BALANCE - December 31, 2015 | 29,449 | $ | 294 | $ | (7,039 | ) | $ | 234,760 | $ | (122,431 | ) | $ | (39,654 | ) | $ | 65,930 | ||||||||||
Share-based compensation expense | — | — | — | 1,381 | — | — | 1,381 | |||||||||||||||||||
Total comprehensive income | — | — | — | — | 5,283 | (1,442 | ) | 3,841 | ||||||||||||||||||
BALANCE - June 30, 2016 | 29,449 | 294 | (7,039 | ) | 236,141 | (117,148 | ) | (41,096 | ) | 71,152 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June, | |||||||
2016 | 2015 | ||||||
(Unaudited) | (Unaudited) | ||||||
(In thousands) | |||||||
Cash Flows from Operating Activities: | |||||||
Net Income | $ | 5,283 | $ | 6,798 | |||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Depreciation and amortization | 8,409 | 8,874 | |||||
Impairment of equipment held for sale | 616 | — | |||||
Provision for doubtful accounts and bad debt | 3,200 | 1,985 | |||||
Noncash amortization of debt financing costs | 420 | 445 | |||||
Pension plan contribution | (1,475 | ) | (1,479 | ) | |||
Shared-based compensation expense | 1,381 | 1,439 | |||||
Loss on disposal of assets | 164 | 157 | |||||
Deferred income taxes | 1,258 | 4,664 | |||||
Noncash (gain) loss on forward currency exchange contracts | (467 | ) | (42 | ) | |||
Change in other operating items: | |||||||
Accounts receivable | 9,610 | (16,870 | ) | ||||
Inventories | 8,182 | 1,793 | |||||
Accounts payable | (2,631 | ) | 17,991 | ||||
Other operating activities, net | 3,632 | 1,344 | |||||
Net cash provided by operating activities | 37,582 | 27,099 | |||||
Cash Flows from Investing Activities: | |||||||
Purchases of property, plant and equipment | (4,961 | ) | (6,769 | ) | |||
Proceeds from disposal/sale of property, plant and equipment | — | 60 | |||||
Premium payments for life insurance | — | (44 | ) | ||||
Net cash used in investing activities | (4,961 | ) | (6,753 | ) | |||
Effect of Foreign Currency Exchange Rate Changes on Cash | (430 | ) | (1,840 | ) | |||
Net Increase in Cash | 32,191 | 18,506 | |||||
Cash: | |||||||
Beginning of period | 92,194 | 70,091 | |||||
End of period | $ | 124,385 | $ | 88,597 | |||
Supplemental Cash Flow Information: | |||||||
Cash paid for interest | $ | 9,362 | $ | 9,925 | |||
Cash paid for income taxes, net | $ | 779 | $ | 891 | |||
Unpaid purchases of property and equipment included in accounts payable | $ | 275 | $ | 898 | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Description of Business and Basis of Presentation
Commercial Vehicle Group, Inc. is a Delaware (USA) corporation. We were formed as a privately-held company in August 2000. We became a publicly held company in 2004. The company and its subsidiaries (the “Company” or “CVG”) is a leading supplier of a full range of cab related products and systems for the global commercial vehicle market, including the medium- and heavy-duty truck (“MD/HD Truck”) market, the medium- and heavy-duty construction vehicle market, and the bus, agriculture, military, specialty transportation, mining, industrial equipment and off-road recreational markets.
The Company has manufacturing operations in the United States, Mexico, United Kingdom, Czech Republic, Ukraine, China, India and Australia. Our products are primarily sold in North America, Europe, and the Asia-Pacific region.
Our products include seats and seating systems (“Seats”); trim systems and components (“Trim”); cab structures, sleeper boxes, body panels and structural components; mirrors, wipers and controls; and electronic wire harness and panel assemblies specifically designed for applications primarily in commercial vehicles.
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 certain leading global construction and agriculture original equipment manufacturers (“OEMs”), which we believe creates an opportunity to cross-sell our products.
We have prepared the condensed consolidated financial statements included herein, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of operations and statements of financial position for the interim periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with our fiscal 2015 consolidated financial statements and the notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K as filed with the SEC on March 11, 2016. Unless otherwise indicated, all amounts are in thousands, except share and per share amounts.
SEGMENTS
Operating segments are defined as components of an enterprise that are evaluated regularly by the Company’s chief operating decision maker (“CODM”). The Company’s CODM is its President and Chief Executive Officer. The Company has two reportable segments: the Global Truck and Bus Segment (“GTB Segment”) and the Global Construction and Agriculture Segment (“GCA Segment”). Each of these segments consists of a number of manufacturing facilities. Generally, the facilities in the GTB Segment manufacture and sell Seats, Trim, wipers, mirrors, structures and other products into the MD/HD Truck and bus markets. Generally, the facilities in the GCA Segment manufacture and sell wire harnesses, Seats and other products into the construction and agriculture markets. Both segments participate in the aftermarket. Certain of our manufacturing 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 GTB Segment manufactures and sells the following products:
• | Seats; Trim; sleeper boxes; and cab structures, structural components and body panels. These products are sold primarily to the MD/HD Truck markets in North America; |
• | Seats to the truck and bus markets in Asia-Pacific and Europe; |
• | Mirrors and wiper systems to the truck, bus, agriculture, construction, rail and military markets in North America; |
• | Trim to the recreational and specialty vehicle markets in North America; and |
• | Aftermarket seats and components primarily into North America. |
The GCA Segment manufactures and sells the following products:
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• | Electronic wire harness assemblies, and Seats for commercial, construction, agricultural, industrial, automotive mining and military industries in North America, Europe and Asia Pacific; |
• | Seats to the truck and bus markets in Asia-Pacific and Europe; |
• | Wiper systems to the construction and agriculture markets in Europe; |
• | Office seating in Europe and Asia-Pacific; and |
• | Aftermarket seats and components in Europe and Asia-Pacific. |
Corporate expenses consist of certain 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 that are for the benefit of the operations 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.
2. Recently Issued Accounting Pronouncements
Revenue Recognition Guidance
In May 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-12, "Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients." ASU 2016-12 provides additional guidance established by the FASB-IASB Joint Transition Resource Group for Revenue Recognition ("TRG") regarding the implementation of certain aspects of the new revenue recognition guidance. More specifically, the amendment provides additional guidance regarding assessing the collectibility criterion, the presentation of sales taxes and other similar taxes collected from customers, noncash consideration, contract modifications or completed contracts at transition of the new revenue recognition guidance and technical corrections. The effective date is consistent with the effective date of ASU 2014-09.
