Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - Commercial Vehicle Group, Inc. | q32017exhibit322.htm |
| EX-32.1 - EXHIBIT 32.1 - Commercial Vehicle Group, Inc. | q32017exhibit321.htm |
| EX-31.2 - EXHIBIT 31.2 - Commercial Vehicle Group, Inc. | q32017exhibit312.htm |
| EX-31.1 - EXHIBIT 31.1 - Commercial Vehicle Group, Inc. | q32017exhibit311.htm |
| EX-10.1 - EXHIBIT 10.1 - Commercial Vehicle Group, Inc. | q32017exhibit101.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 September 30, 2017
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 | ¨ |
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 x
The number of shares outstanding of the Registrant’s common stock, par value $.01 per share, at November 6, 2017 was 30,658,236 shares.
1
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
PART I FINANCIAL INFORMATION | |
i
ITEM 1 – FINANCIAL STATEMENTS
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2017 | December 31, 2016 | ||||||
(Unaudited) | (Unaudited) | ||||||
(In thousands, except share and per share amounts) | |||||||
Assets | |||||||
Current Assets: | |||||||
Cash | $ | 50,232 | $ | 130,160 | |||
Accounts receivable, net of allowances of $4,418 and $3,881, respectively | 128,282 | 97,793 | |||||
Inventories | 88,442 | 71,054 | |||||
Other current assets | 14,935 | 9,941 | |||||
Total current assets | 281,891 | 308,948 | |||||
Property, plant and equipment, net of accumulated depreciation of $144,288 and $137,879, respectively | 64,980 | 66,041 | |||||
Goodwill | 7,884 | 7,703 | |||||
Intangible assets, net of accumulated amortization of $8,125 and $7,048, respectively | 14,748 | 15,511 | |||||
Deferred income taxes | 29,044 | 28,587 | |||||
Other assets, net | 2,240 | 1,975 | |||||
Total assets | $ | 400,787 | $ | 428,765 | |||
Liabilities and Stockholders’ Equity | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 91,713 | $ | 60,556 | |||
Accrued liabilities and other | 39,778 | 45,699 | |||||
Current portion of long-term debt | 3,184 | — | |||||
Total current liabilities | 134,675 | 106,255 | |||||
Long-term debt | 164,565 | 233,154 | |||||
Pension and other post-retirement benefits | 19,973 | 18,938 | |||||
Other long-term liabilities | 3,140 | 2,728 | |||||
Total liabilities | 322,353 | 361,075 | |||||
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; 29,876,953 and 29,871,354 shares issued and outstanding, respectively) | 299 | 299 | |||||
Treasury stock, at cost: 1,014,413 shares, as of September 2017 and December 2016 | (7,753 | ) | (7,753 | ) | |||
Additional paid-in capital | 239,209 | 237,367 | |||||
Retained Deficit | (107,855 | ) | (113,378 | ) | |||
Accumulated other comprehensive loss | (45,466 | ) | (48,845 | ) | |||
Total stockholders’ equity | 78,434 | 67,690 | |||||
Total liabilities and stockholders’ equity | $ | 400,787 | $ | 428,765 | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Unaudited) (In thousands, except per share amounts) | (Unaudited) (In thousands, except per share amounts) | ||||||||||||||
Revenues | $ | 198,349 | $ | 153,604 | $ | 566,893 | $ | 512,147 | |||||||
Cost of Revenues | 173,199 | 134,685 | 497,539 | 443,192 | |||||||||||
Gross Profit | 25,150 | 18,919 | 69,354 | 68,955 | |||||||||||
Selling, General and Administrative Expenses | 14,136 | 14,126 | 45,557 | 46,502 | |||||||||||
Amortization Expense | 332 | 327 | 990 | 978 | |||||||||||
Operating Income | 10,682 | 4,466 | 22,807 | 21,475 | |||||||||||
Interest and Other Expense | 3,482 | 4,799 | 14,786 | 14,583 | |||||||||||
Income (Loss) Before Provision for Income Taxes | 7,200 | (333 | ) | 8,021 | 6,892 | ||||||||||
Provision (Benefit) for Income Taxes | 2,437 | (1,480 | ) | 2,498 | 461 | ||||||||||
Net Income | $ | 4,763 | $ | 1,147 | $ | 5,523 | $ | 6,431 | |||||||
Earnings per Common Share: | |||||||||||||||
Basic and Diluted | $ | 0.16 | $ | 0.04 | $ | 0.18 | $ | 0.22 | |||||||
Weighted Average Shares Outstanding: | |||||||||||||||
Basic | 29,875 | 29,449 | 29,874 | 29,449 | |||||||||||
Diluted | 30,487 | 30,101 | 30,379 | 29,783 | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||
(In thousands) | (In thousands) | ||||||||||||||
Net income | $ | 4,763 | $ | 1,147 | $ | 5,523 | $ | 6,431 | |||||||
Other comprehensive income (loss): | |||||||||||||||
Foreign currency exchange translation adjustments | 1,130 | 621 | 5,209 | 215 | |||||||||||
Minimum pension liability, net of tax | (546 | ) | (665 | ) | (1,830 | ) | (1,699 | ) | |||||||
Other comprehensive income (loss) | 584 | (44 | ) | 3,379 | (1,484 | ) | |||||||||
Comprehensive income | $ | 5,347 | $ | 1,103 | $ | 8,902 | $ | 4,947 | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
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, 2016 | 29,871 | $ | 299 | $ | (7,753 | ) | $ | 237,367 | $ | (113,378 | ) | $ | (48,845 | ) | $ | 67,690 | ||||||||||
Share-based compensation expense | 6 | — | — | 1,842 | — | — | 1,842 | |||||||||||||||||||
Total comprehensive income | — | — | — | — | 5,523 | 3,379 | 8,902 | |||||||||||||||||||
BALANCE - September 30, 2017 | 29,877 | $ | 299 | $ | (7,753 | ) | $ | 239,209 | $ | (107,855 | ) | $ | (45,466 | ) | $ | 78,434 | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
(Unaudited) | (Unaudited) | ||||||
(In thousands) | |||||||
Cash Flows from Operating Activities: | |||||||
Net Income | $ | 5,523 | $ | 6,431 | |||
Adjustments to reconcile net income to cash (used in) provided by operating activities: | |||||||
Depreciation and amortization | 11,431 | 12,571 | |||||
Impairment of equipment held for sale | — | 616 | |||||
Provision for doubtful accounts and bad debt | 3,739 | 4,318 | |||||
Non-cash amortization of debt financing costs and discount | 891 | 630 | |||||
