CVGI · Read the filing

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with the information set forth under “Item 6 - Selected Financial Data” and our consolidated financial statements and the notes thereto included in Item 8 in this Annual Report on Form 10-K. The statements in this discussion regarding industry outlook, our long-term strategy, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. See “Forward-Looking Information” on page ii of this Annual Report on Form 10-K. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Item 1A - Risk Factors.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Business Overview

CVG is a global provider of components and assemblies into two primary end markets – the global vehicle market and the U.S. technology integrator markets. The company provides components and assemblies to global vehicle companies to build original equipment and provides aftermarket products for fleet owners. The company also provides mechanical assemblies to warehouse automation integrators and to U.S. military technology integrators.

Commercial Trends in the North American Commercial Truck Markets

Demand for our products may be driven by preferences of the end-user of the vehicle, particularly with respect to heavy-duty trucks. Heavy-duty truck OEMs generally afford the end-user the ability to specify many of the component parts that will be used to manufacture the vehicle, including a wide variety of cab interior styles and colors, brand and type of seats, type of seat fabric and color, and interior styling. Certain of our products are only utilized in heavy-duty trucks, such as our storage systems, sleeper boxes and privacy curtains. To the extent that demand for higher content vehicles increases or decreases, our revenues and gross profit will be impacted positively or negatively.

Current trends include future adoption of electric vehicles in the commercial truck segment. Commercial truck makers are developing electric models of all classes of trucks and buses in their fleets. This has created an increased number of platform opportunities relative to historical trends of platform changes as well as the aftermarket opportunities.

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. Truck OEMs routinely upgrade their product platforms for aesthetics, electronic improvements, comfort improvements, energy efficiency, safety improvements, and feature enhancements. Additionally, there are new entrants to the global truck market that are focused on Electric Vehicle and low carbon emission product offerings. The Company competes to retain its existing positions on platforms that are getting refreshed, competitively win new positions on platforms on which it is not the incumbent supplier, and gain first mover positions on new Electric Vehicle platforms. The global truck market is evolving to include many offerings aimed at low emissions and less impact on the environment. The Company has a targeted growth plan that it is pursuing to grow the Company.

In general, demand for our heavy-duty (or "Class 8") truck products is generally dependent on the number of new heavy-duty trucks manufactured in North America, which in turn is a function of general economic conditions, interest rates, changes in government regulations, consumer spending, fuel costs, freight costs, fleet operators' financial health and access to capital, used truck prices and our customers’ inventory levels. New heavy-duty truck demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy, which generates a significant portion of the freight tonnage hauled by commercial vehicles. North American heavy-duty truck production was 214,249 units in 2020. According to a February 2021 report by ACT Research, a publisher of industry market research, North American Class 8 production levels are expected to increase to 302,000 units in 2021, steadily increase to 330,000 units in 2023 and then decline to 302,000 units in 2025. ACT Research estimated that the average age of active North American Class 8 trucks was 6.1 and 6.4 years in 2020 and 2019, respectively. As vehicles age, 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 decreased from 281,409 units in 2019 to 223,495 units in 2020. According to a February 2021 report by ACT Research, North American Class 5-7 truck production is expected to increase to 246,000 units in 2021, steadily increase to 279,000 units in 2023 and then decline to 274,000 units in 2025. We primarily participate in the class 6 and 7 portion of the medium-duty truck market.

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Commercial Trends in Warehouse Automation Subsystems

Demand for our warehouse automation subsystems is derived by expansion of supply chain infrastructures to accommodate increased customer orders in e-commerce. As the percentage of products ordered on-line increases, the delivery mechanisms must expand and increase output. Additionally, desire for cost reduction, increased throughput volume and SKU proliferation, a greater variety of order and package types, more frequent product returns by end consumers, and COVID-19-driven social distancing protocols on warehouse floors all have driven increased investment in automated solutions by warehouse operators. CVG assembles the material handling subsystems incorporated into automated warehouses.

Commercial Trends in Construction Equipment

Demand for our construction equipment products is dependent on vehicle production. Demand for new vehicles in the global construction equipment market generally follows certain economic conditions around the world. Our products are primarily used in the medium- and heavy-duty construction equipment markets (vehicles weighing over 12 metric tons). Demand in the medium- and heavy-duty construction equipment market is typically related to the level of large scale infrastructure development projects, such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and commodities industries.

COVID-19 Update

The COVID-19 pandemic has caused and continues to cause, significant volatility, uncertainty and economic disruptions to our business. While we continue to operate our facilities, we may experience production slowdowns and/or shutdowns at our manufacturing facilities in North America, Europe and Asia Pacific as a result of government orders, our inability to obtain component parts from suppliers and/or decreased customer demand. In addition, many of our suppliers and customers may experience production slowdowns and/or shutdowns, which may further impact our business, sales and results of operation. Continued impact on the Company's business, sales and results of operations from the COVID-19 pandemic may also result in additional valuation allowances being recorded against our deferred tax assets. The extent of the adverse effect of the COVID-19 pandemic on our business results depends on future developments, including the severity and duration of the pandemic and its overall impact on the economy. Throughout 2020, the impact of the pandemic has been uneven across our global footprint based on local and regional outbreaks. Future waves may have a greater or lesser impact than the first wave, depending on the location of such breakouts and the response of the local government. We continue to proactively monitor, assess and minimize disruptions and delays in production and take reasonable measures to protect our workforce.

