Attached files
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EX-32.2 - EXHIBIT 32.2 - Commercial Vehicle Group, Inc. | exhibit322q42017.htm |
EX-32.1 - EXHIBIT 32.1 - Commercial Vehicle Group, Inc. | exhibit321q42017.htm |
EX-31.2 - EXHIBIT 31.2 - Commercial Vehicle Group, Inc. | exhibit312q42017.htm |
EX-31.1 - EXHIBIT 31.1 - Commercial Vehicle Group, Inc. | exhibit311q42017.htm |
EX-23.1 - EXHIBIT 23.1 - Commercial Vehicle Group, Inc. | exhibit231q42017.htm |
EX-21.1 - EXHIBIT 21.1 - Commercial Vehicle Group, Inc. | exhibit211q42017.htm |
EX-12.1 - EXHIBIT 12.1 - Commercial Vehicle Group, Inc. | exhibit121q42017.htm |
EX-10.18 - EXHIBIT 10.18 - Commercial Vehicle Group, Inc. | exhibit1018q42017.htm |
EX-10.17 - EXHIBIT 10.17 - Commercial Vehicle Group, Inc. | exhibit1017q42017.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
or
¨ | Transition report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2017 | Commission file number: 001-34365 |
COMMERCIAL VEHICLE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware | 41-1990662 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) | |
7800 Walton Parkway | 43054 | |
New Albany, Ohio | (Zip Code) | |
(Address of Principal Executive Offices) |
Registrant’s telephone number, including area code:
(614) 289-5360
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of exchange on which registered | |
Common Stock, par value $.01 per share | The NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Schedule 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨ Smaller reporting company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold on June 30, 2017, was $251,131,448.
As of March 12, 2018, 31,004,524 shares of Common Stock of the Registrant were outstanding.
Documents Incorporated by Reference
Information required by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K is incorporated by reference from the Registrant’s Proxy Statement for its annual meeting to be held May 17, 2018 (the “2018 Proxy Statement”).
COMMERCIAL VEHICLE GROUP, INC.
Annual Report on Form 10-K
Table of Contents
Page | ||
PART I | ||
Item 1. | ||
Item 1A. | ||
Item 1B. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II | ||
Item 5. | ||
Item 6. | ||
Item 7. | ||
Item 7A. | ||
Item 8. | ||
Item 9. | ||
Item 9A. | ||
Item 9B. | ||
PART III | ||
Item 10. | ||
Item 11. | ||
Item 12. | ||
Item 13. | ||
Item 14. | ||
PART IV | ||
Item 15. | ||
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CERTAIN DEFINITIONS
All references in this Annual Report on Form 10-K to the “Company”, “Commercial Vehicle Group”, “CVG”, “we”,“us”, and “our” refer to Commercial Vehicle Group, Inc. and its consolidated subsidiaries (unless the context otherwise requires).
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein that are not statements of historical fact, including without limitation, certain statements under “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding industry outlook, financial covenant compliance, anticipated effects of acquisitions, production of new products, plans for capital expenditures and our results of operations or financial position and liquidity, may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believe”, “anticipate”, “plan”, “expect”, “intend”, “will”, “should”, “could”, “would”, “project”, “continue”, “likely”, and similar expressions, as they relate to us, are intended to identify forward-looking statements. The important factors discussed in “Item 1A - Risk Factors”, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Such forward-looking statements represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations. Additionally, various economic and competitive factors could cause actual results to differ materially from those discussed in such forward-looking statements, including, but not limited to, factors which are outside our control, such as risks relating to (i) general economic or business conditions affecting the markets in which we serve; (ii) our ability to develop or successfully introduce new products; (iii) risks associated with conducting business in foreign countries and currencies; (iv) increased competition in the medium- and heavy-duty, construction, agriculture, aftermarket, military, bus and other markets; (v) our failure to complete or successfully integrate additional strategic acquisitions; (vi) the impact of changes in governmental regulations on our customers or on our business; (vii) the loss of business from a major customer or the discontinuation of particular commercial vehicle platforms; (viii) our ability to obtain future financing due to changes in the lending markets or our financial position and (ix) our ability to comply with the financial covenants in our revolving credit facility and term loan facility. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by such cautionary statements.
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PART I
Item 1. | Business |
COMPANY OVERVIEW
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-construction vehicle market, and the military, bus, agriculture, specialty transportation, mining, industrial equipment and off-road recreational markets.
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 electric wire harness and panel assemblies designed for applications in commercial and other 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.
Our Long-term Strategy and Strategic Footprint
Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
SEGMENTS
Operating segments are defined as components of an enterprise that are evaluated regularly by the Company’s chief operating decision maker (“CODM”), which is our President and Chief Executive Officer. 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 revenues 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:
• | 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. |
See Note 9 of the Notes to Consolidated Finance Statements under Item 8 Financial Statements and Supplementary Data for financial information presented by segment for each of the three years ended December 31, 2017, 2016 and 2015, including information on sales and long-lived assets by geographic area.
GLOBAL TRUCK AND BUS SEGMENT OVERVIEW
Global Truck and Bus Segment Products
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Set forth below is a brief description of our products manufactured in the GTB Segment and their applications.
Seats and Seating Systems. We design, engineer and produce Seats for MD/HD Truck and bus applications. For the most part, our Seats are fully-assembled and ready for installation when they are delivered to the OEM. We offer a wide range of seats that include mechanical and air suspension seats, static seats, bus seats and military seats. As a result of our product design and product technology, we believe we are a leader in designing seats with convenience and safety features. Our Seats are designed to achieve a high level of operator comfort by adding a wide range of manual and power features such as lumbar support, cushion and back bolsters, and leg and thigh support. Our Seats are built to meet customer requirements in low volumes and produced in numerous feature combinations to form a full-range product line with a wide level of price points. We also manufacture seats, and parts and components for the aftermarket.
Trim Systems and Components. We design, engineer and produce Trim for MD/HD Truck, and recreational and specialty vehicle applications. Our Trim products are used mostly for interior cabs of commercial vehicles as well as exterior components for commercial recreational and specialty vehicles. Our Trim products are designed to provide a comfortable and durable interior along with a variety of functional and safety features for the vehicle occupant. The wide variety of features that can be selected makes Trim a complex and specialized product category. Set forth below is a brief description of our principal products in the Trim category:
Trim Products. Our trim products include door panels and other interior trim panels. Specific components include vinyl or cloth-covered appliqués ranging from a traditional cut and sew approach to a contemporary molded styling theme, armrests, map pocket compartments, and sound-reducing insulation.
Instrument Panels. We produce and assemble instrument panels that can be integrated with the rest of the interior trim. The instrument panel is a complex system of coverings and foam, plastic and metal parts designed to house various components and act as a safety device for the vehicle occupant.
Headliners/Wall Panels. Headliners and wall panels consist of a substrate and a finished interior layer made of fabrics and other materials. While headliners and wall panels are an important contributor to interior aesthetics, they also provide insulation from road noise and can serve as carriers for a variety of other components, such as visors, overhead consoles, grab handles, coat hooks, electrical wiring, speakers, lighting and other electronic and electrical products.
Storage Systems. Our modular storage units and custom cabinetry are designed to improve comfort and optimize space for the operator. These storage systems are designed to be integrated with the interior trim.
Floor Covering Systems. We have an extensive and comprehensive portfolio of floor covering systems and dash insulators. Carpet flooring systems generally consist of tufted or non-woven carpet with a thermoplastic backcoating. Non-carpeted flooring systems, used primarily in commercial and fleet vehicles, offer improved wear and maintenance characteristics.
Sleeper Bunks. We offer a wide array of design choices for upper and lower sleeper bunks for heavy-duty trucks. All parts of our sleeper bunks can be integrated to match the rest of the interior trim.
Grab Handles and Armrests. Our grab handles and armrests are designed and engineered with specific attention to aesthetics, ergonomics and strength.
Privacy Curtains. We produce privacy curtains for use in sleeper cabs.
Plastics Decorating and Finishing. We offer customers a wide variety of cost-effective finishes in paint, ultra violet, hard coating and customized industrial hydrographic films (simulated appearance of wood grain, carbon fiber, brushed metal, marbles, camouflage and custom patterns), paints and other interior and exterior finishes.
Cab Structures, Sleeper Boxes, Body Panels and Structural Components. We design, engineer and produce complete cab structures, sleeper boxes, body panels and structural components for MD/HD Trucks. Set forth below is a brief description of our principal products in this category:
Cab Structures. We design, manufacture and assemble complete cab structures. Our cab structures, which are manufactured from both steel and aluminum, are delivered fully assembled and primed for paint.
Sleeper Boxes. We design, manufacture and assemble sleeper boxes that can be part of the overall cab structure or standalone assemblies depending on the customer application.
Bumper Fascias and Fender Liners. We design and manufacture durable, lightweight bumper fascias and fender liners.
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Body Panels and Structural Components. We produce a wide range of both steel and aluminum large exterior body panels and structural components for use in production of cab structures and sleeper boxes.
Mirrors, Wipers and Technical Controls. We design, engineer and produce a variety of mirrors, wipers and controls used in commercial vehicles. Set forth below is a brief description of our principal products in this category:
Mirrors. We offer a range of round, rectangular, motorized and heated mirrors and related hardware, including brackets, braces and side bars. We have introduced both road and outside temperature devices that can be mounted on the cab, integrated into the mirror face and the vehicle’s dashboard through our RoadWatch™ family of products.
Windshield Wiper Systems. We offer application-specific windshield wiper systems and individual windshield wiper components.
Controls. We offer a range of controls and control systems for window lifts, door locks and electric switch products.
Global Truck and Bus Segment Raw Materials and Suppliers
A description of the principal raw materials we utilize in our GTB Segment’s principal product categories is set forth below:
• | Seats and Seating Systems. The principal raw materials used in our Seats include steel, resin-based products and foam products and are generally readily available and obtained from multiple suppliers under various supply agreements. Leather, vinyl, fabric and certain components are also purchased from multiple suppliers. |
• | Trim Systems and Components. The principal raw materials used in our Trim are resin and chemical products, foam, vinyl and fabric which are formed and assembled into end products. These raw materials are generally readily available from multiple suppliers. |
• | Cab Structures, Sleeper Boxes, Body Panels and Structural Components. The principal raw materials and components used in our cab structures, sleeper boxes, body panels and structural components are steel and aluminum. These raw materials are generally readily available and obtained from multiple suppliers. |
• | Mirrors, Wipers and Controls. The principal raw materials used to manufacture our mirrors, wipers and controls are steel, stainless steel, aluminum and rubber, which are generally readily available and obtained from multiple suppliers. We also purchase sub-assembled products, such as motors, for our wiper systems and mirrors. |
Global Truck and Bus Segment Customers
The following is a summary of the GTB Segment’s significant revenues (figures are shown as a percentage of total GTB Segment revenue) by end market for each of the three years ended December 31:
2017 | 2016 | 2015 | |||
Medium- and Heavy-duty Truck OEMs | 64% | 62% | 70% | ||
Aftermarket and OE Service | 19 | 18 | 15 | ||
Bus OEMs | 7 | 8 | 6 | ||
Construction OEMs | 2 | 2 | 2 | ||
Other | 8 | 10 | 7 | ||
Total | 100% | 100% | 100% |
We believe we are a successful long-term supplier because of our comprehensive product offerings, leading brand names and product innovation. Our principal customers include A.B. Volvo, Daimler Trucks, PACCAR and Navistar, constituting a combined total of 74%, 73% and 79% of GTB Segment revenue for the years ended December 31, 2017, 2016 and 2015, respectively.
Our European and Asia-Pacific operations collectively contributed approximately 6%, 6% and 4% of the GTB Segment’s revenues for the years ended December 31, 2017, 2016 and 2015, respectively.
Global Truck and Bus Industry
Commercial Vehicle Market Overview. Commercial vehicles are used in a wide variety of end markets, including local and long-haul commercial trucking, bus, construction, mining, agricultural, military, industrial, municipal, off-road recreation and specialty vehicle markets. The commercial vehicle supply industry can generally be separated into two categories: (1) sales to OEMs, in which products are sold in relatively large quantities directly for use by OEMs in new commercial and construction vehicles; and (2) aftermarket sales, in which products are sold as replacements to a wide range of original equipment service organizations, wholesalers, retailers and installers. In the OEM market, suppliers are generally divided into tiers - “Tier 1” suppliers
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that provide products directly to OEMs, and “Tier 2” and “Tier 3” suppliers that sell products principally to other suppliers for integration into those suppliers’ own product offerings. We are generally a Tier I supplier.
Our largest end market, the North American commercial truck industry, is supplied by medium- and heavy-duty commercial vehicle suppliers, as well as automotive suppliers. The commercial vehicle supplier industry is fragmented and comprised of several large companies and many smaller companies. In addition, the commercial vehicle supplier industry is characterized by relatively low production volumes and can have considerable barriers to entry, including the following: (1) specific technical and manufacturing requirements, (2) high transition costs to shift production to new suppliers, (3) just-in-time delivery requirements and (4) strong brand name recognition. Foreign competition is growing with the globalization of the world economy.
Although OEM demand for our products is directly correlated with new vehicle production, suppliers like us can grow by increasing sales through the cross selling and bundling of products, further penetrating existing customers’ businesses, gaining new customers, expanding into new geographic markets, developing new content in our products to meet changing customer needs and by increasing aftermarket sales. We believe that companies with a global presence, advanced technology, engineering and manufacturing and support capabilities, such as our company, are well positioned to take advantage of these opportunities.
North American Commercial Truck Market. Purchasers of commercial trucks include fleet operators, owner operators, governmental agencies and industrial end users. Commercial vehicles used for local and long-haul commercial trucking are generally classified by gross vehicle weight. Class 8 vehicles are trucks with gross vehicle weight in excess of 33,000 lbs. and Classes 5 through 7 vehicles are trucks with gross vehicle weight from 16,001 lbs. to 33,000 lbs. The following table shows production levels (in thousands of units) of commercial vehicles used for local and long-haul commercial trucking from 2013 through 2017 in North America:
2013 | 2014 | 2015 | 2016 | 2017 | |||||
Class 8 trucks | 246 | 297 | 323 | 228 | 256 | ||||
Class 5-7 trucks | 201 | 226 | 237 | 233 | 249 |
Source: ACT N.A. (February 2018).
The following describes the major markets within the commercial vehicle market in which the GTB Segment competes:
Class 8 Truck Market. The global Class 8 ("Class 8" or "heavy-duty") truck manufacturing market is concentrated in three primary regions: North America, Europe and Asia-Pacific. The global Class 8 truck market is localized in nature due to the following factors: (1) the prohibitive costs of shipping components from one region to another, (2) the high degree of customization to meet the region-specific demands of end-users, and (3) the ability to meet just-in-time delivery requirements. According to ACT Research, four companies represented approximately 98% of North American Class 8 truck production in 2017. The percentages of Class 8 production represented by Daimler, PACCAR, A.B. Volvo, and Navistar were approximately 41%, 30%, 15%, and 12%, respectively, in 2017. We supply products to all of these OEMs.
New Class 8 truck demand has historically been cyclical and is particularly sensitive to economic factors that generate a significant portion of the freight tonnage hauled by commercial vehicles.
The following table illustrates North American Class 8 truck build for the years 2015 to 2022:

“E” — Estimated
Source: ACT (February 2018).
Class 5-7 Truck Market. North American Class 5-7 ("Class 5-7" or "medium-duty") includes recreational vehicles, buses and medium-duty trucks. We primarily participate in the Class 6 and 7 medium-duty truck market. The medium-duty market is influenced
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by overall economic conditions but has historically been less cyclical than the North American Class 8 truck market, with highs and lows generally not as pronounced as the Class 8 truck market. As the North American truck fleet companies move to a distribution center model, requiring less long-haul freight vehicles, the demand for medium-duty trucks may increase.
The following table illustrates the North American Class 5-7 truck build for the years 2015 through 2022:

“E” — Estimated
Source: ACT (February 2018).
We believe the following factors are primarily responsible for driving the North American Class 8 truck market:
Economic Conditions. The North American truck industry is directly influenced by overall economic conditions and consumer spending. Since heavy-duty truck OEMs supply the fleet operators, their production levels generally reflect the demand for freight and the fleet operators' access to capital.
Truck Replacement Cycle and Fleet Aging. The average age of the U.S. Class 8 truck population is approximately 11.3 years in 2017. The average fleet age tends to run in cycles as freight companies permit their truck fleets to age during periods of lagging demand and then replenish those fleets during periods of increasing demand. As truck fleets age, maintenance costs typically increase. Freight companies evaluate the economics between repair and replacement as well as the potential to utilize more cost-effective technology in vehicles. The chart below illustrates the approximate average age of the U.S. Class 8 truck population:

“E” — Estimated
Source: ACT (February 2018).
Commercial Truck Aftermarket. The GTB Segment sells aftermarket products primarily in North America. Demand for aftermarket products is driven by the quality of OEM parts, the number of vehicles in operation, the average age of the vehicle fleet, the content and value per vehicle, vehicle usage and the average useful life of vehicle parts. Aftermarket sales tend to be at a higher margin. The recurring nature of aftermarket revenue can be expected to provide some insulation to the overall cyclical nature of the industry as it tends to provide a more stable stream of revenues. Brand equity and the extent of a company’s distribution network also contribute to the level of aftermarket sales. We believe CVG has a widely recognized brand portfolio and participates in most retail sales channels including Original Equipment Dealer networks and independent distributors.