Pension plan contribution | (2,202 | ) | (2,180 | ) | |||
Shared-based compensation expense | 1,842 | 1,868 | |||||
Deferred income taxes | 88 | (563 | ) | ||||
Non-cash gain on derivative contracts | (979 | ) | 208 | ||||
Change in other operating items: | |||||||
Accounts receivable | (32,404 | ) | 20,125 | ||||
Inventories | (15,086 | ) | 7,329 | ||||
Prepaid expenses | (1,755 | ) | (491 | ) | |||
Accounts payable | 28,751 | (6,670 | ) | ||||
Other operating activities, net | (2,149 | ) | 6,017 | ||||
Net cash (used in) provided by operating activities | (2,310 | ) | 50,209 | ||||
Cash Flows from Investing Activities: | |||||||
Purchases of property, plant and equipment | (10,290 | ) | (7,546 | ) | |||
Proceeds from disposal/sale of property, plant and equipment | 254 | 55 | |||||
Proceeds from settlement of corporate-owned insurance policies | — | 2,489 | |||||
Net cash used in investing activities | (10,036 | ) | (5,002 | ) | |||
Cash Flows from Financing Activities: | |||||||
Borrowing of Term Loan Facility | 175,000 | — | |||||
Repayment of 7.875% notes | (235,000 | ) | — | ||||
Repayment of Term Loan principal | (1,094 | ) | — | ||||
Prepayment charge for redemption of 7.875% notes | (1,543 | ) | — | ||||
Prepayment of Term Loan Facility discount | (3,500 | ) | — | ||||
Payment of debt issuance costs | (4,242 | ) | — | ||||
Net cash used in financing activities | (70,379 | ) | — | ||||
Effect of Foreign Currency Exchange Rate Changes on Cash | 2,797 | (337 | ) | ||||
Net (Decrease) Increase in Cash | (79,928 | ) | 44,870 | ||||
Cash: | |||||||
Beginning of period | 130,160 | 92,194 | |||||
End of period | 50,232 | 137,064 | |||||
Supplemental Cash Flow Information: | |||||||
Cash paid for interest | $ | 13,767 | $ | 9,396 | |||
Cash paid for income taxes, net | $ | 2,568 | $ | 918 | |||
Unpaid purchases of property and equipment included in accounts payable | $ | 321 | $ | 157 | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
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. (and its subsidiaries) 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. References herein to the "Company", "we", "our", or "us" refer to Commercial Vehicle Group, Inc. and its subsidiaries.
We have 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 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 unaudited condensed consolidated financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The information furnished in the unaudited 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 2016 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 9, 2017. Unless otherwise indicated, all amounts are in thousands, except share and per share amounts. Certain immaterial reclassifications have been made to prior year amounts to conform to current year presentation.
SEGMENTS
Operating segments are defined as components of an enterprise that are evaluated regularly by the Company’s chief operating decision maker, which is our 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. 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 GTB Segment manufactures and sells the following products:
• | Seats, Trim, sleeper boxes, 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 in North America. |
The GCA Segment manufactures and sells the following products:
6
• | electronic wire harness assemblies and Seats for 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
In May 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-09, "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting". ASU 2017-09 provides clarity of accounting for modifications of share-based awards. The Company does not anticipate this ASU will have a material impact on share-based compensation. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017.
In March 2017, the FASB issued ASU No. 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". ASU 2017-07 requires employers to report service costs in the same line item as compensation costs arising from services rendered by associated employees during the period. The Company does not anticipate this ASU to have a material impact on its pension disclosures. ASU 2017-07 is effective for fiscal years beginning after December 15, 2017.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". ASU 2017-04 provides simplification for the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Annual impairment tests should be completed by comparing the fair value of a reporting unit to its carrying amount and impairment should not exceed the goodwill allocated to the reporting unit. Additionally, this ASU eliminated the requirement to assess reporting units with zero or negative carrying amounts. The Company anticipates this ASU to simplify a component of its goodwill assessment. The Company does not anticipate an impact to its overall valuation of goodwill. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019.
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business". ASU 2017-01 provides additional guidance to clarify acquisition transactions and whether they should be accounted for as an acquisition of a business or assets. This ASU will only impact the Company to the extent we execute a business combination. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017.
Revenue Recognition Guidance
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, followed by a series of standards and clarification, including: ASU No. 2016-08, "Principal Versus Agent Considerations (Reporting Revenue Gross versus Net)", ASU No. 2016-10, "Identifying Performance Obligations and Licensing" and ASU No. 2016-12, "Narrow-Scope Improvements and Practical Expedients". The ASUs supersede the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification.