In April 2016, the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing." ASU 2016-10 provides clarification established by the TRG regarding the implementation of the new revenue recognition guidance specific to identifying performance obligations and licensing activity. The effective date is consistent with the effective date of ASU 2014-09.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606) - Principal Versus Agent Considerations (Reporting Revenue Gross versus Net)." ASU 2016-08 provides clarification established by the FASB-IASB Joint Transition Resources Group regarding the implementation of the new revenue recognition guidance specific to principal versus agent considerations. The effective date is consistent with the effective date of ASU 2014-09. The mandatory adoption date is January 1, 2018, with an early adoption date of January 1, 2017.
With respect to each of the revenue recognition guidance above, at June 30, 2016, the Company was in the first phase of implementation of its work plan, the analysis of the guidance and its impact on the Company and to our long-term customer arrangements.
Other Guidance
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 identifies areas for simplification involving several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim periods within. The Company anticipates this standard may result in some volatility in income tax expense and may impact share-based compensation expense resulting from the change in the calculation of forfeitures. We anticipate adopting ASU 2016-09 in 2016.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." ASU 2016-02 is intended to increase transparency and comparability among companies by recognizing lease assets and liabilities and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019. The Company is assessing the impact of this pronouncement in 2016 and anticipates this pronouncement will impact the presentation of our lease assets and liabilities and associated disclosures by the recognition of lease assets and liabilities associated with leases that were not included in the balance sheet under existing accounting guidance.
Accounting Pronouncements Implemented in the Period
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Pursuant to ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs," issued in April 2015, and ASU No. 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements," issued in August 2015, the Company now presents the carrying value of its long-term debt net of associated deferred financing charges, previously presented as a part of other long-term assets. This change in accounting principal was also made to 2015 results to consistently present debt and associated debt issuance costs in accordance with ASU 2015-03. In order to conform with ASU 2015-03, we reclassified deferred financing fees associated with our long-term debt totaling $2.6 million from other assets to net against long-term debt of $235.0 million at December 31, 2015.
3. Fair Value Measurement
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
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 or quoted prices for identical assets or liabilities in inactive markets.
Level 3 – Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
The fair values of our derivative assets and liabilities are categorized as follows:
June 30, 2016 | December 31, 2015 | ||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
Derivative assets 1 | $ | 548 | $ | — | $ | 548 | $ | — | $ | 36 | $ | — | $ | 36 | $ | — | |||||||||||||||
Derivative liabilities 1 | $ | 373 | $ | — | $ | 373 | $ | — | $ | 524 | $ | — | $ | 524 | $ | — | |||||||||||||||
1 Based on observable market transactions of spot and forward rates.
Our derivative assets and liabilities represent foreign exchange contracts that are measured at fair value using observable market inputs such as forward rates. Based on these inputs, the derivative assets and liabilities are classified as Level 2.
Our financial instruments consist 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 interest cost associated with such instruments.
The carrying amounts and fair values of our long-term debt obligations are as follows:
June 30, 2016 | December 31, 2015 (as adjusted) | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
Long-term debt, net | $ | 232,758 | $ | 225,708 | $ | 232,363 | $ | 190,063 | |||||||
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.
There were no fair value measurements of our long-lived assets and definite-lived intangible assets measured on a non-recurring basis as of June 30, 2016, except for an impairment of $0.6 million recognized in the first quarter of 2016 for an asset held for sale based on the estimated selling price less selling costs of $0.8 million. The impairment was recorded in selling, general and administrative expense in the Statement of Income. The asset is classified as Level 2. There were no fair value measurements of our long-lived assets and definite-lived intangible assets measured on a non-recurring basis as of June 30, 2015.
4. Stockholders’ Equity
Common Stock — Our authorized capital stock consists of 60,000,000 shares of common stock with a par value of $0.01 per share; of which, 29,448,779 shares were issued and outstanding as of June 30, 2016 and December 31, 2015.
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Preferred Stock — Our authorized capital stock consists of 5,000,000 shares of preferred stock with a par value of $0.01 per share; no preferred shares were outstanding as of June 30, 2016 and December 31, 2015.
Earnings Per Share — Basic earnings per share is determined by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share, and all other diluted per share amounts presented, is determined by dividing net income by the weighted average number of common shares and potential common shares outstanding during the period as determined by the Treasury Stock Method. Potential common shares are included in the diluted earnings per share calculation when dilutive. Diluted earnings per share for the three and six months ended June 30, 2016 and 2015 includes the effects of potential common shares consisting of common stock issuable upon the vesting of restrictive stock when dilutive.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net income attributable to common stockholders — basic and diluted | $ | 2,720 | $ | 3,205 | $ | 5,283 | $ | 6,797 | |||||||
Weighted average number of common shares outstanding | 29,449 | 29,149 | 29,449 | 29,149 | |||||||||||
Dilutive effect of restricted stock grants after application of the treasury stock method | 307 | 187 | 183 | 122 | |||||||||||
Dilutive shares outstanding | 29,756 | 29,336 | 29,632 | 29,271 | |||||||||||
Basic and diluted earnings per share attributable to common stockholders | $ | 0.09 | $ | 0.11 | $ | 0.18 | $ | 0.23 | |||||||
Diluted earnings per share does not include 288 thousand and 338 thousand antidilutive outstanding restricted stock awards for the three and six months ended June 30, 2016, respectively. For the three and six months ended June 30, 2015, outstanding restricted stock had no antidilutive effect.
Dividends — We have not declared or paid any cash dividends in the past. The terms of the Second ARLS Agreement (as described below in Note 11) restrict the payment or distribution of our cash or other assets, including cash dividend payments.
5. Share-Based Compensation
Restricted Stock Awards – Restricted stock awards are a grant of shares of common stock that may not be sold, encumbered or disposed of, and that may be forfeited in the event of certain terminations of employment, prior to the end of a restricted period set by the Compensation Committee of the Board of Directors. 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 restricted stock grants as of June 30, 2016:
Grant | Shares | Vesting Schedule | Unearned Compensation (in millions) | Remaining Periods (in months) | |||||||
November 2013 | 470,997 | 3 equal annual installments commencing on October 20, 2014 | $ | 0.2 | 4 | ||||||
October 2014 | 506,171 | 3 equal annual installments commencing on October 20, 2015 | $ | 1.0 | 16 | ||||||
April 2015 | 27,174 | 3 equal annual installments commencing on October 20, 2015 | $ | 0.1 | 16 | ||||||
July 2015 | 38,772 | cliff vests as of October 20, 2018 | $ | 0.2 | 28 | ||||||
October 2015 | 595,509 | 3 equal annual installments commencing on October 20, 2016 | $ | 1.3 | 28 | ||||||
October 2015 | 138,888 | fully vest as of October 20, 2016 | $ | 0.1 | 4 | ||||||
January 2016 | 23,852 | 3 equal annual installments commencing on October 20, 2016 | $ | 0.1 | 28 | ||||||
March 2016 | 38,758 | 3 equal annual installments commencing on October 20, 2016 | $ | 0.1 | 28 | ||||||
As of June 30, 2016, there was approximately $3.1 million of unearned compensation expense related to non-vested share-based compensation arrangements granted under our equity incentive plans. This expense is subject to future adjustments for vesting and forfeitures and will be recognized on a straight-line basis over the remaining period listed above for each grant. As of June 30, 2016 and 2015, we estimated a forfeiture rate of 8.8% and 11.0%, respectively.