Commodity and other material costs, as well as difficult labor markets, have stabilized, but management cannot predict whether the COVID-19 pandemic will adversely impact these costs in future periods. Cost control and cost recovery initiatives, including pricing adjustments, reduced the impact of these cost pressures on gross profit. During 2020, the Company implemented a series of temporary reductions that were in place through September 30, 2020, including pay reductions, furloughs, suspension of the employer 401(k) match, and reductions in discretionary spending ("Temporary Actions"). On September 22, 2020, the Company announced that certain temporary actions were being halted, specifically temporary pay reductions. Certain other temporary actions remain in effect.

Climate Change and Weather Impacts

Our facilities can be subject to supply chain disruption sometimes because of disruptive weather.In particular, because of the recent storms in Texas and Mexico, the supply of chemicals that are used to produce foams (lamination) for our seating products may be in short supply, which could have a negative impact on our seating business during 2021, though the Company is taking steps to limit the impact.

2021 Demand Outlook

According to a February 2021 report by ACT Research, a publisher of industry market research, 2020 North American Class 8 truck build production was 214,249 units and Class 5-7 production was 223,495 units. 2021 North American Class 8 truck production levels are expected to be at 302,000 units and Class 5-7 production are expected to be at 246,000 units. This outlook supports demand for the Company’s truck products. The outlook for electric vehicle adoption rates are favorable as well and supports continuance of the Company's development programs in electric vehicles.

According to Interact Analysis, demand for warehouse automation products is expected to grow approximately 14% per year through 2026. This outlook supports demand for the Company's warehouse automation products.

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Our Long-term Strategy

The Company's long-term strategy is to increase its sales, profits and shareholder value by financially optimizing its core legacy businesses, adding new business streams from targeted areas, and adding to its business segments through a targeted M&A program. The Company will diversify its revenue and profits by product, customer, platform, and end market. Our products include seating systems, warehouse automation subsystems, wire harnesses, plastic parts, mechanical assemblies, mirrors, wipers and cab structures.

We believe we are having success with our strategy to diversify our business, including:

•A growing current business in the warehouse automation market primarily through business expansion enabled by the FSE acquisition;

•A growing amount of future business by becoming designed in on new emerging electric vehicle platforms as a multi-product global provider of electric vehicle design, subsystems and components; and

•A growing amount of new business wins that are in diverse end markets but fit the company’s current know-how, assets, and footprint very well.

These additional markets offer the ability to lessen dependence on certain markets, broaden the company’s customer list, broaden the company’s product offering. The goal is to become less cyclical and less customer concentrated and focus on secular growth in other end markets.

We have a long-term strategy to globally optimize our cost structure through manufacturing process enhancements, low cost footprint and global sourcing. We periodically evaluate our short-term and long-term strategies and may adjust actions in response to changes in our business environment and other factors.

We are also supplementing our organic strategies by evaluating strategic acquisition opportunities. The company has many opportunities to accomplish this type of business diversification and is being selective. The goal is to strengthen / enhance current positions, enter new markets, develop relationships with new customers, and enhance service to our customers, leading to increased return to our stockholders.

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):

Goodwill and other impairment 29,017 4.0 — — — —

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

CONSOLIDATED RESULTS

The table below sets forth certain consolidated operating data for the periods indicated (dollars are in thousands):

1.Not meaningful

Revenues. Consolidated revenues of $717.7 million decreased $183.5 million compared to 2019 primarily due to North American MD/HD truck production volume decreases in 2020, resulting in decreased sales into that market. Consolidated revenues in 2020 compared to 2019 were as follows:

•a $185.3 million, or 42.2%, decrease in OEM North American MD/HD Truck revenues;

•a $86.0 million, or 277.4%, increase in warehouse automation and military revenues primarily attributable to the timing of the FSE acquisition which occurred in September 2019;

•a $49.4 million, or 29.3%, decrease in OEM construction equipment revenues;

•a $31.1 million, or 23.9%, decrease in aftermarket and OES revenues; and

•a $3.7 million, or 2.8%, decrease in other revenues.

While the end markets CVG serves were anticipated to decline somewhat in 2020 as compared to 2019, the sharp market declines noted in the twelve months ended December 31, 2020 were primarily a result of the COVID-19 pandemic on the end markets we serve. These sharp market declines were partially offset by increased sales in industrial and military end markets we serve through the FSE business acquired in 2019. Revenues were adversely impacted by foreign currency exchange translation of $0.2 million, which is reflected in the change in revenue above.