The mandatory adoption date of each of the revenue recognition ASUs referenced above is January 1, 2018. With respect to each of the elements of revenue recognition guidance above, the Company is in the process of assessing potential changes in revenue recognition for certain revenue streams. More specifically, the Company is in the process of assessing our customer arrangements, identifying contractual provisions that may result in a change in the timing or the amount of revenue recognized pursuant to current guidance, as well as assessing the enhanced disclosure requirements of the new guidance. Under current guidance, we typically recognize revenue when products are shipped and risk of loss has transferred to the customer. Under the new guidance, the customized nature of some of our products and provisions of some of our customer contracts provide us with an enforceable right to payment that may require us to recognize revenue prior to the product being shipped to the customer. We have assessed certain pricing provisions contained in some of our customer contracts to determine if they represent a material right to the customer. We are evaluating how the new guidance may impact our accounting for customer owned tooling, engineering and design services, and pre-production costs. Finally, we are assessing standard warranties to determine if they represent a material right to the customer. We do not anticipate that the new guidance will have a material impact on our consolidated financial position, results of operations,
7
equity, or cash flows. As management assesses its various revenue streams, we may establish revised accounting policies and internal control procedures and will measure and disclose the accounting impact, if any. The new guidance permits the use of either the retrospective or cumulative effect transition method. We will apply the cumulative effect transition method. We will not adopt the new guidance early.
Lease Accounting Guidance
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, 2018. The Company is assessing the impact of this pronouncement and anticipates that it will impact the presentation of our lease assets and liabilities and associated disclosures by the recognition of lease assets and liabilities that were not included in the balance sheet under existing accounting guidance. The Company is in the process of performing its initial assessment of lease arrangements, including facility leases and machinery and equipment leases. The Company's lease terms are not generally complex in nature. The Company will update its accounting policies as we complete our assessment of leases. The Company will also review other arrangements which could contain embedded lease arrangements to be considered under the revised guidance. The Company will determine the impact of the new guidance on its current lease arrangements that are expected to remain in place during 2019 and beyond.
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.
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.
Our derivative assets and liabilities represent foreign exchange contracts and an interest rate swap contract that are measured at fair value using observable market inputs. Based on these inputs, the derivative assets and liabilities are classified as Level 2. The fair values of our derivative assets and liabilities are categorized as follows:
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||
Derivative assets | Foreign exchange contract | $ | 395 | $ | — | $ | 395 | $ | — | $ | 142 | $ | — | $ | 142 | $ | — | ||||||||||||||||
Interest rate swap contract 1 | $ | 302 | $ | — | $ | 302 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
Derivative liabilities | Foreign exchange contract | $ | 22 | $ | — | $ | 22 | $ | — | $ | 1,234 | $ | — | $ | 1,234 | $ | — | ||||||||||||||||
Interest rate swap contract 1 | $ | 787 | $ | — | $ | 787 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
1 Presented in the condensed consolidated Balance Sheet as accrued liabilities of $0.5 million.
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 obligations are as follows:
8
September 30, 2017 | December 31, 2016 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
7.875% senior secured notes due April 15, 2019 | $ | — | $ | — | $ | 233,154 | $ | 231,391 | |||||||
Term loan and security agreement (a) | $ | 167,749 | $ | 170,139 | $ | — | $ | — | |||||||
(a) Presented in the condensed consolidated balance sheet as the current portion of long-term debt of $3.2 million and long-term debt of $164.6 million.
Held-for-sale assets specific to our Shadyside operations are recorded in the balance sheet at their historical carrying value inasmuch as the fair value of the assets less selling costs were determined to be greater than the historical carrying value. The fair value of the assets was measured based on an estimated purchase price for the assets determined through discussions with third parties that began in the first quarter of 2017.
There were no other fair value measurements of our long-lived assets and definite-lived intangible assets measured on a non-recurring basis as of September 30, 2017.
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, 29,876,953 shares were issued and outstanding as of September 30, 2017 and 29,871,354 were issued and outstanding as of December 31, 2016.
Preferred Stock — Our authorized capital stock also 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 September 30, 2017 and December 31, 2016.
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 nine months ended September 30, 2017 and 2016 includes the effects of potential common shares issuable upon the vesting of restricted stock, when dilutive.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 4,763 | $ | 1,147 | $ | 5,523 | $ | 6,431 | |||||||
Weighted average number of common shares outstanding | 29,875 | 29,449 | 29,874 | 29,449 | |||||||||||
Dilutive effect of restricted stock grants after application of the treasury stock method | 612 | 652 | 505 | 334 | |||||||||||
Dilutive shares outstanding | 30,487 | 30,101 | 30,379 | 29,783 | |||||||||||
Basic and diluted earnings per share | $ | 0.16 | $ | 0.04 | $ | 0.18 | $ | 0.22 | |||||||
There are no antidilutive outstanding restrictive stock awards impacting the diluted earnings per share for the three and nine months ended September 30, 2017. No outstanding restricted stock awards were antidilutive for the three months ended September 30, 2016. Diluted earnings per share did not include 422 thousand antidilutive outstanding restricted stock awards for the nine months ended September 30, 2016.
Dividends — We have not declared or paid any cash dividends in the past. The terms of the Third ARLS Agreement (as described in Note 11) restrict the payment or distribution of our cash or other assets, including cash dividend payments.
5. Share-Based Compensation
The company's outstanding share-based compensation is comprised solely of restricted stock awards.