GLOBAL CONSTRUCTION AND AGRICULTURE SEGMENT OVERVIEW
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Global Construction and Agriculture Segment Products
Set forth below is a brief description of our products manufactured in the GCA Segment and their applications.
Electric Wire Harnesses and Panel Assemblies. We produce a wide range of electric wire harnesses and electrical distribution systems, and related assemblies. Set forth below is a brief description of our principal products in this category:
Electric Wire Harnesses. We offer a broad range of electric wire harness assemblies that function as the primary electric current carrying devices used to provide electrical interconnections for gauges, lights, control functions, power circuits, powertrain and transmission sensors, emissions systems and other electronic applications on commercial vehicles. Our wire harnesses are customized to fit specific end-user requirements, and can be complex. We provide our wire harnesses for a variety of commercial and other vehicles.
Panel Assemblies. We assemble integrated components such as panel assemblies and cabinets that are installed in a vehicle or unit of equipment and may be integrated with our wire harness assemblies. These components provide the user control over multiple operational functions and features.
Seats and Seating Systems. We design, engineer and produce Seats predominately for the construction, agriculture and military markets. For the most part, our Seats are fully-assembled and ready for installation when they are delivered to the OEM. We offer a wide range of Seats that include mechanical and air suspension seats and static seats, as well as seat frames. As a result of our product design and product technology, we believe we are a leader in designing seats with convenience and enhanced safety features. Our Seats are designed to achieve a high level of operator comfort by adding a range of manual and power features such as lumbar support, cushion and back bolsters and leg and thigh support. Our Seats are built to meet customer requirements in low volumes and produced in numerous feature combinations to form a full-range product line with a wide level of price points. We also manufacture seats, parts and components for the aftermarket.
Office Seating. We design, engineer and produce office seating products. Our office chair was developed as a result of our experience supplying seats for the heavy-duty truck, agricultural and construction industries and is fully adjustable to achieve a high comfort level. Our office chairs are designed to suit different office environments including heavy usage environments, such as emergency services, call centers, reception areas, studios and general office environments.
Wipers Systems. We design, engineer and produce a variety of wipers used in commercial vehicles. We offer application-specific windshield wiper systems and individual windshield wiper components.
Global Construction and Agriculture Segment Raw Materials and Suppliers
A description of the principal raw materials we utilize in GCA Segment’s principal product categories is set forth below:
• | Electric Wire Harnesses and Panel Assemblies. The principal raw materials used to manufacture our electric wire harnesses are wire and cable, connectors, terminals, switches, relays and various covering techniques involving braided yarn, braided copper, slit and non-slit conduit and molded foam. These raw materials are obtained from multiple suppliers and are generally available, although we have experienced and continue to experience a shortage of certain of these raw materials. |
• | Seats and Seating Systems. The principal raw materials used in our seating systems include steel, die-cast aluminum, resin-based products and foam products and are generally readily available and obtained from multiple suppliers under various supply agreements. Leather, vinyl, fabric and certain other components are also readily available to be purchased from multiple suppliers under supply agreements. |
• | Wiper Systems. The principal raw materials used to manufacture our wipers are steel, stainless steel and rubber, which are generally readily available and obtained from multiple suppliers. We also purchase sub-assembled products such as motors for our wiper systems. |
Global Construction and Agriculture Segment’s Customers
The following is a summary of the GCA Segment’s significant revenues (figures are shown as a percentage of total GCA Segment revenue) by end market based for each of the three years ended December 31:
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2017 | 2016 | 2015 | ||||||
Construction | 52 | % | 47 | % | 52 | % | ||
Automotive | 13 | 14 | 14 | |||||
Aftermarket and OE Service | 12 | 16 | 16 | |||||
Truck | 8 | 8 | 5 | |||||
Military | 5 | 5 | 3 | |||||
Agriculture | 3 | 3 | 3 | |||||
Other | 7 | 7 | 7 | |||||
Total | 100 | % | 100 | % | 100 | % |
We believe we are a successful long-term supplier because of our comprehensive product offerings and product innovation services. Our principal customers include Caterpillar and John Deere, constituting a combined total of 36%, 33% and 37% of GCA Segment revenue for the years ended December 31, 2017, 2016 and 2015, respectively.
Our European and Asia-Pacific operations collectively contributed approximately 62%, 63% and 57% of our revenues for the years ended December 31, 2017, 2016 and 2015, respectively.
Global Construction and Agriculture Industry
Commercial Construction Vehicle Market. New vehicle demand in the global construction equipment market generally follows certain economic conditions including GDP, infrastructure investment, housing starts, business investment, oil and energy investment and industrial production around the world. Within the construction market, there are two classes of construction equipment markets: the medium and heavy construction equipment market (weighing over 12 metric tons) and the light construction equipment market (weighing below 12 metric tons). Our construction equipment products are primarily used in the medium and heavy construction equipment markets, with a growing emphasis on light and utility machines. The platforms that we generally participate in include: cranes, pavers, planers & profilers, dozers, loaders, graders, haulers, tractors, excavators, backhoes, material handling and compactors. Demand in the medium and heavy construction equipment market is typically related to the level of larger-scale infrastructure development projects such as highways, dams, harbors, hospitals, airports and industrial development as well as activity in the mining, forestry and other raw material based industries.
Purchasers of medium and heavy construction equipment include construction companies, municipalities, local governments, rental fleet owners, quarrying and mining companies and forestry related industries. Purchasers of light construction equipment include contractors, rental fleet owners, landscapers, logistics companies and farmers. In the medium and heavy construction equipment market, we primarily supply OEMs with our wire harness and seating products.
Agricultural Equipment Market. We market most of our products for small, medium and large agricultural equipment across a spectrum of machines including tractors, sprayers, bailers, farm telehandler equipment and harvesters. Sales and production of these vehicles can be influenced by rising or falling farm commodity prices, land values, profitability, and other factors such as increased mechanization in emerging economies and new uses for crop materials such as biofuels and other factors. In the medium to longer term, a combination of factors create the need for more productive agricultural equipment, such as: (1) population growth, (2) an evolving sophistication of dietary habits, and (3) constraints on arable land and other macroeconomic and demographic factors.
Military Equipment Market. We supply products for heavy- and medium-payload tactical trucks that are used by various military customers. Military equipment production is particularly sensitive to political and governmental budgetary considerations.
OUR CONSOLIDATED OPERATIONS
Competitive Strengths
Generally, the barriers to entry in our industries include investment, specific engineering requirements, transition costs for OEMs to shift production to new suppliers, just-in-time delivery requirements and brand name recognition. Our competitive strengths include the following:
Market Positions and Brands. We believe we have a strong market position supplying Seats and a good market position supplying Trim products to the North American MD/HD Truck market. Our market position in the North American MD/HD Truck market leads us to believe we have processes in place to design, manufacture and introduce products that meet customers’ expectations in that market. We also believe we are competitive as a global supplier of construction vehicle Seats. Our major product brands
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include CVG™, Sprague Devices®, Moto Mirror®, RoadWatch®, KAB Seating™, National Seating™, Bostrom Seating®, Stratos™ and FinishTEK™.
Comprehensive Cab Product and Cab System Solutions. We manufacture a broad base of products utilized in the interior and the exterior of commercial vehicle cabs. We believe the breadth of our product offerings provide us with a potential opportunity for further customer penetration through cross-selling initiatives and by bundling our products to provide complete system solutions.
End-User Focused Product Innovation. Commercial vehicle OEMs focus on interior and exterior product design features that better serve the vehicle operator and therefore seek suppliers that can provide product innovation. Accordingly, we have engineering, and research and development capabilities to assist OEMs in meeting those needs. We believe this helps us secure content on new as well as current platforms and models.
Flexible Manufacturing Capabilities. Because commercial vehicle OEMs permit their customers to select from an extensive menu of cab options, our end users frequently request modified products in low volumes within a limited time frame. We can leverage our flexible manufacturing capabilities to provide low volume, customized products to meet styling, cost and just-in-time delivery requirements. We manufacture or assemble our products at facilities in North America, Europe and in the Asia-Pacific region.
Global Capabilities. We have sales, engineering, manufacturing and assembly capabilities in North America, Europe and the Asia-Pacific region that provide a high level of service to our customers who manufacture and sell their products on a global basis.
Relationships with Leading Customers and Major North American Fleets. We have comprehensive product offerings, brand names and product features that enable us to be a global supplier to many of the leading MD/HD Truck, construction and specialty commercial vehicle manufacturers such as PACCAR, Caterpillar, Volvo/Mack, Navistar, Daimler Trucks, John Deere, Oshkosh Corporation, Komatsu and Škoda (part of the Volkswagen Group). In addition, we maintain relationships with the major MD/HD Truck fleet organizations that are end-users of our products such as Schneider National, Werner, Walmart, FedEx and JB Hunt.
Management Team. We believe that our management team has substantial knowledge of our customer needs and expertise in critical operational areas, and has a demonstrated ability to manage costs, improve processes and expand revenue through product, market, geography and customer diversification.
Research and Development
Our research and development capabilities offer quality and technologically advanced products to our customers at competitive prices. We offer industrial engineering, product design, specialized simulation and testing and evaluation services that are necessary in today’s global markets. Our capabilities in acoustics, thermal efficiency, benchmarking, multi-axis durability, biomechanics, comfort, prototyping and process prove-out allow us to provide complete integrated solutions for the end-user.
We engage in global engineering, and research and development activities that improve the reliability, performance and cost-effectiveness of our existing products and support the design and development and testing of new products for existing and new applications. We have test and validation engineering centers in North America, Europe and Asia. We have developed a global engineering support center in India to provide a cost-effective global engineering resource to all of our seat facilities.
We believe we are staffed with experienced engineers and have equipment and technology to support early design involvement that results in products that timely meet or exceed the customer’s design and performance requirements, and are more efficient to manufacture. Our ability to support our products and customers with extensive involvement enhances our position for bidding on such business. We work aggressively to ensure that our quality and delivery metrics distinguish us from our competitors.
Generally, we work with our customers’ engineering and development teams at the beginning of the concept design process for new components and assemblies and systems, or the re-engineering process for existing components and assemblies, in order to leverage production efficiency and quality. Our customers are continuously searching for advanced products while maintaining cost, quality and performance deliverables.
Research and development costs for the years ended December 31, 2017, 2016 and 2015 totaled $7.7 million, $7.0 million and $7.4 million, respectively.
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Intellectual Property
Our principal intellectual property consists of product and process technology U.S. and foreign patents, trade secrets, trademarks and copyrights. Although our intellectual property is important to our business operations and in the aggregate constitutes a valuable asset, we do not believe that any single patent, trade secret, trademark or copyright, or group of patents, trade secrets, trademarks or copyrights is critical to the success of our business. Our policy is to seek statutory protection for all significant intellectual property embodied in patents, trademarks and copyrights.
Our major brands include CVG™, Sprague Devices®, Moto Mirror®, RoadWatch®, KAB Seating™, National Seating™, Bostrom Seating®, Stratos™ and FinishTEK™. We believe that our brands are valuable, but that our business is not dependent on any one brand. We own U.S. federal trademark registrations for several of our products.
Manufacturing Processes
A description of the manufacturing processes we utilize for each of our principal product categories is set forth below:
• | Seats and Seating Systems. Our Seats utilize a variety of manufacturing techniques whereby foam and various other components along with fabric, vinyl or leather are affixed to an underlying seat frame. We also manufacture and assemble seat frames. |
• | Trim Systems and Components. Our Trim capabilities include injection molding, low-pressure injection molding, urethane molding and foaming processes, compression molding, heavy-gauge thermoforming and vacuum forming as well as various cutting, sewing, trimming and finishing methods. |
• | Cab Structures, Sleeper Boxes, Body Panels and Structural Components. We utilize a wide range of manufacturing processes to produce our cab structures, sleeper boxes, body panels and structural components and utilize robotic and manual welding techniques in the assembly of these products. We have facilities with large capacity, fully automated E-coat paint priming systems thereby allowing us to provide our customers with a paint-ready cab product. Due to their high cost, full body E-coat systems, such as ours, are rarely found outside of the manufacturing operations of the major OEMs. |
• | Mirrors, Wipers and Controls. We manufacture our mirrors, wipers and controls utilizing a variety of manufacturing processes and techniques. Our mirrors, wipers and controls are primarily assembled utilizing semi-automatic work cells, electronically tested and then packaged. |
• | Electric Wire Harnesses and Panel Assemblies. We utilize several manufacturing techniques to produce our electric wire harnesses and panel assemblies. Our processes, manual and automated, are designed to produce a wide range of wire harnesses and panel assemblies in short time frames. Our wire harnesses and panel assemblies are electronically and hand tested. |
We have a broad array of processes to enable us to meet our OEM customers’ styling and cost requirements. The vehicle cab is the most significant and appealing aspect to the operator of the vehicle; each commercial vehicle OEM therefore has unique requirements as to feel, appearance and features.
The end markets for our products can be highly specialized and our customers frequently request modified products in low volumes within an expedited delivery timeframe. As a result, we primarily utilize flexible manufacturing cells at our production facilities. Manufacturing cells are clusters of individual manufacturing operations and work stations. This provides flexibility by allowing efficient changes to the number of operations each operator performs. When compared to the more traditional, less flexible assembly line process, cell manufacturing allows us to better maintain our product output consistent with our OEM customers’ requirements and minimize the level of inventory.
When an end-user buys a commercial vehicle, the end-user may specify the seat and other features for that vehicle. Because our Seats are unique, our manufacturing facilities have significant complexity which we manage by building in sequence. We build our Seats as orders are received, and the Seats are delivered to our customer’s rack in the sequence in which vehicles come down the assembly line. We have systems in place that allow us to provide complete customized interior kits in boxes that are delivered in sequence. Sequencing reduces our cost of production because it eliminates warehousing costs and reduces waste and obsolescence, offsetting any increased labor costs. Several of our manufacturing facilities are strategically located near our customers’ assembly plants, which facilitates this process and minimizes shipping costs.
We employ just-in-time manufacturing and sourcing in our operations to meet customer requirements for faster deliveries and to minimize our need to carry significant inventory levels. We utilize material systems to manage inventory levels and, in certain locations, we have inventory delivered as often as two times per day from a nearby facility based on the previous day’s order, which reduces the need to carry excess inventory at our facilities.
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Within our cyclical industries, we strive to maintain a certain portion of temporary labor to improve our ability to flex our costs and throughput as required by fluctuating customer demand. We engage our core employees to assist in making our processes efficient.
Seasonality
OEMs close their production facilities around holidays or when demand drops, reducing work days. Our cost structure, to the extent it is variable, provides us with some flexibility during these periods.
Our Supply Agreements
Our supply agreements generally provide for fixed pricing but do not require us to purchase any specified quantities. Normally we do not carry inventories of raw materials or finished products in excess of those reasonably required to meet production and shipping schedules, as well as service requirements. Steel, aluminum, petroleum-based products, copper, resin, foam, fabrics, wire and wire components comprise the most significant portion of our raw material costs. We typically purchase steel, copper and petroleum-based products at market prices that are fixed over varying periods of time. Due to the volatility in pricing over the last several years, we use methods such as market index pricing and competitive bidding to assist in reducing our overall cost. We strive to align our customer pricing and material costs to minimize the impact of steel, copper and petrochemical price fluctuations. Certain component purchases and suppliers are directed by our customers, so we generally will pass through directly to the customer any cost changes from these components. We generally are not dependent on a single supplier or limited group of suppliers for our raw materials.
Our Customer Contracts
Our OEM customers generally source business to us pursuant to written contracts, purchase orders or other firm commitments (“Commercial Arrangements”) with terms of price, quality, technology and delivery. Awarded business generally covers the supply of all or a portion of a customer’s production and service requirements for a particular product program rather than the supply of a specific quantity of products. In general, these Commercial Arrangements provide that the customer can terminate them if we do not meet specified quality, delivery and cost requirements. Although these Commercial Arrangements may be terminated at any time by our customers (but not by us), such terminations have historically been minimal and have not had a material impact on our results of operations. Because we produce products for a broad cross section of vehicle models, we are not overly reliant on any one vehicle model.
Our Commercial Arrangements with our OEM customers may provide for an annual prospective productivity cost reduction. These productivity cost reductions are generally calculated on an annual basis as a percentage of the previous year’s purchases by each customer. Historically, most of these cost reductions have been offset by internal cost reductions and through the assistance of our supply base, although no assurances can be given that we will be able to achieve such reductions in the future. The cost reduction is achieved through engineering changes, material cost reductions, logistics savings, reductions in packaging cost, labor efficiencies and other productivity actions.
Our sales and marketing efforts are designed to create customer awareness of our engineering, design and manufacturing capabilities. Our sales and marketing staff work closely with our design and engineering personnel to prepare the materials used for bidding on new business, as well as to provide a consistent interface between us and our key customers. We have sales and marketing personnel located in every major region in which we operate. From time to time, we participate in industry trade shows and advertise in industry publications.
Our principal customers for our aftermarket sales include OEM dealers and independent wholesale or retail distributors. Our sales and marketing efforts are focused on support of these two distribution chains, as well as participation in industry trade shows and direct contact with major fleets.