Gross Profit. Included in gross profit is cost of revenues, which consists primarily of raw materials and purchased components for our products, wages and benefits for our employees and overhead expenses such as manufacturing supplies, facility rent and utilities costs related to our operations. The decrease in gross profit is primarily attributable to the decrease in sales volume. Cost of revenues decreased $152.5 million, or 19.2% in line with the sales decrease of 20.4%. The cost of revenue decrease included a decrease in raw material and purchased component costs of $99.0 million, or 19.5%; a decrease in wages and benefits of $16.2 million, or 22.4%; and a decrease in overhead expenses of $37.3 million, or 17.3%. During 2019, the Company began implementing cost reduction and manufacturing capacity rationalization initiatives (the "Restructuring Initiatives") in response to declines in end market volumes. The Restructuring Initiatives consisted primarily of headcount reductions in each segment and at corporate. Cost of revenues benefited from the Restructuring Initiatives and the Temporary Actions. The twelve months ended December 31, 2020 results include charges of $4.7 million associated with ongoing Restructuring Initiatives. As a percentage of revenues, gross profit margin was 10.3% for the year ended December 31, 2020 compared to 11.7% for the year ended December 31, 2019.

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses consist primarily of wages and benefits and other overhead expenses such as marketing, travel, legal, audit, rent and utilities costs, which are not directly or indirectly associated with the manufacturing of our products. SG&A expenses increased $2.2 million in the year ended December 31, 2020 as compared to the year ended December 31, 2019 due primarily to a $5.0 million charge for future milestone payments related to the performance of the FSE business, increase in charges of $1.4 million associated with ongoing Restructuring Initiatives, $3.1 million increase in incentive compensation costs, 2020 charges of $4.0 million associated with the 2018 and quarterly 2019 financial statements restatement investigation and $2.3 million in costs associated with the CEO

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transition. These costs were offset by the Restructuring Initiatives and the Temporary Actions taken in response to the COVID-19 pandemic.

Impairment Expense. As a result of the Company's market capitalization maintaining a value less than the carrying value of its equity for a period of time, the Company determined it had an impairment indicator during the first quarter of 2020. Accordingly, we recognized a $27.1 million impairment of goodwill for the year ended December 31, 2020. Additionally during the first quarter of 2020, the Company determined it had an impairment indicator of long-lived assets due to market conditions resulting in an impairment of $1.9 million for the year ended December 31, 2020.

Amortization Expense. Amortization expense increased $1.5 million in the year ended December 31, 2020 primarily due to a full year of amortization of the intangible assets acquired in September 2019 as part of the FSE acquisition.

Other Expense. Other expenses decreased $1.5 million in the year ended December 31, 2020 as compared to the year ended December 31, 2019 due primarily to the prior year $2.5 million non-cash charge associated with the early payout of benefits to term vested participants in the U.S. pension plan, which reduced future financial risk associated with the U.S. pension plan and contributed to an improvement in funded status of that plan to approximately 100%. The offset to this decrease is primarily attributable to an unfavorable change in foreign exchange translation adjustments of $1.2 million.

Interest Expense. Interest associated with our debt was $20.6 million and $16.9 million for the years ended December 31, 2020 and 2019, respectively. The increase primarily related to a $5.4 million Payment In Kind interest expense resulting from the amendment to our credit facilities that occurred in the second quarter of 2020. The increase was offset by lower interest expense of $1.6 million due to declining interest rates.

(Benefit) Provision for Income Taxes. An income tax benefit of $7.5 million and an income tax provision of $5.8 million were recorded for the year ended December 31, 2020 and 2019, respectively. The period over period change in income tax was primarily attributable to the $44.5 million pre-tax loss sustained in the current year versus the $21.6 million pre-tax income generated in the prior year period, and unfavorable valuation allowance adjustments resulting in $2.1 million income tax expense in the current year versus a $2.1 million income tax benefit in the prior year period.

During the year ended December 31, 2020, the Company recorded a $1.3 million U.S. federal income tax benefit for the impact of the High-Tax Exception to GILTI which consisted of a $0.5 million tax benefit related to the year ended December 31, 2019, and a $0.8 million tax benefit related to the year ended December 31, 2018.

Electrical Systems Segment Results

The table below sets forth certain Electrical Systems Segment operating data for the periods indicated (dollars are in thousands):

1.Not meaningful

Revenues. The decrease in Electrical Systems Segment 2020 revenues is primarily a result of:

•a $110.2 million, or 40.7%, decrease in OEM North American MD/HD Truck revenues;

•a $79.8 million, or 259.1%, increase in warehouse automation and military revenues primarily attributable to the timing of the FSE acquisition which occurred in September 2019;

•a $32.4 million, or 36.0%, decrease in OEM construction equipment revenues;

•a $14.4 million, or 28.0%, decrease in aftermarket and OES revenues; and

•a $7.7 million, or 8.8% decrease in other revenue.

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While the end markets CVG serves were anticipated to decline somewhat in 2020 as compared to 2019, the sharp market declines noted in the year ended December 31, 2020 were primarily a result of the COVID-19 pandemic on the end markets we serve. These sharp market declines were partially offset by increased sales in industrial and military end markets we serve through the FSE business. Electrical Systems Segment 2020 revenues were adversely impacted by foreign currency exchange translation of $0.2 million, which is reflected in the changes in revenue above.