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
9
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 outstanding restricted stock grants as of September 30, 2017:
Grant | Shares (in thousands) | Vesting Schedule | Unearned Compensation (in millions) | Remaining Periods (in months) | |||||||
October 2014 | 506 | 3 equal annual installments commencing on October 20, 2015 | $ | — | 1 | ||||||
April 2015 | 27 | 3 equal annual installments commencing on October 20, 2015 | $ | — | 1 | ||||||
October 2015 | 596 | 3 equal annual installments commencing on October 20, 2016 | $ | 0.6 | 13 | ||||||
January/March 2016 | 63 | 3 equal annual installments commencing on October 20, 2016 | $ | — | 13 | ||||||
October 2016 | 411 | 3 equal annual installments commencing on October 20, 2017 | $ | 1.4 | 25 | ||||||
October 2016 | 98 | fully vests as of October 20, 2017 | $ | 0.1 | 1 | ||||||
June 2017 | 6 | 3 equal annual installments commencing on October 20, 2017 | $ | — | 25 | ||||||
As of September 30, 2017, there was approximately $2.1 million of unearned compensation expense related to non-vested share-based compensation arrangements granted under our equity incentive plans. We have elected to report forfeitures as they occur as opposed to estimating future forfeitures in our share-based compensation expense.
The following table summarizes information about the non-vested restricted stock grants for the nine months ended September 30, 2017 and 2016:
Nine Months Ended September 30, | |||||||||||||
2017 | 2016 | ||||||||||||
Shares (000’s) | Weighted- Average Grant-Date Fair Value | Shares (000’s) | Weighted- Average Grant-Date Fair Value | ||||||||||
Nonvested at December 31 | 981 | $ | 4.70 | 1,128 | $ | 4.24 | |||||||
Granted | 6 | 8.77 | 63 | 2.49 | |||||||||
Vested | (6 | ) | 4.89 | — | — | ||||||||
Forfeited | (39 | ) | 4.84 | (153 | ) | 4.29 | |||||||
Nonvested at September 30 | 942 | $ | 4.72 | 1,038 | $ | 4.37 | |||||||
6. 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 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 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 only 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 will be 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 under the 2014 EIP in November 2016, 2015 and 2014:
Grant Date | Vesting Schedule | Grant Amount | Forfeitures/ Adjustments | Payments | Grant Value at September 30, 2017 | Unrecognized Compensation | Remaining Periods (in Months) to Vesting | |||||||||||||||||
November 2014 | October 2017 | $ | 2,087 | $ | (1,592 | ) | $ | — | $ | 495 | — | 1 | ||||||||||||
November 2015 | October 2018 | 1,487 | (197 | ) | — | 1,290 | 430 | 13 | ||||||||||||||||
November 2016 | October 2019 | 1,434 | (37 | ) | — | 1,397 | 932 | 25 | ||||||||||||||||
$ | 5,008 | $ | (1,826 | ) | $ | — | $ | 3,182 | $ | 1,362 | ||||||||||||||
10
Compensation (income) and expense was recognized totaling $(0.3) million and $0.2 million for the three months ended September 30, 2017 and 2016, respectively. Compensation expense totaling $0.4 million was recognized for the nine months ended September 30, 2017 and 2016. Unrecognized compensation expense was $1.4 million and $1.2 million as of September 30, 2017 and 2016, respectively.
7. Accounts Receivable
Trade accounts receivable are stated at current value less an allowance for doubtful accounts, which approximates fair value. This allowance is estimated 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 with 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:
September 30, 2017 | December 31, 2016 | ||||||
Raw materials | $ | 61,646 | $ | 46,352 | |||
Work in process | 10,646 | 11,234 | |||||
Finished goods | 16,150 | 13,468 | |||||
$ | 88,442 | $ | 71,054 | ||||
Inventories on-hand are regularly reviewed and, when 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.
We performed a Step One fair value assessment of our reporting units as of May 31, 2017. Implied fair value of goodwill was determined by utilizing the income 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. Based on our fair value assessment of each of the reporting units, the fair value exceeded the carrying value of goodwill.
We review definite-lived intangible assets, including trademarks, tradenames and customer relationships, for recoverability whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. If the estimated undiscounted cash flows are less than the carrying amount 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. Definite-lived intangible assets are amortized on a straight-line basis over the estimated life of the asset.
The changes in the carrying amounts of goodwill are as follows:
September 30, 2017 | December 31, 2016 | ||||||
Balance — Beginning | $ | 7,703 | $ | 7,834 | |||
Currency translation adjustment | 181 | (131 | ) | ||||
Balance — Ending | $ | 7,884 | $ | 7,703 | |||
11
Our definite-lived intangible assets were comprised of the following:
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||
Weighted- Average Amortization Period | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Definite-lived intangible assets: | |||||||||||||||||||||||||
Trademarks/Tradenames | 23 years | $ | 8,465 | $ | (3,486 | ) | $ | 4,979 | $ | 8,378 | $ | (3,193 | ) | $ | 5,185 | ||||||||||
Customer relationships | 15 years | 14,408 | (4,639 | ) | 9,769 | 14,181 | (3,855 | ) | 10,326 | ||||||||||||||||
$ | 22,873 | $ | (8,125 | ) | $ | 14,748 | $ | 22,559 | $ | (7,048 | ) | $ | 15,511 | ||||||||||||
The aggregate intangible asset amortization expense was approximately $0.3 million for the three months ended September 30, 2017 and 2016, and $1.0 million for the nine months ended September 30, 2017 and 2016. The estimated intangible asset amortization expense for the fiscal year ending December 31, 2017 and for each of the five succeeding years is as follows:
Fiscal Year Ended December 31, | Estimated Amortization Expense | ||
2017 | $ | 1,321 | |
2018 | 1,326 | ||
2019 | 1,326 | ||
2020 | 1,196 | ||
2021 | 1,196 | ||
2022 | 1,196 | ||
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 nine months ended September 30, 2017:
Balance — December 31, 2016 | $ | 5,552 | |
Provision for new warranty claims | 1,532 | ||
Change in provision for preexisting warranty claims | 98 | ||
Deduction for payments made | (3,452 | ) | |
Currency translation adjustment | 93 | ||
Balance — September 30, 2017 | $ | 3,823 | |
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 rental fees. The anticipated future lease costs are based in part on certain assumptions and we monitor these costs to determine if the estimates need to be revised in the future. As of September 30, 2017, 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 the Company maintains adequate insurance or 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.