Competition
Within each of our principal product categories we compete with a variety of independent suppliers and with OEMs’ in-house operations, primarily on the basis of price, breadth of product offerings, product quality, technical expertise, development capability, product delivery and product service. A summary of our primary competitors is set forth below:
Seats and Seating Systems. We believe we have a strong market position supplying Seats to the North American MD/HD Truck market. Our primary competitors in the North American commercial vehicle market include Sears Manufacturing Company, Isringhausen, Grammer AG and Seats, Inc. Our primary competitors in the European commercial vehicle market include Grammer AG and Isringhausen; and in the Asia-Pacific region include Isrihuatai and Tiancheng (in China); and Harita and Pinnacle (in India).
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Trim Systems and Components. We believe we have a good position supplying Trim products to the North American MD/HD Truck market. We face competition from a number of different competitors with respect to each of our trim system products and components. Our primary competitors are ConMet, International Automotive Components, Superior, Blachford Ltd. and Grupo Antolin.
Cab Structures, Sleeper Boxes, Body Panels and Structural Components. We are a supplier of cab structural components, cab structures, sleeper boxes and body panels to the North American MD/HD Truck market. Our primary competitors in this category are Magna, International Equipment Solutions (formerly Crenlo), Worthington Industries (formerly Angus Palm), McLaughlin Body Company and Defiance Metal Products.
Mirrors, Wipers and Controls. We are a supplier of wiper systems and mirrors to the North American MD/HD Truck market. We also sell wiper systems to the construction and agriculture market in Europe. We face competition from various competitors in this category. Our principal competitors for mirrors are Hadley, Retrac, and Lang-Mekra and our principal competitors for wiper systems are Doga, Wexco, Trico and Valeo.
Electric Wire Harnesses and Panel Assemblies. We supply a wide range of electric wire harnesses and panel assemblies used in various commercial and other vehicles. Our primary competitors for wire harnesses include large diversified suppliers such as Delphi Automotive PLC, Leoni, Nexans SA, Motherson-Sumi, St. Clair and Electrical Components International as well as many smaller companies.
Backlog
Our customers may place annual blanket purchase orders that do not obligate them to purchase any specific or minimum amount of products from us until a release is issued by the customer under the blanket purchase order. Releases are typically placed 30 to 90 days prior to required delivery and may be canceled at any time within agreed terms. We do not believe that our backlog of expected product sales covered by firm purchase orders is a meaningful indicator of future sales since orders may be rescheduled or canceled.
Employees
As of December 31, 2017, we had approximately 8,250 permanent employees, of whom approximately 14% were salaried and the remainder were hourly. As of December 31, 2017, approximately 56% of the employees in our North American operations were unionized, with the majority of union-represented personnel based in Mexico. On January 24, 2017, workers in our Shadyside, Ohio facility ratified a Closure Effects Agreement between Mayflower Vehicle Systems, LLC and the United Steel, Paper and Forestry, Rubber, Manufacturing and Energy, Allied Industrial and Service Workers International Union and its affiliated Local Union 9419. Production ceased in that facility in July 2017 and no hourly employees remained in the facility as of year-end. Approximately 64% of our European, Asian and Australian operations were represented by shop steward committees.
We did not experience any material strikes, lockouts or work stoppages during 2017 and consider our relationship with our employees to be satisfactory. On an as-needed basis during peak periods we utilize contract and temporary employees. During periods of weak demand, we respond to reduced volumes through flexible scheduling, furloughs and/or reductions in force as necessary.
Environmental Matters
We are subject to foreign, federal, state and local laws and regulations governing the protection of the environment and occupational health and safety, including laws regulating air emissions, wastewater discharges, and the generation, storage, handling, use and transportation of hazardous materials; the emission and discharge of hazardous materials into the soil, ground or air; and the health and safety of our colleagues. We are also required to obtain permits from governmental authorities for certain of our operations. We cannot give assurances that we are, or have been, in complete compliance with such environmental and safety laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators. In some instances, such a fine or sanction could have a material adverse effect on us. We are also subject to laws imposing liability for the cleanup of contaminated property. Under these laws, we could be held liable for costs and damages relating to contamination at our past or present facilities and at third-party sites to which we sent waste containing hazardous substances. The amount of such liability could be material.
Certain of our operations generate hazardous substances and wastes. If a release of such substances or wastes occurs at or from our properties, or at or from any offsite disposal location to which substances or wastes from our current or former operations were taken, or if contamination is discovered at any of our current or former properties, we may be held liable for the cost of cleanup and for any other response by governmental authorities or private parties, together with any associated fines, penalties or damages. In most jurisdictions, this liability would arise whether or not we had complied with environmental laws governing the handling of hazardous substances or wastes.
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Government Regulations
New emissions regulations were approved in 2016 by US regulators impacting MD/HD Truck manufacturers. The regulations require manufacturers to cut greenhouse gas emissions by 25 percent by 2027. Other countries are implementing clean air measures to reduce air pollution. For example, China's Ministry of Environment implemented new standards applicable during 2017 for Stage V vehicles, including light gasoline-powered vehicles, diesel-powered passenger vehicles and heavy diesel-powered vehicles manufactured and sold in China.
Under a California law known as Proposition 65, if the state has determined that a substance causes cancer or harms human reproduction, a warning must appear on any product sold in the state that exposes consumers to that substance. The state maintains lists of these substances and periodically adds other substances to them. Certain of our products may be subject to Proposition 65 and therefore cause us to have to provide warnings on the products in California because it does not provide for any generally applicable quantitative threshold below which the presence of a listed substance is exempt from the warning requirement. Consequently, the detection of even a trace amount of a listed substance can subject an affected product to the requirement of a warning label.
To the extent that current or future governmental regulation has a negative impact on the demand for commercial vehicles, our business, financial condition or results of operations could be adversely affected.
AVAILABLE INFORMATION
We maintain a website on the Internet at www.cvgrp.com. We make available free of charge through our website, by way of a hyperlink to a third-party Securities Exchange Commission (SEC) filing website, our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports electronically filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934. Such information is available as soon as such reports are filed with the SEC. Additionally, our Code of Ethics may be accessed within the Investor Relations section of our website. Information found on our website is not part of this Annual Report on Form 10-K or any other report filed with the SEC.
EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to our executive officers as of March 12, 2018:
Name | Age | Principal Position(s) | |
Patrick E. Miller | 50 | President, Chief Executive Officer, Director | |
C. Timothy Trenary | 61 | Executive Vice President and Chief Financial Officer | |
Greg R. Boese | 61 | Senior Vice President and Managing Director of Global Truck and Bus | |
Dale M. McKillop | 60 | Senior Vice President and Managing Director of Global Truck and Bus |
The following biographies describe the business experience of our executive officers:
Patrick E. Miller has served as President and Chief Executive Officer and Director since November 2015. Mr. Miller, who most recently was President of the Company’s Global Truck & Bus Segment, has been with the Company since 2005. During this time, he served in the capacity of Senior Vice President & General Manager of Aftermarket; Senior Vice President of Global Purchasing; Vice President of Global Sales; Vice President & General Manager of North American Truck and Vice President & General Manager of Structures. Prior to joining the Company, Mr. Miller held engineering, sales, and operational leadership positions with Hayes Lemmerz International, Alcoa, Inc. and ArvinMeritor. He holds a Bachelor of Science in Industrial Engineering from Purdue University and a Masters of Business Administration from the Harvard University Graduate School of Business.
C. Timothy Trenary has served as Executive Vice President and Chief Financial Officer since October 2013. Mr. Trenary served as Executive Vice President and Chief Financial Officer of ProBuild Holdings LLC, a privately held North American supplier of building materials, from 2010 to 2013. Prior to that, Mr. Trenary served as Senior Vice President & Chief Financial Officer of EMCON Technologies Holdings Limited, a privately held global automotive parts supplier, from 2008 to 2010; and as Vice President and Chief Financial Officer of DURA Automotive Systems, Inc., a publicly held global automotive parts supplier, from 2007 to 2008. He holds a Bachelor of Accounting with Honors from Michigan State University and a Masters of Business Administration with Honors from the University of Detroit Mercy. Mr. Trenary is a certified public accountant with registered status in Michigan.
Greg R. Boese was promoted to Senior Vice President and Managing Director of Global Truck and Bus in February 2016. Mr. Boese, who most recently was Vice President of Product Line Management for Global Truck and Bus Seating, has been with the Company since 2005 when he joined the Company with the acquisition of Mayflower Vehicle Systems. Mr. Boese started his
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tenure with Mayflower Vehicle Systems in 1995 and held positions of increasing responsibility including Vice President of Sales and Marketing. Prior to joining Mayflower Vehicle Systems, Mr. Boese held various senior leadership positions in sales, marketing, and operational management with a division of Masco Industries. He holds a Bachelor of Science degree in Business Management from Tri State University, Angola, Indiana.
Dale M. McKillop was promoted to Senior Vice President and Managing Director of Global Truck and Bus in February 2016. Mr. McKillop, who most recently was Vice President and General Manager of the Company’s Global Truck & Bus Trim and Structures division, has been with the Company since 2005 when he joined the Company with the acquisition of Mayflower Vehicle Systems. Mr. McKillop has held positions of increasing responsibility with the company including Managing Director - Structures and Aftermarket, Managing Director - Structures, Director of Operations Trim and Structures, and Plant Manager. Prior to joining Mayflower Vehicle Systems, Mr. McKillop held engineering positions with Pullman Standard from 1978 to 1982. Mr. McKillop holds a Bachelor of Science degree in Business Administration from Gardner Webb University.
Item 1A. | Risk Factors |
You should carefully consider the risks described below before making an investment decision. These are not the only risks we face.
If any of these risks and uncertainties were to actually occur, our business, financial condition or results of operations could be materially and adversely affected. In such case, the trading price of our common stock could decline and you may lose all or part of your investment.
Our results of operations could be materially and adversely affected by downturns in the U.S. and global economy which are naturally accompanied by related declines in freight tonnage hauled and in infrastructure development and other construction projects.
Our results of operations are directly impacted by changes in the U.S. and global economic conditions which are accompanied by related declines in freight tonnage hauled in infrastructure development and other construction projects because, among other things:
• | Demand for our MD/HD truck products is generally dependent on the number of new MD/HD truck commercial vehicles manufactured in North America. Historically, the demand for MD/HD truck commercial vehicles has declined during periods of weakness in the North American economy. |
• | Demand for our construction products is also dependent on the overall vehicle demand for new commercial vehicles in the global construction equipment market. |
• | Demand in the medium and heavy construction vehicle market, which is the market in which our GCA products are primarily used, is typically related to the level of larger-scale infrastructure development projects. |
• | Demand in the light construction equipment market is typically related to certain economic conditions such as the level of housing construction and other smaller-scale developments and projects. |
If we experience periods of low demand for our products in the future, it could have a negative impact on our revenues, operating results and financial position.
Volatility and cyclicality in the commercial vehicle market could adversely affect us.
Our profitability depends in part on the varying conditions in the commercial vehicle market. This market is subject to considerable volatility as it moves in response to cycles in the overall business environment and is particularly sensitive to the industrial sector of the economy, which generates a significant portion of the freight tonnage hauled. Sales of commercial vehicles have historically been cyclical, with demand affected by such economic factors as industrial production, construction levels, demand for consumer durable goods, interest rates and fuel costs.
Historically, general weakness in the global economy, but especially the North American economy, and corresponding decline in the need for commercial vehicles has contributed to a downturn in commercial vehicle production. Demand for commercial vehicles depends to some extent on economic and other conditions in a given market and the introduction of new vehicles and technologies. The yearly demand for commercial vehicles may increase or decrease more than overall gross domestic product in markets we serve. Downturns historically have had a material adverse effect on our business. If unit production of commercial vehicles declines in the future it may materially and adversely affect our business and results of operations. Conversely, upswings in the global economy may result in a sharp acceleration in commercial vehicle production. A sharp acceleration in commercial vehicle production may adversely affect our ability to convert the incremental revenue into operating income efficiently.
Our operating results, revenues and expenses may fluctuate significantly from quarter-to-quarter or year-to-year, which could have an adverse effect on the market price of our common stock.
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Our operating results, revenues and expenses have in the past varied and may in the future vary significantly from quarter-to-quarter or year-to-year. These fluctuations could have an adverse effect on the market price of our common stock.
Our operating results may fluctuate as a result of these and other events and factors:
• | the size, timing, volume and execution of significant orders and shipments; |
• | changes in the terms of our sales contracts; |
• | the timing of new product announcements by us and our competitors; |
• | changes in our pricing policies or those of our competitors; |
• | market acceptance of new and enhanced products; |
• | announcement of technological innovations or new products by us or our competitors; |
• | the length of our sales cycles; |
• | conditions in the commercial vehicle industry; |
• | changes in our operating expenses; |
• | personnel changes; |
• | new business acquisitions; |
• | uncertainty in geographic regions; |
• | cyber-attacks; |
• | currency and interest rate fluctuations; |
• | uncertainty with respect to the North American Free Trade Agreement; |
• | union actions; and |
• | seasonal factors. |
We base our operating expense budgets in large part on expected revenue trends. However, certain of our expenses are relatively fixed and as such we may be unable to adjust expenses quickly enough to offset any unexpected revenue shortfall. Accordingly, any significant change in revenue may cause significant variation in operating results in any quarter or year.
It is possible that in one or more future quarters or years, our operating results may be below the expectations of public market analysts and investors and may result in changes in analysts’ estimates. In such events, the trading price of our common stock may be adversely affected.
In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we become involved in securities class action litigation in the future, it could result in substantial costs and diversion of management attention and resources, thus harming our business.
Our common stock has historically had a low trading volume and, as a result, any sale of a significant number of shares may depress the trading price of our stock; shareholders may be unable to sell their shares above the purchase price.
Our common stock is traded on the NASDAQ Global Select Market under the symbol “CVGI.” The trading volume of our common stock has historically been limited as compared to common stock of a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share prices. Because of the limited trading volume, holders of our securities may not be able to sell quickly any significant number of such shares, and any attempted sale of a large number of our shares may have a material adverse impact on the price of our common stock. Additionally, because of the limited number of shares being traded, the price per share is subject to volatility and may continue to be subject to rapid price swings in the future that may result in shareholders’ inability to sell their common stock at or above purchase price.
We incur restructuring and impairment charges periodically as we continue to evaluate our portfolio of assets and identify opportunities to restructure our business in an effort to optimize our cost structure.
As we continue to evaluate our manufacturing footprint to improve our cost structure and remove excess, underperforming assets, or assets that no longer fit our goals, we incur restructuring charges periodically to close facilities, such as, lease termination charges, severance charges and impairment charges of leasehold improvements and/or machinery and equipment.
Also, if we decide to close or consolidate facilities, we may face execution risks which could adversely affect our ability to serve our customers and could lead to loss of business adversely affecting our business, results of operations and financial condition.
We may be unable to successfully implement our business strategy and, as a result, our businesses and financial position and results of operations could be materially and adversely affected.
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Our ability to achieve our business and financial objectives is subject to a variety of factors, many of which are beyond our control. For example, we may not be successful in implementing our strategy if unforeseen factors emerge diminishing the expected growth in the commercial vehicle markets we supply, or we experience increased pressure on our margins. In addition, we may not succeed in integrating strategic acquisitions, and our pursuit of additional strategic acquisitions may lead to resource constraints, which could have a negative impact on our ability to meet customers’ demands, thereby adversely affecting our relationships with those customers. As a result of such business or competitive factors, we may decide to alter or discontinue aspects of our business strategy and may adopt alternative or additional strategies. Any failure to successfully implement our business strategy could materially and adversely affect our business, results of operations and growth potential.
We are subject to certain risks associated with our foreign operations.
We have operations in the United Kingdom, Czech Republic, Ukraine, Belgium, China, Australia, Mexico and India, which accounted in the aggregate for approximately 26%, 25% and 23% of our total revenues for the years ended December 31, 2017, 2016 and 2015, respectively. There are certain risks inherent in our international business activities including, but not limited to:
• | the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems; |
• | foreign customers, who may have longer payment cycles than customers in the U.S.; |
• | material foreign currency exchange rate fluctuations affecting our ability to match revenue received with costs paid in the same currency; |
• | tax rates in certain foreign countries, which may exceed those in the U.S., withholding requirements or the imposition of tariffs, exchange controls or other restrictions, including restrictions on repatriation, on foreign earnings; |
• | intellectual property protection difficulties; |
• | general economic and political conditions, along with major differences in business culture and practices, including the challenges of dealing with business practices that may impact the company’s compliance efforts, in countries where we operate; |
• | exposure to local social unrest, including any resultant acts of war, terrorism or similar events; |
• | the difficulties associated with managing a large organization spread throughout various countries; and |
• | complications in complying with a variety of laws and regulations related to doing business with and in foreign countries, some of which may conflict with U.S. law or may be vague or difficult to comply with. |
Additionally, our international business activities are also subject to risks arising from violations of U.S. laws such as the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions, and various export control and trade embargo laws and regulations, including those which may require licenses or other authorizations for transactions relating to certain countries and/or with certain individuals identified by the U.S. government. If we fail to comply with applicable laws and regulations, we could suffer civil and criminal penalties that could materially and adversely affect our results of operations and financial condition.