The following table summarizes information about the non-vested restricted stock grants for the six months ended June 30, 2016 and 2015:
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Six Months Ended June 30, | |||||||||||||
2016 | 2015 | ||||||||||||
Shares (000’s) | Weighted- Average Grant-Date Fair Value | Shares (000’s) | Weighted- Average Grant-Date Fair Value | ||||||||||
Nonvested at December 31 | 1,128 | $ | 4.24 | 915 | $ | 6.96 | |||||||
Granted | 63 | 2.49 | 45 | 6.36 | |||||||||
Forfeited | (21 | ) | 4.88 | (39 | ) | 6.90 | |||||||
Nonvested at June 30 | 1,170 | $ | 4.35 | 921 | $ | 6.82 | |||||||
6. Performance Based 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 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 (I) the cumulative value of dividends and other distributions paid on the Common Stock (or the publicly traded common stock of the applicable Peer Group company) for the applicable measurement period, and (II) 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 to be paid out 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 present during the entire Performance Period, the award will be forfeited. These grants were 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”. Performance awards were granted under the 2014 EIP in November 2015 and 2014, and in November 2013 under the Fourth Amended and Restated Equity Incentive Plan.
Grant Date | Vesting Schedule | Grant Amount | Forfeitures/ Adjustments | Payments | Grant Value at June 30, 2016 | Remaining Periods (in Months) to Vesting | ||||||||||||||
November 2013 | October 2016 | $ | 1,351 | $ | (1,033 | ) | $ | — | $ | 318 | 3 | |||||||||
November 2014 | October 2017 | 2,087 | (1,062 | ) | — | 1,025 | 15 | |||||||||||||
November 2015 | October 2018 | 1,487 | — | $ | — | 1,487 | 27 | |||||||||||||
$ | 4,925 | $ | (2,095 | ) | $ | — | $ | 2,830 | ||||||||||||
Compensation expense totaling $0.2 million and $0.1 million was recognized for the three months ended June 30, 2016 and 2015, respectively. Compensation expense totaling $0.3 million and $0.3 million was recognized for the six months ended June 30, 2016 and 2015, respectively. Unrecognized compensation expense was $1.5 million and $1.7 million as of June 30, 2016 and 2015, respectively.
7. Accounts Receivable
Trade accounts receivable are stated at current value less an allowance for doubtful accounts, which approximates fair value. This estimated allowance is based primarily on management’s evaluation of specific balances as the balances become past due, the financial condition of our customers and our historical experience of write-offs. If not reserved through specific identification procedures, our general policy for potentially uncollectible accounts is to reserve at a certain percentage, based upon the aging categories of accounts receivable and our historical experience with write-offs. Past due status is based upon the due date of the original amounts outstanding. When items are ultimately deemed uncollectible, they are charged off against the reserve previously established in the allowance for doubtful accounts.
8. Inventories
Inventories are valued at the lower of first-in, first-out (“FIFO”) cost or market. Cost includes applicable material, labor and overhead. Inventories consisted of the following:
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June 30, 2016 | December 31, 2015 | ||||||
Raw materials | $ | 45,019 | $ | 52,647 | |||
Work in process | 7,660 | 8,776 | |||||
Finished goods | 14,298 | 14,235 | |||||
$ | 66,977 | $ | 75,658 | ||||
Inventories on-hand are regularly reviewed and, where necessary, provisions for excess and obsolete inventory are recorded based primarily on our estimated production requirements which reflect expected market volumes. Excess and obsolete provisions may vary by product depending upon future potential use of the product.
9. Goodwill and Intangible Assets
Goodwill represents the excess of acquisition purchase price over the fair value of net assets acquired. We review goodwill for impairment annually, initially utilizing a qualitative assessment, in the second fiscal quarter and whenever events or changes in circumstances indicate the carrying value may not be recoverable. Our goodwill is attributable to the GTB Segment. In conducting the qualitative assessment, we consider relevant events and circumstances that affect the fair value or carrying amount of the reporting unit. Such events and circumstances could include macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, cost factors and capital markets pricing. We consider the extent to which each of the adverse events and circumstances identified affect the comparison of the reporting unit’s fair value with its carrying amount. We place more weight on the events and circumstances that most affect the reporting unit’s fair value or the carrying amount of its net assets. We consider positive and mitigating events and circumstances that may affect its determination of whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. These factors are all considered by management in reaching its conclusion about whether to perform the first step of the impairment test. No impairment was necessary as a result of our second quarter 2016 testing.
If the reporting unit’s fair value is determined to be more likely than not impaired based on the one-step qualitative approach, we then perform a quantitative valuation to estimate the fair value of our reporting unit. Implied fair value of goodwill is determined by considering both the income and market approach. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are inherently uncertain.
Our definite-lived intangible assets were comprised of the following:
June 30, 2016 | December 31, 2015 | ||||||||||||||||||||||||
Weighted- Average Amortization Period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Definite-lived intangible assets: | |||||||||||||||||||||||||
Trademarks/Tradenames | 23 | $ | 8,403 | $ | (3,021 | ) | $ | 5,382 | $ | 9,460 | $ | (3,914 | ) | $ | 5,546 | ||||||||||
Customer relationships | 15 | 14,202 | (3,387 | ) | 10,815 | 14,344 | (2,944 | ) | 11,400 | ||||||||||||||||
$ | 22,605 | $ | (6,408 | ) | $ | 16,197 | $ | 23,804 | $ | (6,858 | ) | $ | 16,946 | ||||||||||||
The aggregate intangible asset amortization expense was approximately $0.3 million for the three months ended June 30, 2016 and 2015, and $0.7 million for the six months ended June 30, 2016 and 2015. The estimated intangible asset amortization expense for the fiscal year ending December 31, 2016 and for each of the five succeeding years is $1.3 million.