Gross Profit. The decrease in gross profit was primarily attributable to the decrease in sales volume. Cost of revenues decreased $67.7 million, or 14.4%, in line with the sales decrease of 16.0%. The cost of revenue decrease included a decrease in raw material and purchased component costs of $40.4 million, or 13.7%; a decrease in wages and benefits of $7.9 million, or 17.3%; and a decrease in overhead expenses of $19.4 million, or 15.0%. Cost of revenues benefited from the Restructuring Initiatives and the Temporary Actions. The year ended December 31, 2020 results include charges of $3.8 million associated with ongoing restructuring initiatives. As a percentage of revenues, gross profit for the year ended December 31, 2020 was 9.6% compared to 11.3% for the year ended December 31, 2019. The decrease was primarily due to fixed cost pressure during the second quarter related to COVID-19 disruptions.

Selling, General and Administrative Expenses. SG&A expenses increased $4.0 million in the year ended December 31, 2020 as compared to the year ended December 31, 2019 due primarily to $5.0 million charge for future milestone payments related to the performance of the FSE business. These costs were offset by cost reductions due to the Restructuring Initiatives and the Temporary Actions taken in response to the COVID-19 pandemic.

Global Seating Segment Results

The table below sets forth certain Global Seating Segment operating data for the periods indicated (dollars are in thousands):

Revenues. The decrease in Global Seating Segment 2020 revenues is primarily a result of:

•a $75.1 million or 44.5%, decrease in OEM North American MD/HD Truck revenues;

•a $17.0 million, or 21.6%, decrease in OEM construction equipment revenues;

•a $16.7 million, or 21.2%, decrease in aftermarket and OES revenues; and

•a $5.1 million or 9.2% increase in other revenues.

Gross Profit. The decrease in gross profit is primarily attributable to the decrease in sales volume. Cost of revenues, which decreased $90.2 million, or 26.8%, in line with the sales decrease of 27.2%. The cost of revenue decrease included a decrease in raw material and purchased component costs of $63.8 million, or 28.6%; a decrease in wages and benefits of $8.2 million, or 31.1%; and a decrease in overhead expenses of $18.1 million, or 20.9%. Cost of revenues benefited from the Restructuring Initiatives and the Temporary Actions. The year ended December 31, 2020 results include charges of $0.9 million associated

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with ongoing Restructuring Initiatives. As a percentage of revenues, gross profit was 11.4% for the year ended December 31, 2020 compared to 11.8% for the year ended December 31, 2019.

Selling, General and Administrative Expenses. SG&A expenses decreased $2.1 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, resulted primarily from Restructuring Initiatives and the Temporary Actions taken in response to the COVID-19 pandemic. These reductions were partially offset by charges of $0.2 million associated with ongoing Restructuring Initiatives.

Impairment Expense. As a result of the Company's market capitalization maintaining a value less than the carrying value of its equity, the Company determined it had an impairment indicator during the first quarter of 2020. Accordingly, we recognized a $4.8 million impairment of goodwill for the year ended December 31, 2020.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Consolidated Results

The table below sets forth certain consolidated operating data for the periods indicated (dollars are in thousands):

1.Not meaningful

Revenues. Consolidated revenues of $901.2 million were substantially unchanged in 2019 compared to 2018. Heavy-duty truck production volumes in North America in 2019, our largest end market, were markedly higher than truck replacement level volumes, but production volumes declined significantly in the second half of the year. Production volumes in our second largest end market, global construction equipment, declined in 2019. Consolidated revenues in 2019 compared to 2018 were as follows:

•a $26.8 million, or 7%, increase in OEM North American MD/HD Truck revenues;

•a $10.3 million, or 54%, increase in military revenues primarily attributable to the acquisition of FSE;

•a $20.3 million, or 11%, decrease in construction equipment revenues;

•a $8.3 million, or 6%, decrease in aftermarket revenues; and

•a $5.0 million, or 4%, decrease in other revenues.

2019 revenues were adversely impacted by foreign currency exchange translation of $10.4 million, which is reflected in the change in revenue above.

Gross Profit. Cost of revenues increased $23.3 million, or 3.0%, resulting from an increase in raw material and purchased component costs of $12.1 million, wages and benefits of $2.0 million and overhead expenses of $9.2 million. Supplier price increases and costs associated with difficult labor markets, including higher labor costs, adversely impacted material and labor costs. Beginning in the first quarter of 2019, the imposition by Mexico of a new statutory minimum wage in the Free Zone of the Northern Border (the “Border Minimum Wage”), a geographic area running along and just south of the U.S. / Mexico border and encompassing our wire harness facility in Agua Prieta, Mexico, adversely impacted labor costs. A number of actions, including pricing adjustments on certain products, reduced the impact of the Border Minimum Wage. The net unfavorable impact of the Border Minimum Wage on the 2019 results was approximately $2.3 million. Costs associated with a supplier of fabricated metals that sought bankruptcy relief in the second quarter of 2019 (the "Troubled Supplier") adversely impacted the current year by $3.1 million. Costs associated with manufacturing investments in our global wire harness and North American trim businesses (the "Manufacturing Investments") are included in 2019 results and approximate $1.8 million.