12
Debt Payments — As disclosed in Note 11, 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 voluntary prepayments that coincide with certain events.
The following table provides future minimum principal payments due on long-term debt for the next five fiscal years and the remaining years thereafter:
Year Ending December 31, | |||
2017 | $ | 1,094 | |
2018 | 4,375 | ||
2019 | 4,375 | ||
2020 | 4,375 | ||
2021 | 4,375 | ||
Thereafter | $ | 155,312 | |
11. Debt and Credit Facilities
Debt consisted of the following:
September 30, 2017 | December 31, 2016 | ||||||
7.875% senior secured notes due April 15, 2019 | $ | — | $ | 233,154 | |||
Term loan and security agreement (a) | $ | 167,749 | $ | — | |||
(a) Presented in the condensed consolidated balance sheet as current portion of long-term debt of $3.2 million, net of deferred financing costs and original issue discount each of $0.6 million; and long-term debt of $164.6 million, net of deferred financing costs and original issue discount of $2.4 million and $2.6 million, respectively.
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 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 prepayment 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.
There was $0.1 million in accrued interest as of September 30, 2017. The unamortized deferred financing fees of $3.0 million and original issue discount of $3.2 million are netted against the aggregate book value of the outstanding debt to arrive at a balance of $167.7 million as of September 30, 2017 and are being amortized over the remaining life of the agreement.
The term loan is a senior secured obligation of the Company. Our obligations under the TLS Agreement are guaranteed by 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 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
13
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 September 30, 2017.
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 and extending through March 31, 2024, with the remaining outstanding principal due at maturity.
Voluntary prepayments of amounts outstanding under the TLS Agreement are permitted at any time, without premium or penalty; provided, however, that a prepayment penalty equal to 1.0% of the prepaid amount is required to be paid in connection with certain events that have the effect of reducing the all-in-yield applicable to the term loan during the 12 months following the initial funding thereof. 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.
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, the Company entered into the Third Amended and Restated Loan and Security Agreement ("Third ARLS Agreement") increasing its senior secured 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 Company and the other 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.
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 | ≥ $24,000,000 | 0.50 | % | 1.50 | % | |||
II | > $12,000,000 but < $24,000,000 | 0.75 | % | 1.75 | % | |||
I | ≤ $12,000,000 | 1.00 | % | 2.00 | % | |||
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 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 September 30, 2017, the applicable margin was set at Level III.
14
The unamortized deferred financing fees associated with our revolving credit facility of $1.1 million and $0.1 million as of September 30, 2017 and December 31, 2016, respectively, were being amortized over the remaining life of the agreement. As of September 30, 2017 and December 31, 2016, we did not have borrowings under the revolving credit facility and had outstanding letters of credit of $2.1 million and $2.5 million, respectively. We had borrowing availability of $62.9 million at September 30, 2017.
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 however are not required to comply with the fixed charge coverage ratio requirement for as long as the borrowers maintain borrowing availability under the revolving credit facility at the greater of (i) $5,000,000 and (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 a 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, 2016 through September 30, 2017, the Company was not required to comply with the minimum fixed charge coverage ratio covenant during the quarter ended September 30, 2017.
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 September 30, 2017.
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 and the aforementioned prepayment penalty.
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:
•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.
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 minor exceptions, we are no longer subject to income tax examinations by any of the taxing jurisdictions for years prior to 2013. We currently have one foreign income tax examination in process.
As of September 30, 2017 and December 31, 2016, unrecognized tax benefits related to federal, state and foreign jurisdictions were $0.5 million and $0.6 million, respectively; all of which may impact our effective tax rate, if recognized. The domestic 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 of interest and penalties as of September 30, 2017 and December 31, 2016.
During the nine months ended September 30, 2017, we released $0.2 million of tax reserves associated with items falling outside the statue 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.