The changes in the carrying amounts of goodwill are as follows:
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June 30, 2016 | December 31, 2015 | ||||||
Balance — Beginning | $ | 7,834 | $ | 8,056 | |||
Currency translation adjustment | (114 | ) | (222 | ) | |||
Balance — Ending | $ | 7,720 | $ | 7,834 | |||
10. Commitments and Contingencies
Warranty — We are subject to warranty claims for products that fail to perform as expected due to design or manufacturing deficiencies. Customers generally require their outside suppliers to guarantee or warrant their products and bear the cost of repair or replacement of such products. Depending on the terms under which we 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 reserve for estimated future customer warranty costs based on historical trends and current economic factors.
The following represents a summary of the warranty provision for the six months ended June 30, 2016:
Balance — December 31, 2015 | $ | 7,580 | |
Provision for new warranty claims | 750 | ||
Change in provision for preexisting warranty claims | 479 | ||
Deduction for payments made | (1,285 | ) | |
Currency translation adjustment | (188 | ) | |
Balance — June 30, 2016 | $ | 7,336 | |
Leases — We lease 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 rentals. The anticipated future lease costs are based in part on certain assumptions and we will continue to monitor these costs to determine if the estimates need to be revised in the future. As of June 30, 2016, our equipment leases did not provide for any material guarantee of a specified portion of residual values.
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, service provider disputes, intellectual property disputes, and those arising out of alleged defects, breach of contracts, product warranties and environmental matters.
Management believes that we maintain adequate insurance or 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 will not have a material adverse impact on the consolidated financial position, results of operations or cash flows; however, such matters are subject to many uncertainties and the outcomes of individual matters are not predictable with assurance.
11. Debt and Credit Facilities
Debt consisted of the following:
June 30, 2016 | December 31, 2015 (as adjusted) | ||||||
7.875% senior secured notes due April 15, 2019 | $ | 232,758 | $ | 232,363 | |||
7.875% Senior Secured Notes due 2019
The 7.875% notes were issued pursuant to an indenture, dated as of April 26, 2011 (the “7.875% Notes Indenture”), by and among CVG, certain of our subsidiaries party thereto, as guarantors (the “guarantors”), and U.S. Bank National Association, as trustee. Interest is payable on the 7.875% notes on April 15 and October 15 of each year until their maturity date of April 15, 2019.
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The 7.875% notes are senior secured obligations of CVG. Our obligations under the 7.875% notes are guaranteed by the guarantors. The obligations of CVG and the guarantors under the 7.875% notes are secured by a second-priority lien (subject to certain permitted liens) on substantially all of the property and assets of CVG and the guarantors, and a pledge of 100% of the capital stock of CVG’s domestic subsidiaries and 65% of the voting capital stock of each foreign subsidiary directly owned by CVG and the guarantors. The liens, the security interests and all of the obligations of CVG and the guarantors and all provisions regarding remedies in an event of default are subject to an intercreditor agreement among CVG, certain of its subsidiaries, the agent for the revolving credit facility and the collateral agent for the 7.875% notes.
The 7.875% Notes Indenture contains restrictive covenants and events of default (subject to certain customary grace periods). We were in compliance with these covenants and were not in default as of June 30, 2016. The Company is entitled at its option to redeem all or a portion of the 7.875% notes at the redemption prices, plus accrued and unpaid interest, if any, to the redemption date, plus a redemption premium if redeemed during the 12-month period commencing on April 15, 2016 at 101.969% and thereafter at 100%.
On November 14, 2015, we redeemed $15.0 million of the $250.0 million outstanding 7.875% notes. The redemption price for the 7.875% notes was 103.938% of the principal amount of the 7.875% notes. Upon the partial redemption by the Company of the 7.875% notes, which occurred on November 14, 2015, $235 million of the 7.875% notes remain outstanding. Based on ASU No. 2015-03 the unamortized deferred financing fees of $2.2 million and $2.6 million are netted against the book value of the outstanding long term debt to arrive at a balance of $232.8 million and $232.4 million as of June 30, 2016 and December 31, 2015, respectively, and are being amortized over the remaining life of the agreement.
Terms, Covenants and Compliance Status
The 7.875% Notes Indenture contains restrictive covenants, including, without limitation, limitations on our ability and the ability of our restricted subsidiaries to: incur additional debt; restrict dividends or other payments of subsidiaries; make investments; engage in transactions with affiliates; create liens on assets; engage in sale/leaseback transactions; and consolidate, merge or transfer all or substantially all of our assets and the assets of our restricted subsidiaries. In addition, subject to certain exceptions, the 7.875% Notes Indenture does not permit us to pay dividends on, redeem or repurchase our capital stock or make other restricted payments unless certain conditions are met, including (i) no default under the 7.875% Notes Indenture has occurred and is continuing, (ii) we and our subsidiaries maintain a consolidated coverage ratio of 2.0 to 1.0 on a pro forma basis and (iii) the aggregate amount of the dividends or payments made under this restriction would not exceed 50% of consolidated net income from October 1, 2010 to the end of the most recent fiscal quarter (or, if consolidated net income for such period is a deficit, minus 100% of such deficit), plus cash proceeds received from certain issuances of capital stock, plus certain other amounts. These covenants are subject to important qualifications and exceptions set forth in the 7.875% Notes Indenture. We were in compliance with these covenants as of June 30, 2016.
The7.875% Notes Indenture provides for events of default (subject in certain cases to customary grace and cure periods) which include, among others:
• | nonpayment of principal or interest when due; |
• | breach of covenants or other agreements in the 7.875% Notes Indenture; |
• | defaults in payment of certain other indebtedness; |
• | certain events of bankruptcy or insolvency; and |
• | certain defaults with respect to the security interests. |
Generally, if an event of default occurs, the trustee or the holders of at least 25% in principal amount of the then outstanding 7.875% notes may declare the principal of and accrued but unpaid interest on all of the 7.875% notes to be due and payable immediately. All provisions regarding remedies in an event of default are subject to the Intercreditor Agreement. We were not in default under the 7.875% Notes Indenture as of June 30, 2016.
Revolving Credit Facility
On November 15, 2013, the Company and certain of the Company’s subsidiaries, as borrowers (together with the Company, the “borrowers”) entered into a Second Amended and Restated Loan and Security Agreement (as so amended and restated, the “Second ARLS Agreement”) with Bank of America, N.A. as agent and lender, which amended and restated the Amended and Restated Loan and Security Agreement, dated as of April 26, 2011, by and among the Company, the borrowers and Bank of America, N.A., as agent and lender, as amended, governing the Company’s revolving credit facility.