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Employee separation costs and charges associated with manufacturing capacity rationalization (the "Restructuring Initiatives") that began in 2019 totaling $2.2 million adversely impacted gross profit in 2019. The Restructuring Initiatives are expected to mitigate the impact of lower production volumes in 2020. As a percentage of revenues, gross profit margin was 11.7% for the year ended December 31, 2019 compared to 13.9% for the year ended December 31, 2018.

Selling, General and Administrative Expenses. SG&A expenses increased $1.9 million in the year ended December 31, 2019 as compared to the year ended December 31, 2018 due primarily to costs of $0.9 million associated with the acquisition of the assets of FSE and costs of $0.8 million associated with the Restructuring Initiatives.

Other (Income) Expense. The 2019 results include a $2.5 million non-cash charge associated with the early payout of benefits to term vested participants in the U.S. Pension Plan, which reduced future financial risk associated with the U.S. Pension Plan and contributed to an improvement in funded status to approximately 100%.

Interest Expense. Interest expense includes the mark-to-market impact of an interest rate swap agreement, which resulted in a $1.9 million non-cash charge in the year ended December 31, 2019 and a $0.8 million gain in the prior year.

Provision for Income Taxes. Income tax provisions of $5.8 million and $8.1 million were recorded for the fiscal years ended December 31, 2019 and 2018, respectively. The year over year change in the tax provision was primarily attributable to the lower tax expense resulting from the decrease in income before provision for income taxes, offset by a decrease in the amount of favorable, period-specific tax adjustments and an increase in withholding tax expense recorded in the current year for the impact of the repatriation of earnings from certain foreign subsidiaries.

SEGMENT RESULTS

Electrical Systems Segment Results

The table below sets forth certain Electrical Systems Segment operating data for the periods indicated (dollars are in thousands):

Revenues. The increase in Electrical Systems Segment 2019 revenues is primarily a result of:

•a $18.6 million, or 7%, increase in OEM North American MD/HD Truck revenues;

•a $10.2 million, or 55%, increase in military revenues primarily attributable to the FSE acquisition;

•a $2.0 million, or 2%, decrease in OEM construction equipment revenues; and

•a $8.7 million, or 6%, decrease in other revenue.

Electrical Systems Segment 2019 revenues were adversely impacted by foreign currency exchange translation of $3.7 million, which is reflected in the changes in revenue above.

Gross Profit. Included in gross profit is cost of revenues, which increased $29.2 million, or 6.6%, as a result of an increase in raw material and purchased component costs of $13.8 million, wages and benefits of $4.4 million and overhead expenses of $11.0 million. Inflationary pressures affecting the Company’s raw material, purchased component, labor and labor associated costs adversely affected cost of revenues. Also adversely impacting 2019 results, was the Border Minimum Wage, approximately $2.3 million; the Troubled Supplier, approximately $3.1 million; and costs associated with the Manufacturing Investments, approximately $1.8 million. Cost control and cost recovery initiatives, including pricing adjustments, reduced the impact of these cost pressures on gross profit. Gross profit for the year ended December 31, 2019 was also adversely impacted by costs of $1.8 million associated with the Restructuring Initiatives. As a percentage of revenues, gross profit for the year ended December 31, 2019 was 11.3% compared to 13.9% for the year ended December 31, 2018.

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Selling, General and Administrative Expenses. Electrical Systems Segment SG&A expenses increased $0.4 million, or 2.8%, in 2019 compared to 2018. SG&A includes costs of $0.4 million associated with the Restructuring Initiatives.

Global Seating Segment Results

The table below sets forth certain Global Seating Segment operating data for the periods indicated (dollars are in thousands):

Revenues. The decrease in Global Seating Segment 2019 revenues is primarily a result of:

•a $8.2 million, or 5%, increase in OEM North American MD/HD Truck revenues;

•a $18.3 million, or 19%, decrease in OEM construction equipment revenues;

•a $5.4 million, or 6%, decrease in aftermarket revenues; and

•a $0.4 million, or 1%, decrease in other revenues.

Global Seating Segment 2019 revenues were adversely impacted by foreign currency exchange translation of $6.7 million, which is reflected in the changes in revenue above.

Gross Profit. Included in gross profit is cost of revenues, which decreased $6.9 million, or 2.0%, as a result of a decrease in raw material and purchased component costs of $3.1 million, wages and benefits of $2.4 million and overhead expenses of $1.4 million. Inflationary pressures affecting the Company’s raw material, purchased component, labor and labor associated costs adversely affected cost of revenues. Cost control and cost recovery initiatives, including pricing adjustments, reduced the impact of these cost pressures on gross profit. Gross profit for the year ended December 31, 2019 was also adversely impacted by costs of $0.4 million associated with the Restructuring Initiatives. As a percentage of revenues, gross profit was 11.8% for the year ended December 31, 2019 compared to 13.6% for the year ended December 31, 2018.