15
At September 30, 2017, due to cumulative losses and other factors, we continue to carry valuation allowances against the deferred tax assets primarily in the United Kingdom and Luxembourg. Additionally, we continue 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 for the three and nine months ended September 30, 2017 and 2016:
Three Months Ended September 30, 2017 | |||||||||||||||
Global Truck & Bus | Global Construction & Agriculture | Corporate/ Other | Total | ||||||||||||
Revenues | |||||||||||||||
External Revenues | $ | 121,497 | $ | 76,852 | $ | — | $ | 198,349 | |||||||
Intersegment Revenues | 552 | 2,705 | (3,257 | ) | — | ||||||||||
Total Revenues | $ | 122,049 | $ | 79,557 | $ | (3,257 | ) | $ | 198,349 | ||||||
Gross Profit | $ | 17,180 | $ | 8,316 | $ | (346 | ) | $ | 25,150 | ||||||
Depreciation and Amortization Expense | $ | 1,838 | $ | 1,117 | $ | 673 | $ | 3,628 | |||||||
Selling, General & Administrative Expenses | $ | 5,534 | $ | 4,160 | $ | 4,442 | $ | 14,136 | |||||||
Operating Income | $ | 11,350 | $ | 4,121 | $ | (4,789 | ) | $ | 10,682 | ||||||
Capital and Other Items: | |||||||||||||||
Capital Expenditures | $ | 1,097 | $ | 1,195 | $ | 476 | $ | 2,768 | |||||||
Other Items 1 | $ | 373 | $ | 15 | $ | — | $ | 388 | |||||||
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 September 30, 2016 | |||||||||||||||
Global Truck & Bus | Global Construction & Agriculture | Corporate/ Other | Total | ||||||||||||
Revenues | |||||||||||||||
External Revenues | $ | 95,728 | $ | 57,876 | $ | — | $ | 153,604 | |||||||
Intersegment Revenues | 308 | 1,499 | (1,807 | ) | — | ||||||||||
Total Revenues | $ | 96,036 | $ | 59,375 | $ | (1,807 | ) | $ | 153,604 | ||||||
Gross Profit | $ | 10,765 | $ | 8,525 | $ | (371 | ) | $ | 18,919 | ||||||
Depreciation and Amortization Expense | $ | 2,215 | $ | 1,464 | $ | 484 | $ | 4,163 | |||||||
Selling, General & Administrative Expenses | $ | 5,329 | $ | 4,588 | $ | 4,209 | $ | 14,126 | |||||||
Operating Income | $ | 5,144 | $ | 3,901 | $ | (4,579 | ) | $ | 4,466 | ||||||
Capital and Other Items: | |||||||||||||||
Capital Expenditures | $ | 1,592 | $ | 664 | $ | 290 | $ | 2,546 | |||||||
Other Items 1 | $ | 1,329 | $ | 191 | $ | — | $ | 1,520 | |||||||
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.
16
Nine Months Ended September 30, 2017 | |||||||||||||||
Global Truck & Bus | Global Construction & Agriculture | Corporate/ Other | Total | ||||||||||||
Revenues | |||||||||||||||
External Revenues | $ | 342,964 | $ | 223,929 | $ | — | $ | 566,893 | |||||||
Intersegment Revenues | 1,084 | 7,315 | (8,399 | ) | — | ||||||||||
Total Revenues | $ | 344,048 | $ | 231,244 | $ | (8,399 | ) | $ | 566,893 | ||||||
Gross Profit | $ | 48,288 | $ | 22,099 | $ | (1,033 | ) | $ | 69,354 | ||||||
Depreciation and Amortization Expense | $ | 5,850 | $ | 3,530 | $ | 2,051 | $ | 11,431 | |||||||
Selling, General & Administrative Expenses | $ | 16,688 | $ | 12,619 | $ | 16,250 | $ | 45,557 | |||||||
Operating Income | $ | 30,716 | $ | 9,374 | $ | (17,283 | ) | $ | 22,807 | ||||||
Capital and Other Items: | |||||||||||||||
Capital Expenditures | $ | 5,145 | $ | 3,671 | $ | 1,795 | $ | 10,611 | |||||||
Other Items 1 | $ | 1,341 | $ | 998 | $ | 2,377 | $ | 4,716 | |||||||
1 Other items include costs associated with plant closures, including employee severance and retention costs, lease cancellation costs, building repairs, costs to transfer equipment, and settlement costs associated with the consulting contract litigation.
Nine Months Ended September 30, 2016 | |||||||||||||||
Global Truck & Bus | Global Construction & Agriculture | Corporate/ Other | Total | ||||||||||||
Revenues | |||||||||||||||
External Revenues | $ | 323,895 | $ | 188,252 | $ | — | $ | 512,147 | |||||||
Intersegment Revenues | 771 | 5,417 | (6,188 | ) | — | ||||||||||
Total Revenues | $ | 324,666 | $ | 193,669 | $ | (6,188 | ) | $ | 512,147 | ||||||
Gross Profit | $ | 43,019 | $ | 27,100 | $ | (1,164 | ) | $ | 68,955 | ||||||
Depreciation and Amortization Expense | $ | 6,438 | $ | 4,321 | $ | 1,812 | $ | 12,571 | |||||||
Selling, General & Administrative Expenses | $ | 17,466 | $ | 13,859 | $ | 15,177 | $ | 46,502 | |||||||
Operating Income | $ | 24,679 | $ | 13,137 | $ | (16,341 | ) | $ | 21,475 | ||||||
Capital and Other Items: | |||||||||||||||
Capital Expenditures | $ | 4,039 | $ | 2,881 | $ | 867 | $ | 7,787 | |||||||
Other Items 1 | $ | 1,704 | $ | 512 | $ | 688 | $ | 2,904 | |||||||
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, and a write down of an asset held for sale and severance costs in corporate.
14. Derivative 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 may hedge a portion of the anticipated long or short positions. The contracts typically run from one month up to eighteen months. As of September 30, 2017, 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 condensed consolidated Balance Sheet with the offsetting non-cash gain or loss recorded in cost of revenue in our consolidated Statement 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 condensed consolidated Balance Sheet.
The following table summarizes the notional amount of our open foreign exchange contracts:
September 30, 2017 | December 31, 2016 | ||||||||||||||
U.S. $ Equivalent | U.S. $ Equivalent Fair Value | U.S. $ Equivalent | U.S. $ Equivalent Fair Value | ||||||||||||
Commitments to buy or sell currencies | $ | 5,389 | $ | 5,723 | $ | 18,593 | $ | 17,213 | |||||||
17
We consider the impact of our credit risk on the fair value of the contracts, as well as our ability to honor obligations under the contract.