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Among other things, the Second ARLS Agreement extended the maturity of the revolving credit facility to November 15, 2018 and amended the applicable margin, as described below. The Second ARLS Agreement included amendments to certain covenants to provide additional flexibility, including amendments to (i) eliminate the aggregate cap on permitted distributions and instead condition such distributions on minimum availability, fixed charge coverage ratio and other requirements, (ii) eliminate the aggregate cap on permitted foreign investments and instead condition such foreign investments on minimum availability, fixed charge coverage ratio and other requirements, (iii) eliminate the aggregate cap on purchase consideration for permitted acquisitions and instead condition such acquisitions on minimum availability, fixed charge coverage ratio and other requirements and (iv) permitting certain sale-leaseback transactions. In addition, the covenant restricting payment of certain debt was amended to permit repurchases of the Company’s 7.875% senior secured notes due 2019 if certain conditions are met. The Second ARLS Agreement also amended the financial covenant to reduce the fixed charge coverage ratio maintenance requirement to 1.0:1.0 and reduced the availability threshold for triggering compliance with the fixed charge coverage ratio, as described below.
The size of the revolving credit facility was unchanged by the Second ARLS Agreement and remains at $40 million, but the borrowers may request an increase in revolver commitments from time to time in an aggregate amount of up to $35 million, as long as the requested increase does not breach any subordinated debt agreement of the borrowers or the indenture governing the Company’s 7.875% senior secured notes due 2019. Availability under the revolving credit facility is subject to borrowing base limitations and an availability block equal to the amount of debt and foreign cash management services Bank of America, N.A. or its affiliates makes available to the Company’s foreign subsidiaries. Up to an aggregate of $10 million is available to the borrowers for the issuance of letters of credit, which reduces availability under the revolving credit facility.
The applicable margin is based on average daily availability under the revolving credit facility as follows:
Level | Average Daily Availability | Base Rate Loans | LIBOR Revolver Loans | |||||
III | ≥ $20,000,000 | 0.50 | % | 1.50 | % | |||
II | > $10,000,000 but < $20,000,000 | 0.75 | % | 1.75 | % | |||
I | ≤ $10,000,000 | 1.00 | % | 2.00 | % | |||
As of June 30, 2016 and December 31, 2015, we had approximately $0.1 million in deferred fees associated with our revolving credit facility. The deferred fees were being amortized over the remaining life of the agreements.
As of June 30, 2016 and December 31, 2015, we did not have borrowings under the revolving credit facility. We had outstanding letters of credit of approximately $2.5 million and borrowing availability of $37.5 million under the revolving credit facility.
The borrowers’ obligations under the revolving credit facility are secured by a first-priority lien (subject to certain permitted liens) on substantially all of the tangible and intangible assets of the borrowers, as well as 100% of the capital stock of the direct domestic subsidiaries of each borrower and 65% of the capital stock of each foreign subsidiary directly owned by a borrower. Each of CVG 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 applicable margin will be 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 borrower’s 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 June 30, 2016, the applicable margin was set at Level III.
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
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The Second ARLS Agreement requires the maintenance of a minimum fixed charge coverage ratio calculated based upon consolidated EBITDA (as defined in the revolving credit facility) as of the last day of each of the Company’s fiscal quarters. The borrowers are not required to comply with the fixed charge coverage ratio requirement for as long as the borrowers maintain at least $7.5 million of borrowing availability under the revolving credit facility. If borrowing availability is less than $7.5 million at any time, the borrowers would be required to comply with a fixed charge coverage ratio of 1.0:1.0 as of the end of any fiscal quarter, and would be required to continue to comply with these requirements until the borrowers have borrowing availability of $7.5 million or greater for 60 consecutive days. Because the Company had borrowing availability in excess of $7.5 million from December 31, 2015 through June 30, 2016, the Company was not required to comply with the minimum fixed charge coverage ratio covenant during the quarter ended June 30, 2016.
The Second ARLS Agreement contains customary restrictive covenants, including, without limitation, limitations on the ability of the borrowers and their subsidiaries to incur additional debt and guarantees; grant liens on assets; pay dividends or make other distributions; make investments or acquisitions; dispose of assets; make payments on certain indebtedness; merge, combine with any other person or liquidate; amend organizational documents; file consolidated tax returns with entities other than other borrowers or their subsidiaries; make material changes in accounting treatment or reporting practices; enter into restrictive agreements; enter into hedging agreements; engage in transactions with affiliates; enter into certain employee benefit plans; amend subordinated debt or the indenture governing the 7.875% senior secured notes due 2019; and other matters customarily restricted in loan agreements. The Second ARLS Agreement also contains customary reporting and other affirmative covenants. The Company was in compliance with these covenants as of June 30, 2016.
The Second ARLS Agreement contains customary events of default, including, without limitation, nonpayment of obligations under the revolving credit facility when due; material inaccuracy of representations and warranties; violation of covenants in the Second ARLS Agreement and certain other documents executed in connection therewith; breach or default of agreements related to debt in excess of $5.0 million that could result in acceleration of that debt; revocation or attempted revocation of guarantees; denial of the validity or enforceability of the loan documents or failure of the loan documents to be in full force and effect; certain judgments in excess of $2.0 million; the inability of an obligor to conduct any material part of its business due to governmental intervention, loss of any material license, permit, lease or agreement necessary to the business; cessation of an obligor’s business for a material period of time; impairment of collateral through condemnation proceedings; certain events of bankruptcy or insolvency; certain Employee Retirement Income Securities Act events; and a change in control of the Company. Certain of the defaults are subject to exceptions, materiality qualifiers, grace periods and baskets customary for credit facilities of this type.
Voluntary prepayments of amounts outstanding under the revolving credit facility are permitted at any time, without premium or penalty.
The Second ARLS Agreement requires the borrowers to make mandatory prepayments with the proceeds of certain asset dispositions and upon the receipt of insurance or condemnation proceeds to the extent the borrowers do not use the proceeds for the purchase of assets useful in the borrowers’ businesses.
As of June 30, 2016, we were in compliance with these covenants and were not in default under the Second ARLS Agreement.
12. Income Taxes
We file federal and state income tax returns in the U.S. and income tax returns in foreign jurisdictions. With a few exceptions, we are no longer subject to income tax examinations by any of the taxing jurisdictions for years before 2011. We currently have two income tax examinations in process.
As of June 30, 2016, we had $0.5 million of unrecognized tax benefits related to federal, state and foreign jurisdictions, all of which impact our effective tax rate, if accrued. The unrecognized tax benefits are netted against their related noncurrent deferred tax assets that are carried forward as net operating losses and tax credits. When appropriate, we accrue penalties and interest related to unrecognized tax benefits through income tax expense. Included in the unrecognized tax benefits is $0.2 million interest and penalties as of June 30, 2016.