As we continue to expand our business on a global basis, we are increasingly exposed to these risks. Our success will be dependent, in part, on our ability to anticipate and effectively manage these and other risks associated with foreign operations. These and other factors may have a material adverse effect on our international operations, business, financial condition and results of operations.
Significant changes to international trade regulations could adversely affect our results of operations.
Our business benefits from current free trade agreements and other duty preference programs, including the North American Free Trade Agreement (“NAFTA”). The Trump Administration has indicated that it may propose significant changes with respect to a variety of issues, including NAFTA, other international trade agreements, import and export regulations, and tariffs and customs duties, which have increased uncertainty regarding the future of existing international trade regulations. The imposition of tariffs on the products we manufacture and sell could have a material and adverse impact on our business, financial condition and results of operations. Additionally, if the Trump Administration or Congress takes action to withdraw from or materially modify NAFTA, our business, financial condition and results of operations could be adversely affected.
We have invested substantial resources in markets where we expect growth and we may be unable to timely alter our strategies should such expectations not be realized.
Our future growth is dependent in part on our making the right investments at the right time to support product development and manufacturing capacity in areas where we can support our customer base. We have identified the Asia-Pacific region, specifically China and India, as key markets likely to experience substantial growth in our market share, and accordingly have made and expect to continue to make substantial investments, both directly and through participation in various partnerships and joint ventures, in numerous manufacturing operations, technical centers and other infrastructure to support anticipated growth in those regions. If
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we are unable to maintain, deepen existing and develop additional customer relationships in these regions, we may not only fail to realize expected rates of return on our existing investments, but we may incur losses on such investments and be unable to timely redeploy the invested capital to take advantage of other markets, potentially resulting in lost market share to our competitors. We cannot guarantee that we will be successful in leveraging our capabilities into new markets and thus, in meeting the needs of these new customers and competing favorably in these new markets. Our results will also suffer if these regions do not grow as quickly as we anticipate.
We may be unable to complete strategic acquisitions or we may encounter unforeseen difficulties in integrating acquisitions.
We may pursue acquisition targets that will allow us to continue to expand into new geographic markets, add new customers, provide new products, manufacturing and service capabilities and increase penetration with existing customers. However, we expect to face competition for acquisition candidates, which may limit the number of our acquisition opportunities and may lead to higher acquisition prices. Moreover, acquisition of businesses may require additional debt and/or equity financing, perhaps resulting in additional leverage and/or shareholder dilution. The covenants relating to our debt instruments may further limit our ability to complete acquisitions. There can be no assurance we will find attractive acquisition candidates or successfully integrate acquired businesses into our existing business. If the expected synergies from acquisitions do not materialize or we fail to successfully integrate such new businesses into our existing businesses, our results of operations could also be materially and adversely affected.
The agreement governing our senior secured revolving credit facility and the agreement governing our senior secured term loan credit facility contain covenants that may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions. If we are unable to comply with these covenants, our business, results of operations and liquidity could be materially and adversely affected.
Our senior secured revolving and term loan credit facilities require us to maintain certain financial ratios and to comply with various operational and other covenants. If we do not comply with those covenants we would be precluded from borrowing under the revolving credit facility, which could have a material adverse effect on our business, financial condition and liquidity. If we are unable to borrow under our revolving credit facility, we will need to meet our capital requirements using other sources; however, alternative sources of liquidity may not be available on acceptable terms. In addition, if we fail to comply with the covenants set forth in our credit facilities the lenders thereunder could declare an event of default and cause all amounts outstanding thereunder to be due and payable immediately. We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding credit facilities or other debt instruments we may have in place from time to time, either upon maturity or if accelerated, upon an event of default, or that we would be able to refinance or restructure the payments on the credit facilities or such other debt instruments on acceptable terms.
In addition, the agreements governing the revolving and term loan credit facilities contain covenants that, among other things, restrict our ability to:
• | incur liens; |
• | incur or assume additional debt or guarantees or issue preferred stock; |
• | pay dividends or repurchases with respect to capital stock; |
• | prepay, or make redemptions and repurchases of, subordinated debt; |
• | make loans and investments; |
• | engage in mergers, acquisitions, asset sales, sale/leaseback transactions and transactions with affiliates; |
• | place restrictions on the ability of subsidiaries to pay dividends or make other payments to the issuer; |
• | change the business conducted by us or our subsidiaries; and |
• | amend the terms of subordinated debt. |
Our substantial amount of indebtedness may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our indebtedness.
The aggregate amount of our outstanding indebtedness was $172.8 million as of December 31, 2017. Our indebtedness, combined with our lease and other financial obligations and contractual commitments could have other important consequences to our stockholders, including:
• | making it more difficult for us to satisfy our obligations with respect to our indebtedness, including the revolving credit facility and our other debt instruments, and any failure to comply with the obligations of any of our debt instruments, including financial and other restrictive covenants, could result in an event of default under the revolving credit facility and the governing documents of our debt instruments; |
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• | the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness; |
• | making us more vulnerable to adverse changes in general economic, industry and competitive conditions; |
• | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions and other general corporate purposes; |
• | limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; |
• | placing us at a competitive disadvantage compared to our competitors that have less debt; and |
• | limiting our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, or execution of our business strategy or other purposes. |
Any of these factors could materially and adversely affect our business, financial condition and results of operations. Our ability to make payments on our indebtedness depends on our ability to generate cash in the future. If we do not generate sufficient cash flow to meet our debt service and working capital requirements, we may need to seek additional financing or sell assets. This may make it more difficult for us to obtain financing on terms that are acceptable to us, or at all. Without any such financing, we could be forced to sell assets to make up for any shortfall in our payment obligations under unfavorable circumstances. If necessary, we may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations.
Economic conditions and disruptions in the credit and financial markets could have an adverse effect on our business, financial condition and results of operations.
The financial markets experienced, in the not too distant past, a period of unprecedented turmoil, including the bankruptcy, restructuring or sale of certain financial institutions and the intervention of the U.S. federal government. Disruptions in the credit and financial markets may have a material adverse effect on our liquidity and financial condition if our ability to borrow money to finance our operations were to be impaired. A crisis in the financial markets may also have a material adverse impact on the availability and cost of credit in the future. Our ability to pay our indebtedness will depend on our future performance, which will be affected by, among other things, prevailing economic conditions. Tightening of credit in financial markets may also adversely affect the ability of our customers to obtain financing for significant truck orders and the ability of our suppliers to provide us with sufficient raw materials for our products, either of which could adversely affect our business and results of operations.
Our inability to compete effectively in the highly competitive commercial vehicle component supply industry could result in lower prices for our products, loss of market share and reduced gross margins, which could have an adverse effect on our revenues and operating results.
The commercial vehicle component supply industry is highly competitive. Some of our competitors are companies that are larger and have greater financial and other resources than we do. In some cases, we compete with divisions of our OEM customers. Our products primarily compete on the basis of price, breadth of product offerings, product quality, technical expertise and development capability, product delivery and product service. Increased competition may lead to price reductions resulting in reduced gross margins and loss of market share.
Current and future competitors may make strategic acquisitions or establish cooperative relationships among themselves or with others, foresee the course of market development more accurately than we do, develop products that are superior to our products, produce similar products at lower cost than we can, or adapt more quickly to new technologies, industry or customer requirements. By doing so, they may enhance their ability to meet the needs of our customers or potential future customers more competitively. These developments could limit our ability to obtain revenues from new customers or maintain existing revenues from our customer base. We may not be able to compete successfully against current and future competitors and our failure to do so may have a material adverse effect on our business, operating results and financial condition.
Our inability to successfully achieve operational efficiencies could result in the incurrence of additional costs and expenses that could adversely affect our reported earnings.
As part of our business strategy, we continuously seek ways to lower costs, improve manufacturing efficiencies and increase productivity in our existing operations and intend to apply this strategy to those operations acquired through acquisitions. We may be unsuccessful in achieving these objectives which could adversely affect our operating results and financial condition.
Additionally, aspects of the data upon which the company’s business strategy is based may be incomplete or unreliable, which could lead to errors in the strategy, which in turn could adversely affect the company’s performance. Also, not all business strategy can be based on data, and to the extent that it is based on assumptions and judgments that are untested, then it could be unsound and thereby lead to performance below expectations.
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We may be unable to successfully introduce new product and, as a result, our businesses and financial position and results of operations could be materially and adversely affected.
Product innovations have been and will continue to be a significant part of our business strategy. We believe it is important we continue to meet our customers’ demands for product innovation, improvement and enhancement, including the continued development of new-generation products, and design improvements and innovations that improve the quality and efficiency of our products. However, such development will require us to continue to invest in research and development and sales and marketing. We are also subject to the risks generally associated with product development, including lack of market acceptance, delays in product development and failure of products to operate properly. We may, as a result of these factors, be unable to meaningfully focus on product innovation as a strategy and may therefore be unable to meet our customers’ demands for product innovation, which could have a material adverse effect on our business, operating results and financial condition.
Our products may be rendered less attractive by changes in competitive technologies, including the introduction of autonomous vehicles.
Changes in competitive technologies, including the introduction of autonomous vehicles, may render certain of our products less attractive. Our ability to anticipate changes in technology and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in our ability to remain competitive. There can be no assurance that we will be able to achieve the technological advances that may be necessary for us to remain competitive. We are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development and failure of products to operate properly, all of which could adversely affect our business, results of operations and growth potential.
Our customer base is concentrated and the loss of business from a major customer or the discontinuation of particular commercial vehicle platforms could reduce our revenues.
Sales to A.B. Volvo, Daimler Truck and PACCAR accounted for approximately 17%, 16% and 10%, respectively, of our revenue in 2017, and our ten largest customers accounted for approximately 75% of our revenue in 2017. Even though we may be selected as the supplier of a product by an OEM for a particular vehicle, our OEM customers issue blanket purchase orders, which generally provide for the supply of that customer’s annual requirements for that vehicle, rather than for a specific number of our products. If the OEM’s requirements are less than estimated, the number of products we sell to that OEM will be accordingly reduced. In addition, the OEM may terminate its purchase orders with us at any time. The loss of any of our largest customers or the loss of significant business from any of these customers could have a material adverse effect on our business, financial condition and results of operations.
Our profitability could be adversely affected if the actual production volumes for our customers’ vehicles are significantly lower than expected.
We incur costs and make capital expenditures based in part upon estimates of production volumes for our customers’ vehicles. While we attempt to establish a price for our components and systems that will compensate for variances in production volumes, if the actual production of these vehicles is significantly less than anticipated, our gross margin on these products would be adversely affected. We enter into agreements with our customers at the beginning of a given platform’s life to supply products for that platform. Once we enter into such agreements, fulfillment of the supply requirements is our obligation for the entire production life of the platform, with terms generally ranging from five to seven years, and we have somewhat limited provisions to terminate such contracts. We may become committed to supply products to our customers at selling prices that are not sufficient to cover the direct cost to produce such products. We cannot predict our customers’ demands for our products. If customers representing a significant amount of our revenues were to purchase materially lower volumes than expected, or if we are unable to keep our commitment under the agreements, it would have a material adverse effect on our business, financial condition and results of operations.
Our major OEM customers may exert significant influence over us.
The commercial vehicle component supply industry has traditionally been highly fragmented and serves a limited number of large OEMs. As a result, OEMs have historically had a significant amount of leverage over their outside suppliers. Generally, our contracts with major OEM customers provide for an annual productivity cost reduction. Historically, we have been able to generally mitigate these customer-imposed cost reduction requirements through product design changes, increased productivity and similar programs with our suppliers. However, if we are unable to generate sufficient production cost savings in the future to offset these cost reductions, our gross margin and profitability would be adversely affected. Additionally, we generally do not have clauses in our customer agreements that guarantee that we will recoup the design and development costs that we incurred to develop a product.
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In other cases, we share the design costs with the customer and thereby have some risk that not all the costs will be covered if the project does not go forward or if it is not as profitable as expected.
In addition, changes in OEMs’ purchasing policies or payment practices could have an adverse effect on our business. Furthermore, due to the cost focus of our major customers, we have been, and expect to continue to be, requested to reduce prices as part of our initial business quotations and over the life of vehicle platforms we have been awarded. We cannot be certain that we will be able to generate cost savings and operational improvements in the future that are sufficient to offset price reductions requested by existing customers and necessary to win additional business.
Demand for our products could also be materially reduced if our customers vertically integrate their operations in a significant manner, which would have a material and adverse impact on our business and results of operations.
If we are unable to obtain raw materials at reasonable prices, it could adversely impact our results of operations and financial condition.
Numerous raw materials are used in the manufacture of our products. Steel, aluminum, petroleum-based products, copper, resin, foam, fabrics, wire and wire components account for the most significant portion of our raw material costs. Although we currently maintain alternative sources for most raw materials, our business is subject to the risk of price increases and periodic delays in delivery. We may be assessed surcharges on certain purchases of steel, copper and other raw materials. If we are unable to purchase certain raw materials required for our operations for a significant period of time, our operations would be disrupted, and our results of operations would be adversely affected. In addition, if we are unable to pass on the increased costs of raw materials to our customers, this could adversely affect our results of operations and financial condition. Furthermore, in the past, we have experienced significant increases and fluctuations in raw materials pricing; and future changes in the prices of raw materials or utilities could have a material adverse impact on us without proportionate recovery from our customers.
We could experience disruption in our supply or delivery chain, which could cause one or more of our customers to halt or delay production.
We, as with other component manufactures in the commercial vehicle industry, sometimes ship products to the customers throughout the world so they are delivered on a “just-in-time” basis in order to maintain low inventory levels. Our suppliers (external suppliers as well as our own production sites) also sometimes use a similar method. This just-in-time method makes the logistics supply chain in our industry very complex and very vulnerable to disruptions.
The potential loss of one of our suppliers or our own production sites could be caused by a myriad of potential problems, such as closures of one of our own or one of our suppliers’ plants or critical manufacturing lines due to strikes, mechanical breakdowns, electrical outages, fires, explosions, political upheaval, as well as logistical complications due to weather, volcanic eruptions, earthquakes, flooding or other natural disasters, mechanical failures, delayed customs processing and more. Additionally, as we expand in growth markets, the risk for such disruptions is heightened. The lack of even a small single subcomponent necessary to manufacture one of our products, for whatever reason, could force us to cease production, possibly for a prolonged period. Similarly, a potential quality issue could force us to halt deliveries while we validate the products. Even where products are ready to be shipped or have been shipped, delays may arise before they reach our customer. Our customers may halt or delay their production for the same reason if one of their other suppliers fails to deliver necessary components. This may cause our customers to suspend their orders or instruct us to suspend delivery of our products, which may adversely affect our financial performance.
When we cease timely deliveries, we have to absorb our own costs for identifying and solving the root cause problem as well as expeditiously producing replacement components or products. Generally, we must also carry the costs associated with “catching up,” such as overtime and premium freight.
Additionally, if we are the cause for a customer being forced to halt production the customer may seek to recoup all of its losses and expenses from us. These losses and expenses could be very significant and may include consequential losses such as lost profits. Thus, any supply-chain disruption, however small, could potentially cause the complete shutdown of an assembly line of one of our customers, and any such shutdown could expose us to material claims of compensation. Where a customer halts production because of another supplier failing to deliver on time, we may not be fully compensated, if at all, and therefore our business and financial results could be materially and adversely affected.
Security breaches and other disruptions could compromise our information systems and expose us to liability, which could cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, financial information, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and
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transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfunction, malfeasance or other disruptions. Like most companies, our systems are under attack on a routine basis. At times there are breaches of our security measures. Breaches can and have, at times, compromised our networks and the associated applications and information residing on them. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disrupt our operations and the services we provide to customers, damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business and our results of operations.
Equipment failures, delays in deliveries or catastrophic loss at any of our facilities could lead to production or service curtailments or shutdowns.
We manufacture or assemble our products at facilities in North America, Europe, Asia and Australia. An interruption in production or service capabilities at any of these facilities as a result of equipment failure or other reasons could result in our inability to produce our products. In the event of a stoppage in production at any of our facilities, even if only temporary, or if we experience delays as a result of events that are beyond our control, delivery times to our customers could be severely affected. Any significant delay in deliveries to our customers could lead to increased returns or cancellations. Our facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires, explosions, violent weather conditions or acts of God. We may also experience plant shutdowns or periods of reduced production as a result of equipment failure, delays in deliveries or catastrophic loss, which could have a material adverse effect on our business, results of operations and financial condition.
Volatility in the commercial vehicle market could result from manmade and natural disasters and other global business disruptions.
Natural disasters and other global business disruptions may disrupt the commercial vehicle supply chain and materially and adversely affect global production levels in our industry. The impact from disasters resulting in wide-spread destruction may not be immediately apparent. It is particularly difficult to assess the impact of catastrophic losses on our suppliers and end customers, who themselves may not fully understand the impact of such events on their businesses. Accordingly, there is no assurance our results of operations will not be materially affected as a result of the impact of future disasters.
If we are unable to recruit or retain senior management and other skilled personnel, our business, operating results and financial condition could be materially and adversely affected.
Our operations depend to a large extent on the efforts of our senior management team as well as our ability to attract, train, integrate and retain highly skilled personnel. We seek to develop and retain an effective management team through the proper positioning of existing key employees and the addition of new management personnel where necessary. Retaining personnel with the right skills at competitive wages can be difficult in certain markets in which we are doing business, particularly those locations that are seeing much inbound investment and have highly mobile workforces. Additionally, attracting sufficiently well-educated and talented management, especially middle-management employees, in certain markets can be challenging.