Selling, General and Administrative Expenses. Global Seating Segment SG&A expenses decreased $2.0 million, or 8.9%, for the year ended December 31, 2019 compared to the year ended December 31, 2018, reflecting a focus on cost discipline. SG&A includes costs of $0.1 million associated with the Restructuring Initiatives.

Liquidity and Capital Resources

During the year ended December 31, 2020, the Company borrowed under its revolving credit facility; however, as of year ended 2020, the Company did not have any outstanding borrowings under the facility. At December 31, 2020, the Company had liquidity of $138.9 million; $50.5 million of cash and $88.4 million availability from its revolving credit facility.

We intend to allocate resources consistent with the following priorities: (1) invest in growth; (2) invest in operational improvements; (3) manage working capital; (4) to reduce debt; and (5) other actions deemed appropriate by management to improve operational performance.

Our primary source of liquidity during the year ended December 31, 2020 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, there is no assurance that these sources of capital will provide for our funding needs. We also rely on the timely collection of receivables as a source of liquidity. As a result of the increase and expansion of the warehouse automation business, we have experienced increases in accounts receivable, inventories and accounts payable during 2020 which we expect to continue into the future. As of December 31, 2020, we had no outstanding borrowings under our revolving credit facility and had borrowing availability of $88.4 million.

As of December 31, 2020, cash of $41.9 million was held by foreign subsidiaries. The Company had a $0.3 million deferred tax liability as of December 31, 2020 for the expected future income tax implications of repatriating cash from the foreign subsidiaries for which no indefinite reinvestment assertion has been made.

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Covenants and Liquidity

Our ability to comply with the covenants in the TLS Agreement and the Third ARLS Agreement, as discussed in Note 3, Debt, may be affected by economic or business conditions beyond our control. Based on our current forecast, we believe that we will be able to maintain compliance with the financial maintenance covenants and the fixed charge coverage ratio covenant, if applicable, and other covenants in the TLS Agreement and the Third ARLS Agreement for the next twelve months. However, no assurances can be given that we will be able to comply. We base our forecasts on historical experience, industry forecasts and other assumptions that we believe are reasonable under the circumstances. If actual results are substantially different than our current forecast we may not be able to comply with our financial covenants. If we do not comply with the financial and other covenants in the TLS Agreement and the Third ARLS Agreement, the lenders could declare an event of default under the TLS Agreement and the Third ARLS Agreement and our indebtedness thereunder could be declared immediately due and payable. The TLS Agreement and the Third ARLS Agreement contain cross default provisions. If we are unable to borrow under the Third ARLS Agreement, we will need to meet our capital requirements using alternative sources of liquidity which may not be available on acceptable terms. Any of these events would have a material adverse effect on our business, financial condition and liquidity.

Cash Flows

(In thousands)

Effect of currency exchange rate changes on cash 2,302 (56) (2,387)

Operating activities. For the year ended December 31, 2020, net cash provided by operations was $34.4 million compared to $36.7 million for the year ended December 31, 2019. The decrease in net cash provided by operating activities is primarily attributable to the decrease in net income associated with the sales declines in the year ended December 31, 2020 as compared to the to the prior year period. This reduction was offset by cash generated from working capital primarily resulting from timing of the payment of payables and expenses.

For the year ended December 31, 2019, cash provided by operations was $36.7 million compared to $41.0 million in the year ended December 31, 2018. More than all of the decrease in cash provided by operations for the year ended December 31, 2019 compared to 2018 was due to a decrease in net income partially offset by less cash used for working capital changes in 2019 than in 2018.

Investing activities. For the year ended December 31, 2020, net cash used in investing activities was $6.4 million compared to $58.0 million for the year ended December 31, 2019. The decrease in investing activities is primarily due to the FSE Acquisition for $34 million during, 2019, and decreased capital spending in 2020. In 2021, we expect capital expenditures to be in the range of $20 million to $25 million.

Net cash used in investing activities was $58.0 million for the year ended December 31, 2019 compared to $14.1 million for the year ended December 31, 2018. The increase in cash used in investing activities for the year ended December 31, 2019 compared to 2018 was due to the FSE acquisition and an increase in capital expenditures.

Financing activities. For the year ended December 31, 2020, net cash used in financing activities was $19.3 million compared to $10.1 million for the year ended December 31, 2019. Net cash used in financing activities for the year ended December 31, 2020 is attributable to additional repayment of $10.0 million of the senior secured term loan credit facility and associated fees, along with a contingent consideration milestone payment of $1.0 million related to the FSE acquisition.

Net cash used in financing activities was $10.1 million for the year ended December 31, 2019 compared to $5.8 million for the year ended December 31, 2018. The increase in net cash used in financing activities for the year ended December 31, 2019 was due primarily to repayments on the term loan facility.

Debt and Credit Facilities

The debt and credit facility summaries described in Note 3, Debt, are incorporated in this section by reference.

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Contractual Obligations and Commercial Commitments

The following table reflects our contractual obligations as of December 31, 2020 (in thousands):

Payments Due by Period

Total 1 Year 2-3 Years 4-5 Years More than5 Years

1.The balance includes $5.4 million of Payment In Kind interest accrued through December 31, 2020.