The Company entered into an interest rate swap contract to fix the interest rate on an initial aggregate amount of $80.0 million thereby reducing exposure to interest rate changes. The interest rate swap has a floor rate of 2.07% and an all-in rate of 8.07%, and an effective date of June 30, 2017 and a maturity date of April 30, 2022. As of September 30, 2017, the interest rate swap contract was not designated as a hedging instrument; therefore, our interest rate swap contract has been marked-to-market and the fair value of the contract recorded in the condensed consolidated Balance Sheet with the offsetting gain or loss recorded in interest and other expense in our condensed consolidated Statement of Income.
The following table summarizes the fair value and presentation in the condensed consolidated Balance Sheet for derivatives, none of which are designated as accounting hedges:
Asset Derivatives | |||||||||||
September 30, 2017 | December 31, 2016 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Foreign exchange contracts | Other current assets | $ | 395 | Other current assets | $ | 142 | |||||
Interest rate swap contract 1 | Other current assets | $ | 1 | Other current assets | $ | — | |||||
Interest rate swap contract 1 | Other assets, net | $ | 301 | Other assets, net | $ | — | |||||
Liability Derivatives | |||||||||||
September 30, 2017 | December 31, 2016 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Foreign exchange contracts | Accrued liabilities | $ | 22 | Accrued liabilities | $ | 1,234 | |||||
Interest rate swap contract 1 | Accrued liabilities | $ | 494 | Accrued liabilities | $ | — | |||||
Interest rate swap contract 1 | Other long-term liabilities | $ | 293 | Other long-term liabilities | $ | — | |||||
1 Presented in the condensed consolidated Balance Sheet as accrued liabilities of $0.5 million.
The following table summarizes the effect of derivative instruments on the consolidated Statement of Income for derivatives not designated as hedging instruments:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
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 | $ | (322 | ) | $ | (869 | ) | $ | 1,438 | $ | (205 | ) | |||||
Interest rate swap contract | Interest Income (Expense) | $ | 38 | $ | — | $ | (485 | ) | $ | — | |||||||
15. Other Comprehensive Loss
The after-tax changes in accumulated other comprehensive loss are as follows:
Foreign currency translation adjustment | Pension and post-retirement benefits plans | Accumulated other comprehensive loss | |||||||||
Ending balance, December 31, 2016 | $ | (24,313 | ) | $ | (24,532 | ) | $ | (48,845 | ) | ||
Net current period change | 5,209 | — | 5,209 | ||||||||
Reclassification adjustments for losses reclassified into income | — | (1,830 | ) | (1,830 | ) | ||||||
Ending balance, September 30, 2017 | $ | (19,104 | ) | $ | (26,362 | ) | $ | (45,466 | ) | ||
18
Foreign currency translation adjustment | Pension and post-retirement benefit plans | Accumulated other comprehensive loss | |||||||||
Ending balance, December 31, 2015 | $ | (21,079 | ) | $ | (18,575 | ) | $ | (39,654 | ) | ||
Net current period change | 215 | — | 215 | ||||||||
Reclassification adjustments for losses reclassified into income | — | (1,699 | ) | (1,699 | ) | ||||||
Ending balance, September 30, 2016 | $ | (20,864 | ) | $ | (20,274 | ) | $ | (41,138 | ) | ||
The related tax effects allocated to each component of other comprehensive income are as follows:
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, 2017 | September 30, 2017 | ||||||||||||||||||||||
Before Tax Amount | Tax Expense | After Tax Amount | Before Tax Amount | Tax Expense | After Tax Amount | ||||||||||||||||||
Retirement benefits adjustment | $ | (763 | ) | $ | 217 | $ | (546 | ) | $ | (2,481 | ) | $ | 651 | $ | (1,830 | ) | |||||||
Cumulative translation adjustment | 1,130 | — | 1,130 | 5,209 | — | 5,209 | |||||||||||||||||
Total other comprehensive income | $ | 367 | $ | 217 | $ | 584 | $ | 2,728 | $ | 651 | $ | 3,379 | |||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, 2016 | September 30, 2016 | ||||||||||||||||||||||
Before Tax Amount | Tax Expense | After Tax Amount | Before Tax Amount | Tax Expense | After Tax Amount | ||||||||||||||||||
Retirement benefits adjustment | $ | (893 | ) | $ | 228 | $ | (665 | ) | $ | (2,478 | ) | $ | 779 | $ | (1,699 | ) | |||||||
Cumulative translation adjustment | 621 | — | 621 | 215 | — | 215 | |||||||||||||||||
Total other comprehensive loss | $ | (272 | ) | $ | 228 | $ | (44 | ) | $ | (2,263 | ) | $ | 779 | $ | (1,484 | ) | |||||||
16. Pension and Other Post-Retirement Benefit Plans
We sponsor pension plans that cover certain hourly and salaried employees in the United States and United Kingdom. Each of the plans are frozen to new participants. 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 and Other Post-Retirement Benefit Plans | Non-U.S. Pension Plans | ||||||||||||||
Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Service cost | $ | 33 | $ | 32 | $ | — | $ | — | |||||||
Interest cost | 449 | 469 | 289 | 338 | |||||||||||
Expected return on plan assets | (671 | ) | (678 | ) | (302 | ) | (375 | ) | |||||||
Amortization of prior service cost | 2 | — | — | — | |||||||||||
Recognized actuarial loss | 89 | 107 | 122 | 52 | |||||||||||
Net (benefit) cost | $ | (98 | ) | $ | (70 | ) | $ | 109 | $ | 15 | |||||
19
U.S. Pension Plans and Other Post-Retirement Benefit Plans | Non-U.S. Pension Plans | ||||||||||||||
Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Service cost | $ | 100 | $ | 96 | $ | — | $ | — | |||||||
Interest cost | 1,346 | 1,407 | 845 | 1,041 | |||||||||||
Expected return on plan assets | (2,013 | ) | (2,034 | ) | (882 | ) | (1,156 | ) | |||||||
Amortization of prior service cost | 5 | — | — | — | |||||||||||
Recognized actuarial loss (gain) | 268 | 321 | 358 | 160 | |||||||||||
Net (benefit) cost | $ | (294 | ) | $ | (210 | ) | $ | 321 | $ | 45 | |||||
We expect to contribute approximately $2.9 million to our pension plans and our other post-retirement benefit plans in 2017. As of September 30, 2017, $2.2 million of contributions have been made to our pension and other post-retirement plans.