We may not be able to retain our current senior management and other skilled personnel or attain similarly skilled personnel in the future. If we lose senior management or the services of our skilled workforce, or if we are unable to attract, train, integrate and retain the highly skilled personnel we need, our business, operating results and financial condition could be materially and adversely affected.
We may be adversely impacted by labor strikes, work stoppages and other matters.
As of December 31, 2017, approximately 56% of the employees in our North American operations were unionized, with the majority of union-represented personnel based in Mexico. We have experienced limited unionization efforts at certain of our other North American facilities from time to time. In addition, approximately 64% of our employees of our European, Asian and Australian operations were represented by a shop steward committee, which may limit our flexibility in our relationship with these employees. We may encounter future unionization efforts or other types of conflicts with labor unions or our employees.
Many of our OEM customers and their suppliers also have unionized work forces. Work stoppages or slow-downs experienced by OEMs or their other suppliers could result in slow-downs or closures of assembly plants where our products are included in assembled commercial vehicles. In the event that one or more of our customers or their suppliers experience a material work stoppage, such work stoppage could have a material adverse effect on our business.
Provisions in our charter documents and Delaware law could discourage potential acquisition proposals, could delay, deter or prevent a change in control and could limit the price certain investors might be willing to pay for our stock.
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Certain provisions of our certificate of incorporation and by-laws may inhibit changes in control of our company not approved by our board of directors. These provisions include:
• | a prohibition on stockholder action through written consents; |
• | a requirement that special meetings of stockholders be called only by the board of directors; |
• | advance notice requirements for stockholder proposals and director nominations; |
• | limitations on the ability of stockholders to amend, alter or repeal the by-laws; and |
• | the authority of the board of directors to issue, without stockholder approval, preferred stock and common stock with such terms as the board of directors may determine. |
We are also afforded the protections of Section 203 of the Delaware General Corporation Law, which would prevent us from engaging in a business combination with a person who becomes a 15% or greater stockholder for a period of three years from the date such person acquired such status unless certain board or stockholder approvals were obtained. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock.
Our earnings may be adversely affected by changes to the carrying values of our tangible and intangible assets as a result of recording any impairment charges deemed necessary.
We are required to perform impairment tests whenever events and circumstances indicate the carrying value of certain assets may not be recoverable. Significant or unanticipated changes in circumstances, such as the general economic environment, changes or downturns in our industry as a whole, termination of any of our customer contracts, restructuring efforts and general workforce reductions, may result in a charge for impairment that can materially and adversely affect our reported net income and our stockholders’ equity.
We have taken, are taking, and may take future restructuring actions to realign and resize our production capacity and cost structure to meet current and projected operational and market requirements. Charges related to these actions or any further restructuring actions may have a material adverse effect on our results of operations and financial condition. There can be no assurance that any current or future restructuring will be completed as planned or achieve the desired results. The failure to complete restructuring as planned could materially and adversely affect our results of operations.
We have established and may establish in the future valuation allowances on deferred tax assets. These changes may have a material adverse effect on our results of operations and financial position.
Additionally, from time to time in the past, we have recorded asset impairment losses relating to specific plants and operations. Generally, we record asset impairment losses when we determine that our estimates of the future undiscounted cash flows from an operation will not be sufficient to recover the carrying value of that facility’s building, fixed assets and production tooling. For goodwill, we perform a qualitative assessment of whether it is more likely than not that the reporting unit’s fair value is less than its carrying amount. If the fair value of the reporting unit is less than its carrying amount, we compare its implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, the reporting unit would recognize an impairment loss for that excess amount. There can be no assurance that we will not incur such charges in the future as changes in economic or operating conditions impacting the estimates and assumptions could result in additional impairment. Any future impairments may materially and adversely affect our results of operations.
Tax legislation initiatives or challenges to our tax positions could adversely affect our results of operations and financial condition.
We are a multinational corporation with operations in the United States and international jurisdictions. As such, we are subject to the tax laws and regulations of the U.S. federal, state and local governments and various international jurisdictions. From time to time, various legislative initiatives may be proposed that could adversely affect our tax positions. There can be no assurance that our effective tax rate or tax payments will not be adversely affected by these initiatives. In addition, U.S. federal, state and local, as well as international, tax laws and regulations are extremely complex and subject to varying interpretations. There can be no assurance that our tax position will not be challenged by relevant tax authorities or that we would be successful in any such challenge.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 ("U.S. Tax Reform") was signed into law. The U.S. Tax Reform significantly changes how the U.S. taxes corporations. The U.S. Tax Reform requires complex computations to be performed that were not previously required in U.S. tax law, judgments to be made in interpretation of the provisions of the U.S. Tax Reform and significant estimates in calculations. The Internal Revenue Service and other regulatory bodies could interpret or issue guidance on how provisions of the U.S. Tax Reform will be applied or otherwise administered that is different from our interpretation. As we complete our analysis of the U.S. Tax Reform, collect and prepare necessary data, and interpret any additional guidance, we
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may make adjustments to provisional amounts we have recorded that may materially impact our Consolidated Statement of Operations in the period in which the adjustments are made.
The geographic profile of our taxable income could adversely impact our tax provision and therefore our results of operations.
Our future tax provision could be adversely affected by the geographic profile of our taxable income and by changes in the valuation of our deferred tax assets and liabilities. Our results could be materially impacted by significant changes in our effective tax rate. Additionally, any changes to manufacturing activities could result in significant changes to our effective tax rate related to products manufactured either in the United States or in international jurisdictions. If the United States or another international jurisdiction implements a tax change related to products manufactured in a particular jurisdiction where we do business, our results could be materially and adversely affected.
Exposure to currency exchange rate fluctuations on cross border transactions and translation of local currency results into United States dollars could materially impact our results of operations.
Cross border transactions, both with external parties and intercompany relationships, result in increased exposure to foreign currency fluctuations. The strengthening or weakening of the United States dollar may result in favorable or unfavorable foreign currency translation effects in as much as the results of our foreign locations are translated into United States dollars. This could materially impact our results of operations.
Litigation against us could be costly and time consuming to defend, as a result, our businesses and financial position could be materially and adversely affected.
We are regularly subject to legal proceedings and claims that arise in the ordinary course of business, such as workers’ compensation claims, Occupational Safety and Health Administration investigations, employment disputes, unfair labor practice charges, examination by the Internal Revenue Service, customer and supplier disputes, contractual disputes, intellectual property disputes, environmental claims and product liability claims arising out of the conduct of our business. Litigation may result in substantial costs and may divert management’s attention and resources from the operation of our business, which could have a material adverse effect on our business, results of operations or financial condition.
We have only limited protection for our proprietary rights in our intellectual property, which makes it difficult to prevent third parties from infringing upon our rights.
Our success depends to a certain degree on our ability to protect our intellectual property and to operate without infringing on the proprietary rights of third parties. While we have been issued patents and have registered trademarks with respect to many of our products, our competitors could independently develop similar or superior products or technologies, duplicate our designs, trademarks, processes or other intellectual property or design around any processes or designs on which we have or may obtain patents or trademark protection. In addition, it is possible third parties may have or acquire licenses for other technology or designs that we may use or desire to use, requiring us to acquire licenses to, or to contest the validity of, such patents or trademarks of third parties. Such licenses may not be made available to us on acceptable terms, if at all, or we may not prevail in contesting the validity of third party rights.
In addition to patent and trademark protection, we also protect trade secrets, “know-how” and other confidential information against unauthorized use or disclosure by persons who have access to them, such as our employees and others, through contractual arrangements. These arrangements may not provide meaningful protection for our trade secrets, know-how or other confidential information in the event of any unauthorized use, misappropriation or disclosure. If we are unable to maintain the proprietary nature of our technologies, trade secrets, know-how, or other confidential information, our revenues could be materially and adversely affected.
As we diversify and globalize our geographic footprint, we may encounter laws and practices in emerging markets that are not as stringent or enforceable as those present in developed markets, and thus incur a higher risk of intellectual property infringement, which could materially and adversely affect our results of operations.
We may be subject to product liability claims, recalls or warranty claims, which could be expensive, damage our reputation and result in a diversion of management resources.
As a supplier of products and systems to commercial and construction vehicle OEMs and markets, we face an inherent business risk of exposure to product liability claims in the event that our products, or the equipment into which our products are incorporated, malfunction and result in personal injury or death. Product liability claims could result in significant losses as a result of expenses incurred in defending claims or the award of damages.
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In addition, we may be required to participate in recalls involving systems or components sold by us if any prove to be defective, or we may voluntarily initiate a recall or make payments related to such claims as a result of various industry or business practices or the need to maintain good customer relationships. Such a recall would result in a diversion of management resources. While we maintain product liability insurance generally with a self-insured retention amount, we cannot assure you that it will be sufficient to cover all product liability claims, that such claims will not exceed our insurance coverage limits or that such insurance will continue to be available on commercially reasonable terms, if at all. Any product liability claim brought against us could have a material adverse effect on our results of operations.
We warrant the workmanship and materials of many of our products under limited warranties and have entered into warranty agreements with certain OEMs that warranty certain of our products in the hands of these OEMs’ customers, in some cases for as long as seven years. From time to time, we receive product warranty claims from our customers, pursuant to which we may be required to bear costs of repair or replacement of certain of our products. Accordingly, we are subject to risk of warranty claims in the event that our products do not conform to our customers’ specifications or, in some cases in the event that our products do not conform to their customers’ expectations. It is possible for warranty claims to result in costly product recalls, significant repair costs and damage to our reputation, all of which would materially and adversely affect our results of operations.
Our products may be susceptible to claims by third parties that our products infringe upon their proprietary rights.
As the number of products in our target markets increases and the functionality of these products further overlaps, we may become increasingly subject to claims by a third party that our technology infringes such party’s proprietary rights. Regardless of their merit, any such claims could be time consuming and expensive to defend, may divert management’s attention and resources, could cause product shipment delays and could require us to enter into costly royalty or licensing agreements. If successful, a claim of infringement against us and our inability to license the infringed or similar technology and/or product could have a material adverse effect on our business, operating results and financial condition.
Our businesses are subject to statutory environmental and safety regulations in multiple jurisdictions, and the impact of any changes in regulation and/or the violation of any applicable laws and regulations by our businesses could result in a material adverse effect on our financial condition and results of operations.
We are subject to foreign, federal, state, and local laws and regulations governing the protection of the environment and occupational health and safety, including laws regulating air emissions, wastewater discharges, generation, storage, handling, use and transportation of hazardous materials; the emission and discharge of hazardous materials into the soil, ground or air; and the health and safety of our colleagues. We are also required to obtain permits from governmental authorities for certain of our operations. We cannot assure you that we are, or have been, in complete compliance with such environmental and safety laws, and regulations. Certain of our operations generate hazardous substances and wastes. If a release of such substances or wastes occurs at or from our properties, or at or from any offsite disposal location to which substances or wastes from our current or former operations were taken, or if contamination is discovered at any of our current or former properties, we may be held liable for the costs of cleanup and for any other response by governmental authorities or private parties, together with any associated fines, penalties or damages. In most jurisdictions, this liability would arise whether or not we had complied with environmental laws governing the handling of hazardous substances or wastes.
Several of our facilities are either certified as, or are in the process of being certified as ISO 9001, 14000, 14001 or TS16949 (the international environmental management standard) compliant or are developing similar environmental management systems. We have made, and will continue to make, capital expenditures to implement such environmental programs and comply with environmental requirements.
The environmental laws to which we are subject have become more stringent over time, and we could incur material costs or expenses in the future to comply with environmental laws. If we violate or fail to comply with these laws and regulations or do not have the requisite permits, we could be fined or otherwise sanctioned by regulators. In some instances, such a fine or sanction could have a material adverse effect on our financial condition and results of operations.
We may be adversely affected by the impact of government regulations on our OEM customers.
Although the products we manufacture and supply to commercial vehicle OEMs are not subject to significant government regulation, our business is indirectly impacted by the extensive governmental regulation applicable to commercial vehicle OEMs. These regulations primarily relate to emissions and noise standards imposed by the EPA, state regulatory agencies in North America, such as CARB, and other regulatory agencies around the world. Commercial vehicle OEMs are also subject to the National Traffic and Motor Vehicle Safety Act and Federal Motor Vehicle Safety Standards promulgated by NHTSA in the U.S. Changes in emission standards and other proposed governmental regulations could impact the demand for commercial vehicles and, as a result, indirectly impact our operations. For example, new emission standards for truck engines used in Class 5 to 8 trucks imposed by the EPA and CARB became effective in 2010. In 2011, the EPA and NHTSA adopted a program to reduce greenhouse gas emissions and improve
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the fuel efficiency of medium-and heavy-duty vehicles. These standards are anticipated to phase in with increasing stringency in each model year from 2014 to 2018. To the extent that current or future governmental regulation has a negative impact on the demand for commercial vehicles, our business, financial condition or results of operations could be adversely affected.
Item 1B. | Unresolved Staff Comments |
None.
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Item 2. | Properties |
Our corporate office is located in New Albany, Ohio. Several of our facilities are located near our OEM customers to reduce distribution costs, reduce risk of interruptions in our delivery schedule, further improve customer service and provide our customers with reliable delivery of products and services. The following table provides selected information regarding our principal facilities as of December 31, 2017:
Location | Primary Product/Function | Ownership Interest | ||
Piedmont, Alabama | Aftermarket Distribution | Owned | ||
Douglas, Arizona | Warehouse | Leased | ||
Dalton, Georgia | Trim & Warehouse | Leased | ||
Monona, Iowa | Wire Harness | Owned | ||
Michigan City, Indiana | Wipers, Switches | Leased | ||
Kings Mountain, North Carolina | Cab, Sleeper Box | Owned | ||
Concord, North Carolina | Injection Molding | Leased | ||
Chillicothe, Ohio | Interior Trim, Mirrors & Warehouse | Owned / Leased | ||
New Albany, Ohio | Corporate Headquarters / R&D | Leased | ||
Vonore, Tennessee | Seats, Flooring & Warehouse | Owned / Leased | ||
Dublin, Virginia | Interior Trim & Warehouse | Owned / Leased | ||
Agua Prieta, Mexico | Wire Harness | Leased | ||
Esqueda, Mexico | Wire Harness | Leased | ||
Saltillo, Mexico | Interior Trim & Seats | Leased | ||
Northampton, United Kingdom | Seats | Leased | ||
Brisbane, Australia | Seats | Leased | ||
Sydney, Australia | Seats | Leased | ||
Mackay, Australia | Distribution | Leased | ||
Melbourne, Australia | Distribution | Leased | ||
Perth, Australia | Distribution | Leased | ||
Jiading, China | Seats and Wire Harness / R&D | Leased | ||
Brandys nad Orlici, Czech Republic | Seats | Owned | ||
Liberec, Czech Republic | Wire Harness | Leased | ||
Baska (State of Gujarat) India | Seats | Leased | ||
Pune (State of Maharashtra), India | Seats / R&D | Leased | ||
Dharwad (State of Karnataka), India | Seats | Leased | ||
L’viv, Ukraine | Wire Harness | Leased |
We also have leased sales and service offices located in the Belgium, Australia, and Czech Republic and a sales office branch in Sweden. Our owned domestic facilities are subject to liens securing our obligations under our revolving credit facility and senior secured term loan credit facility as described in Note 6 of the "Notes to Consolidated Financial Statements".
Utilization of our facilities varies with North American, European, Asian and Australian commercial vehicle production and general economic conditions in such regions. All locations are principally used for manufacturing, assembly, distribution or warehousing, except for our New Albany, Ohio facility, which is an administrative office.
Item 3. | Legal Proceedings |
We are subject to various legal proceedings and claims arising in the ordinary course of business, including, but not limited to, workers’ compensation claims, OSHA investigations, employment disputes, unfair labor practice charges, customer and supplier disputes, service provider disputes, product liability claims, intellectual property disputes, environmental claims arising out of the conduct of our businesses, and examinations by the Internal Revenue Service (“IRS”). We are not involved in any litigation at this time in which we expect that an unfavorable outcome of the proceedings will have a material adverse effect on our financial position, results of operations or cash flows.
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Item 4. | Mine Safety Disclosures |
Not applicable.
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PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock is traded on the NASDAQ Global Select Market under the symbol “CVGI.” The following table sets forth the high and low sale prices for our common stock, for the periods indicated, as regularly reported by the NASDAQ Global Select Market:
High | Low | ||||||
Year Ended December 31, 2017: | |||||||
Fourth Quarter | $ | 11.85 | $ | 7.20 | |||
Third Quarter | $ | 9.17 | $ | 5.55 | |||
Second Quarter | $ | 9.62 | $ | 6.52 | |||
First Quarter | $ | 6.87 | $ | 5.15 | |||
Year Ended December 31, 2016: | |||||||
Fourth Quarter | $ | 6.00 | $ | 4.36 | |||
Third Quarter | $ | 5.88 | $ | 3.82 | |||
Second Quarter | $ | 5.56 | $ | 2.14 | |||
First Quarter | $ | 3.33 | $ | 2.02 |
As of March 12, 2018, there were 164 holders of record of our outstanding common stock.