We estimated future interest payments based on the effective interest rate as of December 31, 2020. Since December 31, 2020, there have been no material changes outside the ordinary course of business to our contractual obligations as set forth above above other than as set forth in Note 19, Subsequent Event.

We expect to contribute approximately $1.1 million to our UK pension plan in 2021. No contributions are expected to be made to our U.S. pension plan in 2021.

We enter into agreements with our customers at the beginning of a given vehicle platform’s life to supply products for the entire life of that vehicle platform. These agreements generally provide for the supply of a customer’s production requirements for a particular platform rather than for the purchase of a specific quantity of products. The obligations under these agreements and regulations are not reflected in the contractual obligations table above.

As of December 31, 2020, 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, 2020, we had outstanding letters of credit of $1.6 million. We do not believe that these letters of credit will be drawn.

We currently have no non-consolidated special purpose entity arrangements.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For a comprehensive discussion of our significant accounting policies, see Note 1, Significant Accounting Policies, to our consolidated financial statements in Item 8 in this Annual Report on Form 10-K.

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis, particularly relating to accounts receivable reserves, inventory reserves, goodwill, intangible and long-lived assets, income taxes, warranty reserves, litigation reserves and pension and other post-retirement benefit plans. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ materially from these estimates and assumptions. See Item 1A - Risk Factors in this Annual Report on Form 10-K for additional information regarding risk factors that may impact our estimates.

Revenue Recognition — We recognize revenue when our performance obligation has been satisfied and control of products has been transferred to a customer, which typically occurs upon shipment. Revenue is measured based on the amount of consideration we expect to receive in exchange for the transfer of goods or services. We enter into agreements with our customers at the beginning of a vehicle platform’s life to supply products for that vehicle platform. Once we enter into such agreements, fulfillment of our requirements is our obligation for the entire production life of the platform and we have no provisions to terminate such contracts. Management judgments and estimates must be made in estimating sales returns and allowances relating to revenue recognized in a given period.

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Goodwill - Assets and liabilities acquired in business combinations are accounted for using the acquisition method and recorded at their respective fair values. Goodwill represents the excess of consideration paid over the net assets acquired and is assigned to the reporting unit that acquires the business. A reporting unit is an operating segment as defined in ASC 280, Segment Reporting, or a business one level below an operating segment if discrete financial information for that business is prepared and regularly reviewed by segment management. The Company conducts annual impairment tests of goodwill in the second quarter or more frequently if events or circumstances indicate a reporting unit’s fair value may be less than its carrying value. If an initial assessment indicates it is more likely than not goodwill may be impaired, it is evaluated by comparing the reporting unit’s estimated fair value to its carrying value. If its carrying value exceeds its estimated fair value, goodwill impairment is recognized to the extent that recorded goodwill exceeds the fair value of goodwill. Estimated fair values of the reporting unit are Level 3 measures and are developed under an income approach that discounts estimated future cash flows using risk-adjusted interest rates and also the market approach.

Business Combinations — Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, including as it relates to fair value of contingent consideration, which are based on all available information and in some cases subjective assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Accounting for business acquisitions requires management to make judgments as to whether a purchase transaction is a multiple element contract, meaning that it includes other transaction components such as a settlement of a preexisting relationship. This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.

Inventory — Inventories are valued at the lower of first-in, first-out cost or net realizable value. Cost includes applicable material, labor and overhead. We value our finished goods inventory at a standard cost that is periodically adjusted to approximate actual cost. Inventory quantities on-hand are regularly reviewed, and where necessary, provisions for excess and obsolete inventory are recorded based primarily on our estimated production requirements driven by expected market volumes.

Income Taxes — We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax laws and rates expected to be in place when the deferred tax items are realized. We recognize tax positions initially in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. We provide a valuation allowance for deferred tax assets when it is more likely than not that a portion of such deferred tax assets will not be realized.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We enter into financial instruments, from time to time, to manage the impact of changes in foreign currency exchange rates and interest rates and to hedge a portion of future anticipated currency transactions. The counterparties are primarily major financial institutions.

Interest Rate Risk

We manage our interest rate risk by balancing the amount of our fixed rate and variable rate debt. To manage its exposure to variable interest rates in a cost-efficient manner, the Company enters into interest rate swaps in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. The Company entered into an interest rate swap agreement to fix the interest rate on an initial aggregate amount of $80.0 million, which is 53.0% of the outstanding debt balance as of December 31, 2020 thereby reducing exposure to interest rate changes. Interest rate changes affect the fair market value of such debt but do not impact earnings or cash flows. Conversely, for variable rate debt, interest rate changes generally do not affect the fair market value of such debt, but do impact future earnings and cash flows, assuming other factors are held constant. The interest on the Term Loan Facility is variable and is comprised of 1) an applicable margin of either (i) 5.00% for base rate loans or (ii) 6.00% for LIBOR loans, and 2) LIBOR as quoted two business days prior to the commencement of an interest period provided that LIBOR at no time falls below 1.00%.

At December 31, 2020, the interest rate swap agreement was not designated as a hedging instrument; therefore, it has been marked-to-market and the fair value recorded in the Consolidated Balance Sheets with the offsetting gain or loss recorded in interest and other expense in our Consolidated Statements of Operations.