17. | Restructuring |
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 $6.5 million to $7.6 million, and capital investments to total $1.0 million to $2.0 million. The restructuring and cost reduction actions began in the fourth quarter of 2015 and are expected to continue through 2017. Restructuring costs incurred during the nine months ended September 30, 2017 and 2016 were $2.0 million and $2.3 million, respectively. The following is a summary of some of our key actions.
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 was 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. The restructuring plan is now complete.
Monona Facility
On July 19, 2016, the Company announced its intent to transfer all wire harness production from its manufacturing facility in Monona, Iowa to its facility in Agua Prieta, Mexico. On May 24, 2017, the Company elected to maintain production capability in the Monona facility as a result of a shortage of labor in our North American wire harness business. The Company released accrued employee separation charges of $0.4 million and incurred lease cancellation charges of $1.3 million.
Shadyside Facility
On July 21, 2016, the Company announced that it will close its Shadyside, Ohio facility that performs assembly and stamping activities. These activities will be transferred to alternative facilities or sourced to local suppliers. We anticipate the closure of the Shadyside facility to be complete by the end of 2017.
Ongoing Restructuring Expenditures
The table below summarizes the expenditures incurred to date and projected future expenditures associated with the restructuring activities approved on November 19, 2015:
20
Total Project Expense | Expected Future Expense (Income) | |||||||||||||||||||||||||||
2015/2016 | Current Quarter | 2017 Year to Date | Income Statement | |||||||||||||||||||||||||
(in millions) | Low | High | Expense | Expense (Income) | Low | High | Classification | |||||||||||||||||||||
Edgewood Wire Harness | ||||||||||||||||||||||||||||
Separation costs | $ | 0.3 | $ | 0.3 | $ | 0.3 | $ | — | $ | — | $ | — | $ | — | Cost of revenues | |||||||||||||
Facility and other costs | 0.1 | 0.1 | 0.1 | — | — | — | — | Cost of revenues | ||||||||||||||||||||
Total | $ | 0.4 | $ | 0.4 | $ | 0.4 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Piedmont Seating | ||||||||||||||||||||||||||||
Separation costs | $ | 0.6 | $ | 0.6 | $ | 0.6 | $ | — | $ | — | $ | — | $ | — | Cost of revenues | |||||||||||||
Facility and other costs | 0.4 | 0.4 | 0.4 | — | — | — | — | Cost of revenues | ||||||||||||||||||||
Total | $ | 1.0 | $ | 1.0 | $ | 1.0 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Monona Wire Harness | ||||||||||||||||||||||||||||
Separation costs | $ | 0.1 | $ | 0.1 | $ | 0.5 | $ | — | $ | (0.4 | ) | $ | — | $ | — | Cost of revenues | ||||||||||||
Facility and other costs | 1.9 | 2.3 | 0.1 | — | 1.4 | 0.4 | 0.8 | Cost of revenues | ||||||||||||||||||||
Total | $ | 2.0 | $ | 2.4 | $ | 0.6 | $ | — | $ | 1.0 | $ | 0.4 | $ | 0.8 | ||||||||||||||
Shadyside Stamping | ||||||||||||||||||||||||||||
Separation costs | $ | 2.5 | $ | 2.6 | $ | 1.7 | $ | 0.2 | $ | 0.6 | $ | 0.2 | $ | 0.3 | Cost of revenues | |||||||||||||
Facility and other costs | 0.2 | 0.8 | 0.2 | 0.2 | 0.4 | (0.4 | ) | 0.2 | Cost of revenues | |||||||||||||||||||
Total | $ | 2.7 | $ | 3.4 | $ | 1.9 | $ | 0.4 | $ | 1.0 | $ | (0.2 | ) | $ | 0.5 | |||||||||||||
Other Restructuring | ||||||||||||||||||||||||||||
Separation costs | $ | 0.1 | $ | 0.1 | $ | 0.1 | $ | — | $ | — | $ | — | $ | — | Cost of revenues | |||||||||||||
Separation costs | 0.3 | 0.3 | 0.3 | — | — | — | — | Selling, general and administrative | ||||||||||||||||||||
Total | $ | 0.4 | $ | 0.4 | $ | 0.4 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Total Restructuring | $ | 6.5 | $ | 7.6 | $ | 4.3 | $ | 0.4 | $ | 2.0 | $ | 0.2 | $ | 1.3 | ||||||||||||||
Restructuring Liability
A summary of changes in the restructuring liability for the nine months ended September 30, 2017 and 2016 is as follows:
| < | |||||||||||