We have not declared or paid any dividends to the holders of our common stock in the past and do not anticipate paying dividends in the foreseeable future. Any future payment of dividends is within the discretion of the Board of Directors and will depend upon, among other factors, the capital requirements, operating results and financial condition of CVG. In addition, our ability to pay cash dividends is limited under the terms of the Third Amended and Restated Loan and Security Agreement and the Term Loan and Security Agreement, as described in more detail under “Management’s Discussion and Analysis - Liquidity and Capital Resources - Debt and Credit Facilities.”
The following graph compares the cumulative five-year total return to holders of Commercial Vehicle Group, Inc.’s common stock to the cumulative total returns of the NASDAQ Composite Index and a Peer Group that includes a legacy group through October 31, 2016 and the new group from November 1, 2016 onward. The legacy group is Altra Industrial Motion Corp, Core Molding Technologies, L.B. Foster Company, Fuel Systems Solutions Inc., Modine Manufacturing, Meritor Inc. EnPro Industries, Stoneridge Inc., Titan International and Wabco Holdings. The new peer group is L.B. Foster Company, Modine Manufacturing, EnPro Industries, Stoneridge Inc., LCI Industries, Shiloh Industries Inc., Standard Motor Products Inc., ASTEC Industries Inc., Gentherm Inc., Dorman Products Inc., Freightcar America Inc., Federal Signal Corp., Spartan Motors Inc., Supreme Industries, American Railcar Industries Inc. and Columbus McKinnon Corp. The graph assumes that the value of the investment in the Company’s common stock in the peer group and the index (including reinvestment of dividends) was $100 on December 31, 2012 and tracks it through December 31, 2017.
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12/31/12 | 12/31/13 | 12/31/14 | 12/31/15 | 12/31/16 | 12/31/17 | |||||||
Commercial Vehicle Group, Inc. | 100.00 | 88.55 | 81.12 | 33.62 | 67.23 | 130.43 | ||||||
NASDAQ Composite | 100.00 | 140.17 | 160.95 | 172.39 | 187.85 | 243.70 | ||||||
Legacy Peer Group | 100.00 | 139.63 | 148.56 | 119.34 | 146.94 | 207.14 | ||||||
New Peer Group | 100.00 | 155.17 | 160.60 | 150.15 | 202.66 | 225.11 |
The information in the graph and table above is not “solicitation material,” is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this annual report, except to the extent that we specifically incorporate such information by reference.
We did not repurchase any of our common stock on the open market as part of a stock repurchase program during 2017. Our employees surrendered 161,382 shares of our common stock in 2017 to satisfy tax withholding obligations on the vesting of restricted stock awards issued under our Fourth Amended and Restated Equity Incentive Plan and the 2014 Equity Incentive Plan. The following table sets forth information in connection with purchases made by, or on behalf of, us or any affiliated purchaser, of shares of our common stock during the quarterly period ended December 31, 2017:
(a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |||||||||
October 1, 2017 through December 31, 2017 | 161,382 | $ | 8.43 | — | — |
Unregistered Sales of Equity Securities
We did not sell any equity securities during 2017 that were not registered under the Securities Act of 1933, as amended.
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Item 6. | Selected Financial Data |
The following table sets forth selected consolidated financial data regarding our business and certain industry information and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.
Material Events Affecting Financial Statement Comparability
There are no material events affecting financial statement comparability of our consolidated financial statements contained in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2017.
The table below sets forth certain operating revenues for the periods indicated (in thousands, except per share data):
Years Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Statements of Operations Data: | |||||||||||||||||||
Revenues | $ | 755,231 | $ | 662,112 | $ | 825,341 | $ | 839,743 | $ | 747,718 | |||||||||
Cost of revenues | 662,666 | 574,882 | 714,519 | 732,055 | 667,989 | ||||||||||||||
Gross profit | 92,565 | 87,230 | 110,822 | 107,688 | 79,729 | ||||||||||||||
Selling, general and administrative expenses | 59,800 | 60,542 | 71,469 | 72,480 | 71,711 | ||||||||||||||
Amortization expense | 1,320 | 1,305 | 1,327 | 1,515 | 1,580 | ||||||||||||||
Operating income | 31,445 | 25,383 | 38,026 | 33,693 | 6,438 | ||||||||||||||
Other (income) expense | (1,349 | ) | (769 | ) | (152 | ) | 215 | 139 | |||||||||||
Interest expense | 19,149 | 19,318 | 21,359 | 20,716 | 21,087 | ||||||||||||||
Income (loss) before provision (benefit) for income taxes | 13,645 | 6,834 | 16,819 | 12,762 | (14,788 | ) | |||||||||||||
Provision (benefit) for income taxes | 15,350 | 49 | 9,758 | 5,131 | (2,337 | ) | |||||||||||||
Net (loss) income | (1,705 | ) | 6,785 | 7,061 | 7,631 | (12,451 | ) | ||||||||||||
Less: Non-controlling interest in subsidiary’s income (loss) | — | — | 1 | 1 | (6 | ) | |||||||||||||
Net (loss) income attributable to CVG stockholders | $ | (1,705 | ) | $ | 6,785 | $ | 7,060 | $ | 7,630 | $ | (12,445 | ) | |||||||
(Loss) income per share attributable to common stockholders: | |||||||||||||||||||
Basic | $ | (0.06 | ) | $ | 0.23 | $ | 0.24 | $ | 0.26 | $ | (0.44 | ) | |||||||
Diluted | $ | (0.06 | ) | $ | 0.23 | $ | 0.24 | $ | 0.26 | $ | (0.44 | ) | |||||||
Weighted average common shares outstanding: | |||||||||||||||||||
Basic | 29,942 | 29,530 | 29,209 | 28,926 | 28,584 | ||||||||||||||
Diluted | 29,942 | 29,878 | 29,399 | 29,117 | 28,584 |
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Years Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Balance Sheet Data (at end of each period): | |||||||||||||||||||
Working capital (current assets less current liabilities) | $ | 150,903 | $ | 202,693 | $ | 193,424 | $ | 192,618 | $ | 176,979 | |||||||||
Total assets | 384,388 | 428,765 | 436,679 | 442,927 | 432,441 | ||||||||||||||
Total liabilities, excluding debt | 142,697 | 127,921 | 133,112 | 133,177 | 122,500 | ||||||||||||||
Total debt, net of prepaid debt financing costs and discount | 166,949 | 233,154 | 235,000 | 250,000 | 250,000 | ||||||||||||||
Total CVG stockholders’ equity | 74,742 | 67,690 | 65,930 | 58,801 | 59,945 | ||||||||||||||
Total non-controlling interest | — | — | — | 35 | 33 | ||||||||||||||
Total stockholders’ equity | 74,742 | 67,690 | 65,930 | 58,836 | 59,978 | ||||||||||||||
Other Data: | |||||||||||||||||||
Net cash provided by (used in): | |||||||||||||||||||
Operating activities | $ | 2,257 | $ | 49,365 | $ | 55,299 | $ | 9,519 | $ | 19,154 | |||||||||
Investing activities | (10,776 | ) | (8,903 | ) | (14,506 | ) | (12,289 | ) | (12,949 | ) | |||||||||
Financing activities | (72,848 | ) | (714 | ) | (16,008 | ) | 514 | (937 | ) | ||||||||||
Depreciation and amortization | 15,344 | 16,451 | 17,710 | 18,247 | 20,583 | ||||||||||||||
Capital expenditures | 13,567 | 11,917 | 15,590 | 14,568 | 13,666 | ||||||||||||||
North American Class 8 Production (units) 1 | 256,000 | 228,000 | 323,000 | 297,000 | 246,000 | ||||||||||||||
North America Class 5-7 Production (units) 1 | 249,000 | 233,000 | 237,000 | 226,000 | 201,000 |
(1) | Source: ACT (February 2018). |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following discussion and analysis in conjunction with the information set forth under “Item 6 - Selected Financial Data” and our consolidated financial statements and the notes thereto included in Item 8 in this Annual Report on Form 10-K. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. See “Forward-Looking Information” on page ii of this Annual Report on Form 10-K. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Item 1A - Risk Factors.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.
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Company Overview
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 MD/HD Truck market, the medium- and heavy-construction vehicle market, and the military, bus, agriculture, specialty transportation, mining, industrial equipment and off-road recreational markets.
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; Trim; cab structures, sleeper boxes, body panels and structural components; mirrors, wipers and controls; and electric wire harness and panel assemblies designed for applications in commercial and other 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 OEMs, which we believe creates an opportunity to cross-sell our products.
Business Overview
For the year ended December 31, 2017, approximately 42% of our revenue was generated from sales to North American MD/HD Truck OEMs. Our remaining revenue was primarily derived from sales to OEMs in the global construction equipment market, aftermarket, OE service organizations, military market and other specialty markets.
Demand for our products is driven to a significant degree by preferences of the end-user of the vehicle, particularly with respect to heavy-duty trucks. Unlike the automotive industry, heavy-duty truck OEMs generally afford the end-user the ability to specify many of the component parts that will be used to manufacture the vehicle, including a wide variety of cab interior styles and colors, brand and type of seats, type of seat fabric and color, and specific interior styling. In addition, certain of our products are only utilized in heavy-duty trucks, such as our storage systems, sleeper boxes and privacy curtains. To the extent that demand for higher content vehicles increases or decreases, our revenues and gross profit will be impacted positively or negatively.
We generally compete for new business at the beginning of the development of a new vehicle platform and upon the redesign of existing programs. New platform development generally begins one to three years before the marketing of such models by our customers. Contract durations for commercial vehicle products generally extend for the entire life of the platform. Several of the major truck makers have upgraded their truck platforms and we believe we have maintained our share of content in these platforms. We continue to pursue opportunities to expand our content.
Demand for our heavy-duty (or "Class 8") truck products is generally dependent on the number of new heavy-duty trucks manufactured in North America, which in turn is a function of general economic conditions, interest rates, changes in government regulations, consumer spending, fuel costs, freight costs, fleet operators' financial health and access to capital, used truck prices and our customers’ inventory levels. New heavy-duty truck demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy, which generates a significant portion of the freight tonnage hauled by commercial vehicles. According to a February 2018 report by ACT Research, a publisher of industry market research, North American Class 8 production levels are expected to increase to 325,000 units in 2018, decrease to 238,000 units in 2020, and then increase to 280,000 units in 2022. We believe the demand for North American Class 8 vehicles in 2018 will be between 300,000 to 325,000 units. ACT Research estimates that the average age of active North American Class 8 trucks is 11.3 and 11.4 years in 2017 and 2016, respectively. As vehicles age, their maintenance costs typically increase. ACT Research forecasts that the vehicle age will decline as aging fleets are replaced.
North American medium-duty (or "Class 5-7") truck production steadily increased from 237,000 units in 2015 to 249,000 units in 2017. We believe the demand for Class 5-7 in 2018 will be stable. According to a February 2018 report by ACT Research, North American Class 5-7 truck production is expected to gradually increase to 275,000 units in 2022.
Demand for our construction and agricultural equipment products is dependent on vehicle production. Demand for new vehicles in the global construction and agricultural equipment market generally follows certain economic conditions around the world. Our products are primarily used in the medium- and heavy-duty construction equipment markets (vehicles weighing over 12 metric tons). Demand in the medium- and heavy-duty construction equipment market is typically related to the level of large scale infrastructure development projects such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and other raw material based industries. We believe the construction markets we serve in Europe, Asia, and North America have improved, and that the global agriculture markets are trending upwards.
Our Long-term Strategy
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Our long-term strategy is to grow organically by product, geographic region and end market. Our products are Seats, Trim, wire harnesses, structures, wipers, mirrors and controls. We expect to realize some end market diversification in truck and bus in Asia-Pacific and trim in Europe, with additional diversification weighted toward the agriculture market, and to a lesser extent the construction market. We intend to allocate resources consistent with our strategy; more specifically, consistent with our product portfolio, geographic region and end market diversification objectives. We periodically evaluate our long-term strategy in response to significant changes in our business environment and other factors.
Although our long-term strategy is an organic growth plan, we will consider opportunistic acquisitions to supplement our product portfolio, and to enhance our ability to serve our customers in our geographic end markets.
Strategic Footprint
We review our manufacturing footprint in the normal course to, among other considerations, provide a competitive landed cost to our customers. In November 2015, the Company announced a restructuring and cost reduction plan, which was expected to lower operating costs by $8 million to $12 million annually when fully implemented at the end of 2017. The plan is substantially complete as of December 31, 2017, and the Company believes the estimated savings were achieved.
At the time of the November 2015 announcement, the Company estimated pre-tax costs of $11 million to $16 million. The actual restructuring costs, consisting of employee-related separation costs and other costs associated with the transfer of production and subsequent closure of facilities, offset by gains on the sale of long-lived assets, totaled $6 million.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements described in Note 2 of the “Notes to Consolidated Financial Statements” is incorporated in this section by reference.
Consolidated Results of Operations
The table below sets forth certain operating data expressed as a percentage of revenues for the periods indicated (dollars are in thousands):
2017 | 2016 | 2015 | ||||||||||||||||||
Revenues | $ | 755,231 | 100.0 | % | $ | 662,112 | 100.0 | % | $ | 825,341 | 100.0 | % | ||||||||
Cost of revenues | 662,666 | 87.7 | 574,882 | 86.8 | 714,519 | 86.6 | ||||||||||||||
Gross profit | 92,565 | 12.3 | 87,230 | 13.2 | 110,822 | 13.4 | ||||||||||||||
Selling, general and administrative expenses | 59,800 | 7.9 | 60,542 | 9.1 | 71,469 | 8.7 | ||||||||||||||
Amortization expense | 1,320 | 0.2 | 1,305 | 0.2 | 1,327 | 0.2 | ||||||||||||||
Operating income | 31,445 | 4.2 | 25,383 | 3.8 | 38,026 | 4.6 | ||||||||||||||
Other (income) expense | (1,349 | ) | (0.1 | ) | (769 | ) | (0.1 | ) | (152 | ) | — | |||||||||
Interest expense | 19,149 | 2.5 | 19,318 | 2.9 | 21,359 | 2.6 | ||||||||||||||
Income before provision for income taxes | 13,645 | 1.8 | 6,834 | 1.0 | 16,819 | 2.0 | ||||||||||||||
Provision for income taxes | 15,350 | 2.0 | 49 | — | 9,758 | 1.2 | ||||||||||||||
Net (loss) income | (1,705 | ) | (0.2 | ) | 6,785 | 1.0 | 7,061 | 0.9 | ||||||||||||
Less: Non-controlling interest in subsidiary’s income | — | — | — | — | 1 | — | ||||||||||||||
Net (loss) income attributable to common stockholders | $ | (1,705 | ) | (0.2 | )% | $ | 6,785 | 1.0 | % | $ | 7,060 | 0.9 | % |
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Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
CONSOLIDATED RESULTS
Revenues. On a consolidated basis, revenues increased $93.1 million, or 14.1%, to $755.2 million for the year ended December 31, 2017 compared to $662.1 million for the year ended December 31, 2016. The increase in revenues primarily resulted from increased heavy-duty truck production volumes in North America and an improvement in the global construction equipment markets. More specifically, the increase resulted from:
• | a $41.6 million, or 15%, increase in OEM North American MD/HD Truck revenues; |
• | a $40.9 million, or 32%, increase in construction equipment revenues; |
• | a $4.6 million, or 4%, increase in aftermarket revenues; and |
• | a $6.0 million, or 4%, increase in other revenues. |
2017 revenues were favorably impacted by foreign currency exchange translation of $0.5 million, which is reflected in the change in revenue above.
Gross Profit. Gross profit increased $5.4 million, or 6.2%, to $92.6 million for the year ended December 31, 2017 from $87.2 million for the year ended December 31, 2016. Included in gross profit is cost of revenues, which consists primarily of raw materials and purchased components for our products, wages and benefits for our employees and overhead expenses such as manufacturing supplies, facility rent and utilities costs related to our operations. Cost of revenues increased $87.8 million, or 15.3%, resulting from an increase in raw material and purchased component costs of $60.6 million, wages and benefits of $11.8 million and overhead expenses of $15.4 million. The increase in gross profit is primarily attributable to an increase in sales volume partially offset by rising commodity prices, tighter labor markets and costs associated with the sharp acceleration in North American truck build. As part of the Company's restructuring efforts, on July 19, 2016, the Company announced plans to transfer all wire harness production from the manufacturing facility in Monona, Iowa to the facility in Agua Prieta, Mexico. On May 24, 2017, the Company elected to maintain production capability in the Monona, Iowa facility as a result of a shortage of labor in our North American wire harness business. Additionally, the Company established a new facility in Mexico with better access to labor. The labor shortage and footprint adjustment in our North American wire harness business are collectively referred to as the "NA Footprint Adjustment". The NA Footprint Adjustment adversely impacted cost of revenue by approximately $10 million in 2017. Additionally, 2017 results included $1.9 million in charges relating to facility restructuring and other related costs compared to $3.4 million in the prior year period. As a percentage of revenues, gross profit was 12.3% for the year ended December 31, 2017 compared to 13.2% for the year ended December 31, 2016.
Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of wages and benefits and other overhead expenses such as marketing, travel, legal, audit, rent and utilities costs, which are not directly or indirectly associated with the manufacturing of our products. Selling, general and administrative expenses decreased $0.7 million, or 1.2%, to $59.8 million for the year ended December 31, 2017 from $60.5 million for the year ended December 31, 2016. The decrease in selling, general and administrative expenses, notwithstanding the increase in revenue, reflects a continuing focus on cost discipline, partially offset by $2.4 million of litigation settlement costs for the year ended December 31, 2017. In addition, the year ended December 31, 2016 included a $0.6 million impairment of an asset held for sale.
Other Income. Other income increased $0.6 million, or 75.4%, to $1.3 million for the year ended December 31, 2017 from $0.8 million for the year ended December 31, 2016. The increase in other income is due to favorable foreign exchange on non-operating activity.
Interest Expense. Interest expense associated with our long-term debt, was approximately $19.1 million and $19.3 million in the years ended December 31, 2017 and 2016, respectively. Included in interest expense for the year ended December 31, 2017 is a non-cash write-off of deferred financing fees of $1.6 million and a prepayment charge for interest paid of $1.5 million paid to bondholders during the 30-day notification period associated with the redemption of the 7.875% notes completed during the second quarter of 2017. These expenses were offset by lower interest expense resulting from less outstanding debt.
Provision for Income Taxes. Our provision for income taxes was $15.4 million for the year ended December 31, 2017 compared to $49 thousand for the year ended December 31, 2016. Results for the year ended December 31, 2017 were unfavorably impacted by an estimated $11.2 million attributable to the passage of the U.S. Tax Reform. This includes a $7.2 million provision for the decrease in value of our net deferred tax assets due to a reduction of the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, and a $4.0 million provision related to the deemed repatriation of accumulated untaxed earnings of certain foreign subsidiaries.
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Our provision for income taxes, excluding the impact of the U.S. Tax Reform, would have been $4.2 million for the year ended December 31, 2017 compared to $49 thousand for the year ended December 31, 2016. This increase primarily resulted from a year over year increase of pre-tax earnings, a change in the mix of income between our U.S. and non-U.S. locations and tax valuation allowances we continue to carry against net deferred tax assets in certain foreign jurisdictions, primarily Luxembourg and United Kingdom. For additional information regarding the income tax provision refer to Note 8 of our consolidated financial statements in Item 8 in this Annual Report on Form 10-K.
Net (Loss) Income Attributable to CVG Stockholders. Net loss attributable to CVG stockholders was $1.7 million for the year ended December 31, 2017 compared to net income of $6.8 million in the prior year period.
SEGMENT RESULTS
Global Truck and Bus Segment Results
The table below sets forth certain GTB Segment operating data expressed as a percentage of revenues for the periods indicated (dollars are in thousands):
2017 | 2016 | ||||||||||||
Revenues | $ | 457,770 | 100.0 | % | $ | 416,279 | 100.0 | % | |||||
Gross Profit | 62,668 | 13.7 | 54,665 | 13.1 | |||||||||
Selling, General & Administrative Expenses | 21,507 | 4.7 | 22,557 | 5.4 | |||||||||
Operating Income | 39,983 | 8.7 | 30,943 | 7.4 |
Revenues. GTB Segment revenues increased $41.5 million, or 10.0%, to $457.8 million for the year ended December 31, 2017 from $416.3 million for the year ended December 31, 2016. The increase in GTB Segment revenues is primarily a result of:
• | a $33.0 million, or 13%, increase in OEM MD/HD Truck revenues; |
• | a $7.7 million, or 10%, increase in aftermarket revenues; and |
• | a $0.8 million, or 1%, increase in revenues from other markets. |
GTB Segment 2017 revenues were favorably impacted by foreign currency exchange translation of $1.1 million, which is reflected in the changes in revenue above.
Gross Profit. GTB Segment gross profit increased $8.0 million, or 14.6%, to $62.7 million for the year ended December 31, 2017 from $54.7 million for the year ended December 31, 2016. Cost of revenues increased $33.5 million, or 9.3%, as a result of an increase in raw material and purchased component costs of $29.0 million, wages and benefits of $4.2 million and overhead expenses of $0.3 million. The increase in gross profit was primarily the result of the increase in sales volume partially offset by rising commodity prices, tightening labor markets and costs associated with the sharp acceleration in North American truck build. Additionally, 2017 results included $0.8 million in charges relating to facility restructuring and other related costs compared to $2.7 million in prior year period. As a percentage of revenues, gross profit for the year ended December 31, 2017 was 13.7% compared to 13.1% for the year ended December 31, 2016.
Selling, General and Administrative Expenses. GTB Segment selling, general and administrative expenses decreased, notwithstanding the increase in revenues, $1.1 million, or 4.9%, to $21.5 million for the year ended December 31, 2017 from 22.6 million for the year ended December 31, 2016 reflecting a focus on cost discipline.
Global Construction and Agriculture Segment Results
The table below sets forth certain GCA Segment operating data expressed as a percentage of revenues for the periods indicated (dollars are in thousands):
2017 | 2016 | ||||||||||||
Revenues | $ | 309,707 | 100.0 | % | $ | 254,024 | 100.0 | % | |||||
Gross Profit | 31,291 | 10.1 | $ | 34,060 | 13.4 | ||||||||
Selling, General & Administrative Expenses | 16,845 | 5.4 | $ | 18,240 | 7.2 | ||||||||
Operating Income | 14,305 | 4.6 | $ | 15,680 | 6.2 |
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Revenues. GCA Segment revenues increased $55.7 million, or 21.9%, to $309.7 million for the year ended December 31, 2017 from $254.0 million for the year ended December 31, 2016. The increase in GCA Segment revenue is primarily a result of:
• | a $38.1 million, or 31%, increase in OEM construction equipment revenues; |
• | a $8.6 million, or 50%, increase in OEM truck revenues; |
• | a $4.5 million, or 12%, increase in OEM automotive revenues; and |
•a $4.5 million, or 6%, increase in revenues from other markets.
GCA Segment 2017 revenues were adversely impacted by foreign currency exchange translation of $0.8 million, which is reflected in the changes in revenue above.
Gross Profit. GCA Segment gross profit decreased $2.8 million, or 8.2%, to $31.3 million for the year ended December 31, 2017 from $34.1 million for year ended December 31, 2016. Cost of revenues increased $58.5 million, or 26.6%, as a result of an increase in raw material and purchased component costs of $35.9 million, wages and benefits of $7.6 million and overhead expenses of $15.0 million. The decrease in gross profit was primarily attributable to the NA Footprint Adjustment and to rising commodity prices. Additionally, 2017 results included $1.1 million in charges relating to facility restructuring costs compared to $0.7 million in the prior year period. As a percentage of revenues, gross profit was 10.1% for the year ended December 31, 2017 compared to 13.4% for the year ended December 31, 2016.
Selling, General and Administrative Expenses. GCA Segment selling, general and administrative expenses decreased, notwithstanding the increase in revenues, $1.4 million, or 7.7%, to $16.8 million in the year ended December 31, 2017 from $18.2 million for the year ended December 31, 2016 reflecting a focus on cost discipline.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Consolidated Results
Revenues. On a consolidated basis, revenue decreased $163.2 million, or 19.8%, to $662.1 million for the year ended December 31, 2016 compared to $825.3 million for the year ended December 31, 2015. The decrease in revenues primarily resulted from decreased heavy-duty truck production volumes in North America, decreased sales volume in global construction markets and unfavorable foreign currency exchange translation. More specifically, the decrease resulted from:
• | a $132.0 million, or 32%, decrease in OEM MD/HD Truck revenues; |
• | a $19.1 million, or 14%, decrease in aftermarket revenues; |
• | a $16.6 million, or 11%, decrease in construction equipment revenues; and |
• | a $4.5 million, or 3%, increase in other revenues. |
2016 revenues were adversely impacted by foreign currency exchange translation of $8.6 million, which is reflected in the change in revenue above.
Gross Profit. Gross profit decreased $23.6 million, or 21.3%, to $87.2 million for the year ended December 31, 2016 from $110.8 million for the year ended December 31, 2015. Cost of revenues decreased $139.6 million, or 19.5%, resulting from a decrease in raw material and purchased component costs of $107.1 million, wages and benefits of $10.3 million and overhead expenses of $22.2 million. The decrease in gross profit primarily resulted from the decrease in sales volume. Additionally, 2016 results included $3.4 million in charges relating to facility restructuring costs compared to $2.1 million in the prior year period. As a percentage of revenues, gross profit was 13.2% for the year ended December 31, 2016 compared to 13.4% for the year ended December 31, 2015.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $10.9 million, or 15.3%, to $60.5 million for the year ended December 31, 2016 from $71.5 million for the year ended December 31, 2015. The decrease in selling, general and administrative expenses was primarily a result of a reduction in force and executive realignment of approximately $6.0 million in overhead and employee-related expenditures, a reduction in outside services and other cost-cutting measures of $3.0 million, driven by a decline in volume, and favorable foreign currency exchange translation of $0.7 million. Additionally, 2016 results included $0.6 million in charges relating to impairment of an asset held for sale.
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Other (Income) Expense. Other (income) expense increased $0.6 million, or 405.9%, to $0.8 million for the year ended December 31, 2016 from $0.2 million for the year ended December 31, 2015. The increase in other (income) expense is due to proceeds from an insurance settlement.
Interest Expense. Interest, associated with our long-term debt, and other expense was approximately $19.3 million and $21.4 million in the years ended December 31, 2016 and 2015, respectively. The decline reflects a reduction in interest expense as a result of the redemption of $15.0 million of our outstanding notes in the fourth quarter of 2015.
Provision for Income Taxes. Our provision for income taxes decreased by $9.7 million to $49 thousand for the year ended December 31, 2016 compared to $9.8 million for the year ended December 31, 2015. This decrease primarily resulted from a change in the mix of income from our U.S. to non-U.S. locations and tax valuation allowances released in China and India during 2016. For additional information regarding the income tax provision, refer to Note 8 of our consolidated financial statements in Item 8 in this Annual Report on Form 10-K.
Net Income Attributable to CVG Stockholders. Net income attributable to CVG stockholders was $6.8 million for the year ended December 31, 2016 compared to net income of $7.1 million.
Global Truck and Bus Segment Results
The table below sets forth certain GTB Segment operating data expressed as a percentage of revenues for the periods indicated (dollars are in thousands):
2016 | 2015 | ||||||||||||
Revenues | $ | 416,279 | 100.0 | % | $ | 565,269 | 100.0 | % | |||||
Gross Profit | 54,665 | 13.1 | 85,702 | 15.2 | |||||||||
Selling, General & Administrative Expenses | 22,557 | 5.4 | 25,263 | 4.5 | |||||||||
Operating Income | 30,943 | 7.4 | 59,252 | 10.5 |
Revenues. GTB Segment revenues decreased $149.0 million, or 26.4%, to $416.3 million for the year ended December 31, 2016 from $565.3 million for the year ended December 31, 2015. The decrease in GTB Segment revenues is primarily a result of:
• | a $134.6 million, or 34%, decrease in OEM MD/HD Truck revenues; |
• | a $10.0 million, or 12%, decrease in aftermarket revenues; and |
• | a $4.4 million, or 5%, decrease in revenues from other markets. |
GTB Segment 2016 revenues were adversely impacted by foreign currency exchange translation of $0.6 million, which is reflected in the changes in revenue above.
Gross Profit. GTB Segment gross profit decreased $31.0 million, or 36.2%, to $54.7 million for the year ended December 31, 2016 from $85.7 million for the year ended December 31, 2015. Cost of revenues decreased $118.0 million, or 24.6%, as a result of a decrease in raw material and purchased component costs of $91.4 million, wages and benefits of $8.8 million and overhead expenses of $17.7 million. The decrease in gross profit was primarily the result of the decrease in sales volume. Additionally, 2016 results included $2.7 million in charges relating to facility restructuring costs compared to $1.8 million in prior year period, $1.5 million of which relates to Tigard restructuring in 2015. As a percentage of revenues, gross profit was 13.1% for the year ended December 31, 2016 compared to 15.2% for the year ended December 31, 2015.
Selling, General and Administrative Expenses. GTB Segment selling, general and administrative expenses decreased $2.7 million, or 10.7%, to $22.6 million for the year ended December 31, 2016 from $25.3 million for the year ended December 31, 2015 reflecting a focus on cost discipline.
Global Construction and Agriculture Segment Results
The table below sets forth certain GCA Segment operating data expressed as a percentage of revenues for the periods indicated (dollars are in thousands):
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2016 | 2015 | ||||||||||||
Revenues | $ | 254,024 | 100.0 | % | $ | 271,627 | 100.0 | % | |||||
Gross Profit | 34,060 | 13.4 | 28,627 | 10.5 | |||||||||
Selling, General & Administrative Expenses | 18,240 | 7.2 | 20,442 | 7.5 | |||||||||
Operating Income | 15,680 | 6.2 | 8,044 | 3.0 |
Revenues. GCA Segment revenues decreased $17.6 million, or 6.5%, to $254.0 million for the year ended December 31, 2016 from $271.6 million for the year ended December 31, 2015. The decrease in GCA Segment revenue is primarily a result of:
• | a $13.2 million, or 10%, decrease in OEM construction equipment revenues; |
• | a $9.2 million, or 19%, decrease in aftermarket revenues; and |
• | a $4.8 million, or 5%, increase in revenues from other markets. |
GCA Segment 2016 revenues were adversely impacted by foreign currency exchange translation of $8.6 million, which is reflected in the changes in revenue above.
Gross Profit. GCA Segment gross profit increased $5.4 million, or 19.0%, to $34.1 million for the year ended December 31, 2016 from $28.6 million for year ended December 31, 2015. Cost of revenues decreased $23.0 million, or 9.5%, as a result of a decrease in raw material and purchased component costs of $17.1 million, wages and benefits of $1.4 million and overhead expenses of $4.5 million. The increase in gross profit, notwithstanding the decline in sales volume, was primarily a result of our cost reduction and restructuring actions for the year ended December 31, 2016. Additionally, 2016 results included $0.7 million in charges relating to facility restructuring costs compared to $0.3 million in the prior year period. As a percentage of revenues, gross profit was 13.4% for the year ended December 31, 2016 compared to 10.5% for the year ended December 31, 2015.
Selling, General and Administrative Expenses. GCA Segment selling, general and administrative expenses decreased $2.2 million, or 10.8% to $18.2 million for the year ended December 31, 2016 from $20.4 million for the year ended December 31, 2015 reflecting a focus on cost discipline.
Liquidity and Capital Resources
During the year ended December 31, 2017, the Company did not have any borrowings under its asset-based revolver. At December 31, 2017, the Company had liquidity of $111 million; $52 million of cash and $59 million million availability from its asset-based revolver.
We intend to allocate resources consistent with the following priorities: (1) to provide liquidity; (2) to invest in growth; (3) to reduce debt; and (4) to return capital to our shareholders.
Cash Flows
Our primary source of liquidity during the year ended December 31, 2017 was cash and availability under our revolving credit facility. We believe that these sources of liquidity will provide adequate funds for our working capital needs, planned capital expenditures, and servicing of our debt through the next twelve months. However, no assurance can be given that this will be the case. We had no borrowings under our revolving credit facility during 2017.
For the year ended December 31, 2017, cash provided by operations was $2.3 million compared to $49.4 million in the year ended December 31, 2016. and $55.3 million in the year ended December 31, 2015. The decrease in cash provided by operations for the year ended December 31, 2017 compared to 2016 was primarily due to an increase in the investment in working capital in 2017 driven by the increase in sales volume. The decrease in cash provided by operations for the year ended December 31, 2016 compared to 2015 was primarily due to year over year changes in deferred income taxes offset in part by a decrease in the investment in working capital in 2016.
Net cash used in investing activities was $10.8 million for the year ended December 31, 2017 compared to $8.9 million for the year ended December 31, 2016, and $14.5 million for the year ended December 31, 2015. The increase in cash used in investing activities for the year ended December 31, 2017 compared to 2016 was due to an increase in capital expenditures in 2017. The decrease in cash used in investing activities for the year ended December 31, 2016 compared to 2015 was due primarily to a decrease in capital expenditures in 2016 and cash provided from the settlement of corporate-owned life insurance policies in 2016. In 2018, we expect capital expenditures to be in the range of $15 million to $18 million.
Net cash used in financing activities was $72.8 million for the year ended December 31, 2017 compared to $0.7 million for the year ended December 31, 2016, and $16.0 million for the year ended December 31, 2015. The increase in net cash used in financing
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activities for the year ended December 31, 2017 is attributable to the debt refinancing completed in the second quarter of 2017. The decrease in net cash used for financing activities for the year ended December 31, 2016 primarily resulted from the redemption of $15 million of our 7.875% notes in 2015.
As of December 31, 2017, cash of $38.2 million was held by foreign subsidiaries. We do not have plans to repatriate the earnings held by our foreign affiliates. We intend to use the cash to fund the growth of our foreign operations. Should our plans change with respect to cash held by our foreign subsidiaries, we would accrue and pay the appropriate withholding and local income taxes.
Debt and Credit Facilities
The debt and credit facilities described in Note 6 of the "Notes to Consolidated Financial Statements" are incorporated in this section by reference.