During the six months ended June 30, 2016, we did not release any tax reserves associated with items falling outside the statute of limitations and the closure of certain tax years for examination purposes. We are not aware of any events that could occur within the next twelve months that would have an impact on the amount of unrecognized tax benefits that would require a reserve.
At June 30, 2016, due to cumulative losses and other factors, we continued to carry valuation allowances against the deferred assets primarily in the following foreign jurisdictions: United Kingdom, China, India and Luxembourg. Additionally, we continue
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to carry valuation allowances related to certain state deferred assets that we believe to be more likely than not to expire before they can be utilized. We evaluate the need for valuation allowances in each of our jurisdictions on a quarterly basis.
13. Segment Reporting
The following tables present segment revenues, gross profit, depreciation and amortization expense, selling, general and administrative expenses, operating income, capital expenditures and other items as of and for the three and six months ended June 30, 2016 and 2015:
Three months ended June 30, 2016 | |||||||||||||||
Global Truck & Bus | Global Construction & Agriculture | Corporate/ Other | Total | ||||||||||||
Revenues | |||||||||||||||
External Revenues | $ | 111,883 | $ | 66,368 | $ | — | $ | 178,251 | |||||||
Intersegment Revenues | 243 | 2,157 | (2,400 | ) | — | ||||||||||
Total Revenues | $ | 112,126 | $ | 68,525 | $ | (2,400 | ) | $ | 178,251 | ||||||
Gross Profit | $ | 14,432 | $ | 10,270 | $ | (371 | ) | $ | 24,331 | ||||||
Depreciation and Amortization Expense | $ | 2,190 | $ | 1,336 | $ | 472 | $ | 3,998 | |||||||
Selling, General & Administrative Expenses | $ | 5,642 | $ | 4,780 | $ | 5,163 | $ | 15,585 | |||||||
Operating Income | $ | 8,506 | $ | 5,455 | $ | (5,534 | ) | $ | 8,427 | ||||||
Capital and Other Items: | |||||||||||||||
Capital Expenditures | $ | 1,540 | $ | 1,031 | $ | 380 | $ | 2,951 | |||||||
Other Items 1 | $ | 284 | $ | 211 | $ | — | $ | 495 | |||||||
1 Other items include costs associated with plant closures, including employee severance and retention costs, lease cancellation costs, building repairs and costs to transfer equipment.
Three months ended June 30, 2015 | |||||||||||||||
Global Truck & Bus | Global Construction & Agriculture | Corporate/ Other | Total | ||||||||||||
Revenues | |||||||||||||||
External Revenues | $ | 149,263 | $ | 68,354 | $ | — | $ | 217,617 | |||||||
Intersegment Revenues | 82 | 2,343 | (2,425 | ) | — | ||||||||||
Total Revenues | $ | 149,345 | $ | 70,697 | $ | (2,425 | ) | $ | 217,617 | ||||||
Gross Profit | $ | 22,885 | $ | 7,570 | $ | (949 | ) | $ | 29,506 | ||||||
Depreciation and Amortization Expense | $ | 2,214 | $ | 1,489 | $ | 694 | $ | 4,397 | |||||||
Selling, General & Administrative Expenses | $ | 7,492 | $ | 4,690 | $ | 5,403 | $ | 17,585 | |||||||
Operating Income | $ | 15,095 | $ | 2,845 | $ | (6,352 | ) | $ | 11,588 | ||||||
Capital and Other Items: | |||||||||||||||
Capital Expenditures | $ | 2,058 | $ | 861 | $ | 1,828 | $ | 4,747 | |||||||
Other Items 1 | $ | 463 | $ | — | $ | — | $ | 463 | |||||||
1 Other items include costs associated with plant closures, including employee severance and retention costs, lease cancellation costs, building repairs and costs to transfer equipment.
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Six months ended June 30, 2016 | |||||||||||||||
Global Truck & Bus | Global Construction & Agriculture | Corporate/ Other | Total | ||||||||||||
Revenues | |||||||||||||||
External Revenues | $ | 228,167 | $ | 130,376 | $ | — | $ | 358,543 | |||||||
Intersegment Revenues | 463 | 3,917 | (4,380 | ) | — | ||||||||||
Total Revenues | $ | 228,630 | $ | 134,293 | $ | (4,380 | ) | $ | 358,543 | ||||||
Gross Profit | $ | 32,255 | $ | 18,576 | $ | (795 | ) | $ | 50,036 | ||||||
Depreciation and Amortization Expense | $ | 4,224 | $ | 2,857 | $ | 1,328 | $ | 8,409 | |||||||
Selling, General & Administrative Expenses | $ | 12,137 | $ | 9,271 | $ | 10,968 | $ | 32,376 | |||||||
Operating Income | $ | 19,535 | $ | 9,235 | $ | (11,762 | ) | $ | 17,008 | ||||||
Capital and Other Items: | |||||||||||||||
Capital Expenditures | $ | 2,447 | $ | 2,216 | $ | 573 | $ | 5,236 | |||||||
Other Items 1 | $ | 375 | $ | 321 | $ | 688 | $ | 1,384 | |||||||
1 Other items in the GTB and GCA Segments include costs associated with plant closures, including employee severance and retention costs, lease cancellation costs, building repairs and costs to transfer equipment; and in corporate a write down of an asset held for sale and severance costs.
Six months ended June 30, 2015 | |||||||||||||||
Global Truck & Bus | Global Construction & Agriculture | Corporate/ Other | Total | ||||||||||||
Revenues | |||||||||||||||
External Revenues | $ | 295,068 | $ | 142,852 | $ | — | $ | 437,920 | |||||||
Intersegment Revenues | 183 | 5,892 | (6,075 | ) | — | ||||||||||
Total Revenues | $ | 295,251 | $ | 148,744 | $ | (6,075 | ) | $ | 437,920 | ||||||
Gross Profit | $ | 44,230 | $ | 16,261 | $ | (1,911 | ) | $ | 58,580 | ||||||
Depreciation and Amortization Expense | $ | 4,438 | $ | 3,005 | $ | 1,431 | $ | 8,874 | |||||||
Selling, General & Administrative Expenses | $ | 14,438 | $ | 9,731 | $ | 10,955 | $ | 35,124 | |||||||
Operating Income | $ | 29,195 | $ | 6,459 | $ | (12,867 | ) | $ | 22,787 | ||||||
Capital and Other Items: | |||||||||||||||
Capital Expenditures | $ | 3,140 | $ | 2,374 | $ | 2,151 | $ | 7,665 | |||||||
Other Items 1 | $ | 1,142 | $ | — | $ | — | $ | 1,142 | |||||||
1 Other items include costs associated with plant closures, including employee severance and retention costs, lease cancellation costs, building repairs and costs to transfer equipment.
14. Foreign Currency Forward Exchange Contracts
We use forward exchange contracts to hedge certain of our 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 positions. As of June 30, 2016, we did not have any derivatives designated as hedging instruments; therefore, our forward foreign exchange contracts 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 cost of revenue in our consolidated statements of income. We do not hold or issue foreign exchange options or forward contracts for trading purposes. Our forward foreign exchange contracts are subject to a master netting agreement. We record assets and liabilities relating to our forward foreign exchange contracts on a gross basis in our consolidated balance sheets.
The following table summarizes the notional amount of our open foreign exchange contracts:
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June 30, 2016 | December 31, 2015 | ||||||||||||||
U.S. $ Equivalent | U.S. Equivalent Fair Value | U.S. $ Equivalent | U.S. Equivalent Fair Value | ||||||||||||
Commitments to buy or sell currencies | $ | 25,046 | $ | 25,223 | $ | 15,490 | $ | 15,479 | |||||||
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 fair value and presentation in the consolidated balance sheets for derivatives, none of which are designated as accounting hedges:
Asset Derivatives | |||||||||||
June 30, 2016 | December 31, 2015 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Foreign exchange contracts | Other current assets | $ | 548 | Other current assets | $ | 36 | |||||
Liability Derivatives | |||||||||||
June 30, 2016 | December 31, 2015 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Foreign exchange contracts | Accrued liabilities | $ | 373 | Accrued liabilities | $ | 524 | |||||
The following table summarizes the effect of derivative instruments on the consolidated statements of income for derivatives not designated as hedging instruments:
Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||
Location of Gain (Loss) Recognized in Income on Derivatives | Amount of Gain (Loss) Recognized in Income on Derivatives | Amount of Gain (Loss) Recognized in Income on Derivatives | |||||||||||||||
Foreign exchange contracts | Cost of Revenues | $ | 491 | $ | 204 | $ | 659 | $ | 42 | ||||||||
15. Other Comprehensive Income (Loss)
The after-tax changes in accumulated other comprehensive income (loss) is as follows:
Foreign currency translation adjustment | Pension and post-retirement benefits plans | Accumulated other comprehensive loss | |||||||||
Ending balance, December 31, 2015 | $ | (21,079 | ) | $ | (18,575 | ) | $ | (39,654 | ) | ||
Net current period change | (408 | ) | — | (408 | ) | ||||||
Reclassification adjustments for losses reclassified into income | — | (1,034 | ) | (1,034 | ) | ||||||
Ending balance, June 30, 2016 | $ | (21,487 | ) | $ | (19,609 | ) | $ | (41,096 | ) | ||
Foreign currency translation adjustment | Pension and post-retirement benefit plans | Accumulated other comprehensive loss | |||||||||
Ending balance, December 31, 2014 | $ | (16,507 | ) | $ | (20,781 | ) | $ | (37,288 | ) | ||
Net current period change | (2,845 | ) | — | (2,845 | ) | ||||||
Reclassification adjustments for losses reclassified into income | — | 186 | 186 | ||||||||
Ending balance, June 30, 2015 | $ | (19,352 | ) | $ | (20,595 | ) | $ | (39,947 | ) | ||
The related tax effects allocated to each component of other comprehensive income (loss) are as follows:
18
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 30, 2016 | June 30, 2016 | ||||||||||||||||||||||
Before Tax Amount | Tax Expense | After Tax Amount | Before Tax Amount | Tax Expense | After Tax Amount | ||||||||||||||||||
Retirement benefits adjustment | (1,418 | ) | 275 | (1,143 | ) | (1,585 | ) | 551 | (1,034 | ) | |||||||||||||
Cumulative translation adjustment | $ | (713 | ) | $ | — | (713 | ) | (408 | ) | — | (408 | ) | |||||||||||
Total other comprehensive income | $ | (2,131 | ) | $ | 275 | $ | (1,856 | ) | $ | (1,993 | ) | $ | 551 | $ | (1,442 | ) | |||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 30, 2015 | June 30, 2015 | ||||||||||||||||||||||
Before Tax Amount | Tax Expense | After Tax Amount | Before Tax Amount | Tax Expense | After Tax Amount | ||||||||||||||||||
Retirement benefits adjustment | 159 | (33 | ) | 126 | 252 | (66 | ) | 186 | |||||||||||||||
Cumulative translation adjustment | 163 | — | 163 | (2,845 | ) | — | (2,845 | ) | |||||||||||||||
Total other comprehensive loss | $ | 322 | $ | (33 | ) | $ | 289 | $ | (2,593 | ) | $ | (66 | ) | $ | (2,659 | ) | |||||||
16. 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 United States and United Kingdom. All of our pension plans are inactive or frozen to new employees. Our policy is to make annual contributions to the plans to fund the normal cost as required by local regulations. In addition, we have a post-retirement benefit plan for certain U.S. operations, retirees and their dependents.
The components of net periodic (benefit) cost related to pension and other post-retirement benefit plans is as follows:
U.S. Pension Plans | Non-U.S. Pension Plans | Other Post-Retirement Benefit Plans | |||||||||||||||||||||
Three Months Ended June 30, | Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||
Service cost | $ | 32 | $ | 29 | $ | — | $ | — | $ | — | $ | — | |||||||||||
Interest cost | 469 | 463 | 350 | 368 | 4 | 4 | |||||||||||||||||
Expected return on plan assets | (678 | ) | (668 | ) | (389 | ) | (397 | ) | — | — | |||||||||||||
Amortization of prior service cost | — | — | — | — | 2 | 2 | |||||||||||||||||
Recognized actuarial loss (gain) | 107 | 117 | 54 | 69 | (26 | ) | (30 | ) | |||||||||||||||
Net (benefit) cost | $ | (70 | ) | $ | (59 | ) | $ | 15 | $ | 40 | $ | (20 | ) | $ | (24 | ) | |||||||
19
U.S. Pension Plans | Non-U.S. Pension Plans | Other Post-Retirement Benefit Plans | |||||||||||||||||||||
Six Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||
Service cost | $ | 64 | $ | 58 | $ | — | $ | — | $ | — | $ | — | |||||||||||
Interest cost | 938 | 926 | 709 | 736 | 8 | 8 | |||||||||||||||||
Expected return on plan assets | (1,356 | ) | (1,336 | ) | (787 | ) | (794 | ) | — | — | |||||||||||||
Amortization of prior service cost | — | — | — | — | 4 | 4 | |||||||||||||||||
Recognized actuarial loss (gain) | 214 | 234 | 109 | 137 | (51 | ) | (60 | ) | |||||||||||||||
Net (benefit) cost | $ | (140 | ) | $ | (118 | ) | $ | 31 | $ | 79 | $ | (39 | ) | $ | (48 | ) | |||||||
We expect to contribute approximately $3.0 million to our pension plans and our other post-retirement benefit plans in 2016. As of June 30, 2016, $1.5 million of contributions have been made to our pension and other post-retirement plans.