Contractual Obligations and Commercial Commitments
The following table reflects our contractual obligations as of December 31, 2017 (in thousands):
Payments Due by Period | |||||||||||||||||||
Total | 1 Year | 2-3 Years | 4-5 Years | More than 5 Years | |||||||||||||||
Debt obligations | $ | 172,813 | $ | 4,375 | $ | 8,750 | $ | 8,750 | $ | 150,938 | |||||||||
Estimated interest payments | 64,833 | 13,138 | 25,043 | 23,460 | 3,192 | ||||||||||||||
Operating lease obligations | 20,021 | 5,284 | 6,469 | 4,893 | 3,375 | ||||||||||||||
Pension and other post-retirement funding | 45,314 | 4,065 | 8,736 | 8,966 | 23,547 | ||||||||||||||
Total | $ | 302,981 | $ | 26,862 | $ | 48,998 | $ | 46,069 | $ | 181,052 |
We estimated future interest payments based on the effective interest rate as of December 31, 2017. Since December 31, 2017, there have been no material changes outside the ordinary course of business to our contractual obligations as set forth above.
We enter into agreements with our customers at the beginning of a given vehicle platform’s life to supply products for the entire life of that vehicle platform. These agreements generally provide for the supply of a customer’s production requirements for a particular platform, rather than for the purchase of a specific quantity of products. Additionally, we have recorded a liability of $0.5 million for unrecognized tax benefits as we are uncertain as to if or when this amount may be settled. The Company also recorded $0.3 million for potential penalties and interest associated with unrecognized tax benefits. Accordingly, our obligations under these agreements and regulations are not reflected in the contractual obligations table above.
As of December 31, 2017, we were not a party to significant purchase obligations for goods or services.
Off-Balance Sheet Arrangements
We use standby letters of credit to guarantee our performance under various contracts and arrangements, principally in connection with our workers’ compensation liabilities. These letter of credit contracts are usually extended on a year-to-year basis. As of December 31, 2017, we had outstanding letters of credit of $2.1 million. We do not believe that these letters of credit will be drawn.
We currently have no non-consolidated special purpose entity arrangements.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For a comprehensive discussion of our significant accounting policies, see Note 2 to our consolidated financial statements in Item 8 in this Annual Report on Form 10-K.
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis, particularly relating to accounts receivable reserves, inventory reserves, goodwill, intangible and long-lived assets, income taxes, warranty reserves, litigation reserves and pension and other post-retirement benefit plans. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ materially from these estimates and assumptions. See Item 1A - Risk Factors in this Annual Report on Form 10-K for additional information regarding risk factors that may impact our estimates.
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Revenue Recognition — We recognize revenue when (1) delivery has occurred or services have been rendered, (2) persuasive evidence of an arrangement exists, (3) there is a fixed or determinable price and (4) collectability is reasonably assured. Our products are generally shipped from our facilities to our customers, which is when legal title passes to the customer for substantially all of our revenues. We enter into agreements with our customers at the beginning of a given vehicle platform’s life to supply products for that vehicle platform. Once we enter into such agreements, fulfillment of our requirements is our obligation for the entire production life of the platform and we have no provisions to terminate such contracts. At the time of revenue recognition, we also record estimates for returns and allowances based on historical trends and current market conditions.
Inventory — Inventories are valued at the lower of first-in, first-out cost or market. Cost includes applicable material, labor and overhead. We value our finished goods inventory at a standard cost that is periodically adjusted to approximate actual cost. Inventory quantities on-hand are regularly reviewed, and where necessary, provisions for excess and obsolete inventory are recorded based primarily on our estimated production requirements driven by expected market volumes.
Income Taxes — We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax laws and rates expected to be in place when the deferred tax items are realized. We recognize tax positions initially in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. We provide a valuation allowance for deferred tax assets when it is more likely than not that a portion of such deferred tax assets will not be realized.
On December 22, 2017, the U.S. Tax Reform significantly revised the U.S. corporate income tax law. The SEC issued the Staff Accounting Bulletin ("SAB") 118 to address the accounting implications of the U.S Tax Reform. The effects of the U.S. Tax Reform are recognized upon enactment, however, SAB 118 permits a company to recognize provisional amounts when it does not have the necessary information available. The measurement period to finalize our calculations cannot extend beyond one year of the enactment date. The tax provision related to the deemed repatriation of accumulated untaxed earnings of foreign subsidiaries represents the Company’s best estimate. Any adjustments recorded to the provisional amounts will be included in income from operations as an adjustment to tax expense. The provisional amounts incorporate assumptions made based upon the Company’s current interpretation of the U.S. Tax Reform and may change as the Company receives additional clarification and implementation guidance.
Due to the complexity of the new Global Intangible Low-Taxed Income (“GILTI”) tax rules, the Company continues to evaluate this provision of the U.S. Tax Reform and the application of ASC 740, Income Taxes. The Company will analyze its global activities to determine whether it expects to have future inclusions in U.S. taxable income related to GILTI provisions, and is not yet able to reasonably estimate the impact of this provision of the U.S. Tax Reform. Therefore, the Company has not made a policy decision or any adjustments related to potential GILTI tax in its financial statements.
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We enter into financial instruments, from time to time, to manage the impact of changes in foreign currency exchange rates and interest rates and to hedge a portion of future anticipated currency transactions. The counterparties are primarily major financial institutions.
Interest Rate Risk
We have the ability to manage our interest rate risk by balancing the amount of our fixed rate and variable rate debt. For fixed rate debt, interest rate changes affect the fair market value of such debt but do not impact earnings or cash flows. Conversely for variable rate debt, interest rate changes generally do not affect the fair market value of such debt, but do impact future earnings and cash flows, assuming other factors are held constant. The interest on the Term Loan Facility is variable and is comprised of 1) an Applicable Margin in the case of Term loans of either (i) 5.00% for Base Rate Loans or (ii) 6.00% for LIBOR loans, and 2) LIBOR as quoted two business days prior to the commencement of an interest period provided that LIBOR at no time falls below 1.00%.
The Company entered into an interest rate swap contract to fix the interest rate on an initial aggregate amount of $80.0 million of its initial $175.0 million of variable rate debt thereby reducing exposure to interest rate changes. At December 31, 2017, the interest rate swap agreement was not designated as a hedging instrument; therefore, our interest rate swap agreement has been marked-to-market and the fair value recorded in the Consolidated Balance Sheets with the offsetting gain or loss recorded in interest and other expense in our Consolidated Statements of Operations.
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The interest rate swap agreement is more fully described in Note 3 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K. The fair value of the agreement at December 31, 2017 amounted to long-term asset of $0.5 million, which was included in other long-term assets in our Consolidated Balance Sheets, and a current liability of $0.2 million, which was included in accrued liabilities and other in our Consolidated Balance Sheets.
Foreign Currency Risk
Foreign currency risk is the risk that we will incur economic losses due to adverse changes in foreign currency exchange rates. We use forward exchange contracts to hedge certain foreign currency transaction exposures. We estimate our projected revenues and purchases in certain foreign currencies or locations and will hedge a portion or all of the anticipated long or short position. The contracts typically run from one month up to eighteen months. All existing forward foreign exchange contracts have been marked-to-market and the fair value of contracts recorded in the Consolidated Balance Sheets with the offsetting noncash gain or loss recorded in our Consolidated Statements of Operations. We do not hold or issue foreign exchange options or forward contracts for trading purposes.
Outstanding foreign currency forward exchange contracts at December 31, 2017 are more fully described in Note 3 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K. The fair value of our contracts at December 31, 2017 amounted to a net liability of $0.6 million, which was included in other current liabilities in our Consolidated Balance Sheets. The fair value of our contracts at December 31, 2016 amounted to a net liability of $1.1 million, which was included in other current liabilities in our Consolidated Balance Sheets. None of these contracts have been designated as cash flow hedges; thus, the change in fair value at each reporting date is reflected as a noncash charge (income) in our Consolidated Statements of Operations.
Our primary exposures to foreign currency forward exchange contracts are Mexican peso/U.S. dollar and Japanese yen/Chinese yuan. At December 31, 2017 and 2016, the potential reduction in earnings from a hypothetical instantaneous 10% adverse change in quoted foreign currency spot rates applied to foreign currency sensitive instruments would be immaterial.
Foreign Currency Transactions
A portion of our revenues during the year ended December 31, 2017 were derived from manufacturing operations outside of the U.S. The results of operations and the financial position of our operations in these other countries are primarily measured in their respective currency and translated into U.S. dollars. A portion of the expenses incurred in these countries is in currencies different from which revenue is generated. As discussed above, from time to time, we enter into forward exchange contracts to mitigate a portion of this currency risk. The reported income of these operations will be higher or lower depending on a weakening or strengthening of the U.S. dollar against the respective foreign currency.
A portion of our long-term assets and liabilities at December 31, 2017 are based in our foreign operations and are translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period, with the effect of such translation reflected as a separate component of stockholders’ equity. Accordingly, our stockholders’ investment will fluctuate depending upon the weakening or strengthening of the U.S. dollar against the respective foreign currency. The principal currencies of exposure are the British Pound, Chinese Yuan, Euro, Czech Koruna, Australian Dollar, Japanese Yen, Mexican Peso, Indian Rupee and Ukrainian Hryvnia. Foreign currency translation favorably impacted fiscal year 2017 revenues by $0.5 million, or 0.1 percent.
Effects of Inflation
Inflation potentially affects us in two principal ways. First, any borrowings under our revolving credit facility is tied to prevailing short-term interest rates that may change as a result of inflation rates, translating into changes in interest expense. Second, general inflation can impact material purchases, labor and other costs. In many cases, we have limited ability to pass through inflation-related cost increases due to the competitive nature of the markets that we serve. Although inflation has not had a significant impact in the past few years, the rise in certain commodity prices in 2017 negatively impacted our margins.
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Item 8. | Financial Statements and Supplementary Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Documents Filed as Part of this Annual Report on Form 10-K
Page | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Commercial Vehicle Group, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Commercial Vehicle Group, Inc. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2017, and the related notes and financial statement schedule II: Valuation of Qualifying Accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 12, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2012.
Columbus, Ohio
March 12, 2018
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2017 and 2016
2017 | 2016 | ||||||
(In thousands, except share and per share amounts) | |||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash | $ | 52,244 | $ | 130,160 | |||
Accounts receivable, net of allowances of $5,242 and $3,881, respectively | 108,595 | 97,793 | |||||
Inventories | 99,015 | 71,054 | |||||
Other current assets | 14,792 | 9,941 | |||||
Total current assets | 274,646 | 308,948 | |||||
Property, Plant and Equipment | |||||||
Land and buildings | 25,942 | 28,203 | |||||
Machinery and equipment | 183,556 | 167,541 | |||||
Construction in progress | 2,685 | 8,176 | |||||
Less accumulated depreciation | (147,553 | ) | (137,879 | ) | |||
Property, plant and equipment, net | 64,630 | 66,041 | |||||
Goodwill | 8,045 | 7,703 | |||||
Intangible assets, net of accumulated amortization of $8,533 and $7,048, respectively | 14,548 | 15,511 | |||||
Deferred income taxes, net | 20,273 | 28,587 | |||||
Other assets | 2,246 | 1,975 | |||||
TOTAL ASSETS | $ | 384,388 | $ | 428,765 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 86,608 | $ | 60,556 | |||
Accrued liabilities and other | 33,944 | 45,699 | |||||
Current portion of long-term debt | 3,191 | — | |||||
Total current liabilities | 123,743 | 106,255 | |||||
Long-term debt | 163,758 | 233,154 | |||||
Pension and other post-retirement liabilities | 15,450 | 18,938 | |||||
Other long-term liabilities | 6,695 | 2,728 | |||||
Total liabilities | 309,646 | 361,075 | |||||
Commitments and contingencies (Note 10) | |||||||
Stockholders’ Equity: | |||||||
Preferred stock, $.01 par value (5,000,000 shares authorized; no shares issued and outstanding) | — | — | |||||
Common stock, $.01 par value (60,000,000 shares authorized; 30,219,278 and 29,871,354 shares issued and outstanding, respectively); | 304 | 299 | |||||
Treasury stock, at cost: 1,175,795 and 1,014,413 shares, respectively | (9,114 | ) | (7,753 | ) | |||
Additional paid-in capital | 239,870 | 237,367 | |||||
Retained deficit | (115,083 | ) | (113,378 | ) | |||
Accumulated other comprehensive loss | (41,235 | ) | (48,845 | ) | |||
Total stockholders’ equity | 74,742 | 67,690 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 384,388 | $ | 428,765 |
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2017, 2016 and 2015
2017 | 2016 | 2015 | |||||||||
(In thousands, except per share amounts) | |||||||||||
Revenues | $ | 755,231 | $ | 662,112 | $ | 825,341 | |||||
Cost of revenues | 662,666 | 574,882 | 714,519 | ||||||||
Gross Profit | 92,565 | 87,230 | 110,822 | ||||||||
Selling, general and administrative expenses | 59,800 | 60,542 | 71,469 | ||||||||
Amortization expense | 1,320 | 1,305 | 1,327 | ||||||||
Operating Income | 31,445 | 25,383 | 38,026 | ||||||||
Other income | (1,349 | ) | (769 | ) | (152 | ) | |||||
Interest expense | 19,149 | 19,318 | 21,359 | ||||||||
Income Before Provision for Income Taxes | 13,645 | 6,834 | 16,819 | ||||||||
Provision for income taxes | 15,350 | 49 | 9,758 | ||||||||
Net (loss) income | (1,705 | ) | 6,785 | 7,061 | |||||||
Less: Non-controlling interest in subsidiary’s income | — | — | 1 | ||||||||
Net (loss) income attributable to CVG | $ | (1,705 | ) | $ | 6,785 | $ | 7,060 | ||||
(Loss) earnings per common share | |||||||||||
Basic | $ | (0.06 | ) | $ | 0.23 | $ | 0.24 | ||||
Diluted | $ | (0.06 | ) | $ | 0.23 | $ | 0.24 | ||||
Weighted average shares outstanding | |||||||||||
Basic | 29,942 | 29,530 | 29,209 | ||||||||
Diluted | 29,942 | 29,878 | 29,399 |
The accompanying notes are an integral part of these consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, 2017, 2016 and 2015
2017 | 2016 | 2015 | ||||||||||
(In thousands) | ||||||||||||
Net (loss) income | $ | (1,705 | ) | $ | 6,785 | $ | 7,061 | |||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustments | 7,141 | (3,234 | ) | (4,572 | ) | |||||||
Minimum pension liability, net of tax | 469 | (5,957 | ) | 2,206 | ||||||||
Other comprehensive income (loss) | 7,610 | (9,191 | ) | (2,366 | ) | |||||||
Comprehensive income (loss) | $ | 5,905 | $ | (2,406 | ) | $ | 4,695 | |||||
Less: Comprehensive loss attributed to noncontrolling interests | — | — | (35 | ) | ||||||||
Comprehensive income (loss) attributable to CVG stockholders | $ | 5,905 | $ | (2,406 | ) | $ | 4,730 |
The accompanying notes are an integral part of these consolidated financial statements.
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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2017, 2016 and 2015
Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Deficit | Accum. Other Comp. Loss | Total CVG Stockholders’ Equity | Non- Controlling Interest | Total | |||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||
(In thousands, except share data ) | ||||||||||||||||||||||||||
BALANCE - December 31, 2014 | 29,148,504 | $ | 296 | $ | (6,622 | ) | $ | 231,907 | $ | (129,492 | ) | $ | (37,288 | ) | $ | 58,801 | $ | 35 | $ | 58,836 | ||||||
Issuance of restricted stock | 400,195 | 4 | — | — | — | — | 4 | — | 4 | |||||||||||||||||
Surrender of common stock by employees | (99,920 | ) | (6 | ) | (417 | ) | — | — | — | (423 | ) | — | (423 | ) | ||||||||||||
Share-based compensation expense | — | — | — | 2,853 | — | — | 2,853 | — | 2,853 | |||||||||||||||||
Total comprehensive (loss) income | — | — | — | — | 7,061 | (2,366 | ) | 4,695 | (35 | ) | 4,660 | |||||||||||||||
BALANCE - December 31, 2015 | 29,448,779 | $ | 294 | $ | (7,039 | ) | $ | 234,760 | $ | (122,431 | ) | $ | (39,654 | ) | $ | 65,930 | $ | — | $ | 65,930 | ||||||
Issuance of restricted stock | 557,584 | $ | 5 | $ | — | $ | — | $ | — | $ | — | $ | 5 | $ | — | $ | 5 | |||||||||
Surrender of common stock by employees | (135,009 | ) | — | (714 | ) | — | — | — | (714 | ) | — | (714 | ) | |||||||||||||
Share-based compensation expense | — | — | — | 2,607 | — | — | 2,607 | — | 2,607 | |||||||||||||||||
Recognition of excess tax benefits on share-based compensation expense | — | — | — | — | 2,268 | — | 2,268 | — | 2,268 | |||||||||||||||||
Total comprehensive (loss) income | — | — | — | — | 6,785 | (9,191 | ) | (2,406 | ) | — | (2,406 | ) | ||||||||||||||
BALANCE - December 31, 2016 | 29,871,354 | $ | 299 | $ | (7,753 | ) | $ | 237,367 | $ | (113,378 | ) | $ | (48,845 | ) | $ | 67,690 | $ | — | $ | 67,690 | ||||||
Issuance of restricted stock | 509,306 |