17. | Restructuring |
Current Restructuring Activity
On November 19, 2015, the Board of Directors of the Company approved adjustments to the Company’s manufacturing footprint and capacity utilization, and reductions to selling, general and administrative costs. We expect the costs associated with restructuring activities to total $8.0 million to $11.0 million, and capital investments to total $2.0 million to $3.0 million. The $8.0 million to $11.0 million restructuring activities include the previously announced Edgewood and Piedmont facility transfers and other restructuring expenses announced subsequent to June 30, 2016 and disclosed in Footnote 18 Subsequent Events. The restructuring and cost reduction actions began in the fourth quarter of 2015 and are expected to continue through 2017. As of June 30, 2016, restructuring costs incurred were $0.8 million in the fourth quarter of 2015 and $0.8 million during the six months ended June 30, 2016.
Edgewood Facility
The closure of our Edgewood, Iowa facility and transfer of production to our Agua Prieta, Mexico facility was announced on December 3, 2015 and is substantially complete as of June 30, 2016.
Piedmont Facility
On May 2, 2016, the Company announced plans to consolidate its North American seat production into two North American facilities and cease seat production in its Piedmont, Alabama facility. The Company will continue to maintain a presence in Piedmont for our Aftermarket distribution channel.
Ongoing Restructuring Expenditures
The table below summarizes the expenditures incurred to date and future expenditures associated with the restructuring activities approved on November 19, 2015:
20
Total Project Expense | Current | Year | Expected | |||||||||||||||||||||||||
2015 | Quarter | to Date | Future Expense | Income Statement | ||||||||||||||||||||||||
(in millions) | Low | High | Expense | Expense | Expense | Low | High | Classification | ||||||||||||||||||||
Edgewood Wire Harness | ||||||||||||||||||||||||||||
Separation costs | $ | 0.3 | $ | 0.3 | $ | 0.1 | $ | 0.1 | $ | 0.2 | — | — | Cost of revenues | |||||||||||||||
Facility and other costs | 0.1 | 0.1 | — | 0.1 | 0.1 | — | — | Cost of revenues | ||||||||||||||||||||
Total | $ | 0.4 | $ | 0.4 | $ | 0.1 | $ | 0.2 | $ | 0.3 | — | — | ||||||||||||||||
Piedmont Seating | ||||||||||||||||||||||||||||
Separation costs | $ | 0.3 | $ | 0.5 | $ | 0.1 | $ | 0.2 | $ | 0.2 | — | $ | 0.2 | Cost of revenues | ||||||||||||||
Facility and other costs | 2.0 | 2.5 | — | 0.1 | 0.1 | 1.9 | 2.4 | Cost of revenues | ||||||||||||||||||||
Total | $ | 2.3 | $ | 3.0 | $ | 0.1 | $ | 0.3 | $ | 0.3 | $ | 1.9 | $ | 2.6 | ||||||||||||||
Monona Wire Harness | ||||||||||||||||||||||||||||
Separation costs | $ | 0.5 | $ | 0.7 | $ | 0.2 | — | — | $ | 0.3 | $ | 0.5 | Cost of revenues | |||||||||||||||
Facility and other costs | 0.5 | 0.6 | — | — | — | 0.5 | 0.6 | Cost of revenues | ||||||||||||||||||||
Total | $ | 1.0 | $ | 1.3 | $ | 0.2 | — | — | $ | 0.8 | $ | 1.1 | ||||||||||||||||
Shadyside Stamping | ||||||||||||||||||||||||||||
Separation costs | $ | 1.0 | $ | 1.3 | $ | 0.2 | — | — | $ | 0.8 | $ | 1.1 | Cost of revenues | |||||||||||||||
Facility and other costs | 2.1 | 2.5 | — | — | — | 2.1 | 2.5 | Cost of revenues | ||||||||||||||||||||
Total | $ | 3.1 | $ | 3.8 | $ | 0.2 | — | — | $ | 2.9 | $ | 3.6 | ||||||||||||||||
China | ||||||||||||||||||||||||||||
Separation costs | $ | 0.2 | $ | 0.2 | $ | 0.2 | — | — | — | — | Cost of revenues | |||||||||||||||||
Total | $ | 0.2 | $ | 0.2 | $ | 0.2 | — | — | — | — | ||||||||||||||||||
Other Restructuring | ||||||||||||||||||||||||||||
Separation costs | $ | 0.3 | $ | 0.4 | — | — | $ | 0.1 | $ | 0.2 | $ | 0.3 | Cost of revenues | |||||||||||||||
Separation costs | 0.1 | 0.1 | — | — | 0.1 | — | — | Selling, general and administrative | ||||||||||||||||||||
Facility and other costs | 0.6 | 1.8 | — | — | — | 0.6 | 1.8 | Cost of revenues | ||||||||||||||||||||
Total | $ | 1.0 | $ | 2.3 | — | — | $ | 0.2 | $ | 0.8 | $ | 2.1 | ||||||||||||||||
Total Restructuring | $ | 8.0 | $ | 11.0 | $ | 0.8 | $ | 0.5 | $ | 0.8 | $ | 6.4 | $ | 9.4 | ||||||||||||||
Prior Years Restructuring Activity
In 2014, management announced the closure and transfer of production from our Tigard, Oregon facility and completed the closure in the third quarter of 2015. The costs associated with the Tigard closure and transfer of production to other facilities, building repairs and other related expenses totaled $1.1 million in the six months ended June 30, 2015 and are reflected in cost of revenues.
Restructuring Reserve
A summary of the restructuring liability for the six months ended June 30 is as follows:
21
2016 | |||||||||||
Employee Costs | Facility Exit and Other Costs | Total | |||||||||
Balance - December 31, 2015 | $ | 542 | $ | 43 | $ | 585 | |||||
Provisions | 464 | 304 | 768 | ||||||||
Utilizations | (339 | ) | (199 | ) | (538 | ) | |||||
Balance - June 30, 2016 | $ | 667 | $ | 148 | $ | 815 | |||||
2015 | |||||||||||
Employee Costs | Facility Exit and Other Costs | Total | |||||||||
Balance - December 31, 2014 | $ | 531 | $ | 72 | $ | 603 | |||||
Provisions | 36 | 1,106 | 1,142 | ||||||||