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The interest rate swap agreement is more fully described in Note 6, Fair Value Measurement.

Foreign Currency Risk

Foreign currency risk is the risk that we will incur economic losses due to adverse changes in foreign currency exchange rates. We use forward exchange contracts to hedge certain foreign currency transaction exposures. We estimate our projected revenues and purchases in certain foreign currencies and locations and will hedge a portion or all of the anticipated long or short position. The contracts typically run from one month up to eighteen months. To mitigate our exposure to Mexican Pesos, where we have our greatest exposure, we have entered into multiple monthly forward exchange contracts that have been designated as cash flow hedge instruments which are recorded in the Consolidated Balance Sheets at fair value. Noncash gains and losses are deferred in accumulated other comprehensive loss and recognized when settled in our Consolidated Statements of Operations. We do not hold or issue foreign exchange options or forward contracts for trading purposes.

Outstanding foreign currency forward exchange contracts at December 31, 2020 are more fully described in Note 6, Fair Value Measurement.

At December 31, 2020 and 2019, the potential reduction in earnings from a hypothetical 10% adverse change in quoted foreign currency spot rates applied to foreign currency sensitive instruments would have been immaterial.

Foreign Currency Transactions

A portion of our revenues during the year ended December 31, 2020 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, 2020 are based in our foreign operations and are translated into U.S. Dollars at foreign currency exchange rates in effect as of the end of each period with the effect of such translation reflected as a separate component of stockholders’ equity. Accordingly, our stockholders’ investment will fluctuate depending upon the weakening or strengthening of the U.S. Dollar against the respective foreign currency. The principal currencies of exposure are the Mexican Peso, Chinese Yuan, British Pound, Euro, Czech Koruna, Australian Dollar, Japanese Yen, Indian Rupee, Thai Baht, and Ukrainian Hryvnia. Foreign currency translation adversely impacted fiscal year 2020 revenues by $0.2 million.

Effects of Inflation

Inflation potentially affects us in two principal ways. First, borrowings under our revolving credit facility is tied to prevailing short-term interest rates that may change as a result of inflation rates, translating into changes in interest expense. Second, general inflation can impact material purchases, labor, and pension liabilities. 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.

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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

Report of Independent Registered Public Accounting Firm 39

Consolidated Balance Sheets as of December 31, 2020 and 2019 42

Notes to Consolidated Financial Statements 47

Item 15 - Exhibits and Financial Statement Schedules 84

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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, 2020 and 2019, 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, 2020, and the related notes to the consolidated financial statements (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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‐year period ended December 31, 2020, 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, 2020, 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 9, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-12, Leases (Topic 842).

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Testing of revenue

As discussed in Note 2 to the consolidated financial statements, revenue is recognized when a performance obligation has been satisfied and control of products has been transferred to the customer, usually at a designated shipping point and in accordance with customer specifications. Revenue is measured based on the amount of consideration the Company expects to receive in exchange for the transfer of goods or services. For the year ended December 31, 2020, the Company recorded $717.7 million of revenue.

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We identified the testing of revenue as a critical audit matter due to the large volume of data and the number and complexity of the revenue accounting systems. While revenues consist of a large number of similar, individually low value transactions, the processing and recording of revenue is reliant upon multiple information technology (IT) systems used to process large volumes of customer billing data. Specialized skills and knowledge were needed to test the IT systems used for the processing and recording of revenue.

The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over revenue. We evaluated the design and tested the operating effectiveness of certain internal controls related to the processing and recording of revenue. This included controls over the IT systems and automated and manual process level controls related to the processing and recording of revenue. For a selection of transactions, we (1) compared the amount of revenue recorded to a combination of Company internal data, executed contracts, and other relevant and reliable third-party data, including cash received from customers and (2) evaluated the timing of revenue recognition based on the shipment date. In addition, we involved IT professionals with specialized skills and knowledge, who assisted in the identification and testing of certain IT systems used by the Company for the processing and recording of revenue. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of the audit effort.

Goodwill impairment

As discussed in Note 4, goodwill represents the excess of acquisition purchase price over the fair value of net assets acquired in a business combination. During the first quarter of 2020, as a result of the Company’s market capitalization value being less than the carrying value of its equity for a duration of time, the Company determined it had an impairment indicator. Accordingly, the Company estimated the fair value of each of the reporting units with goodwill by discounting the estimated cash flows of each reporting unit. The estimated fair values of the reporting units were then compared to their net carrying values as of March 31, 2020 and, as a result, the Company recognized $27.1 million impairment of goodwill, which represented the carrying amount of goodwill prior to the impairment charge.

We identified the evaluation of the goodwill impairment analysis for each reporting unit with goodwill as a critical audit matter. The fair value of each reporting unit was based on a discounted cash flow model, which involved estimation uncertainty in the projection of future cash flows, resulting in an increased level of subjective auditor judgment. We determined the revenue growth rates and discount rate assumptions represented the significant assumptions. Evaluation of the revenue growth rates and discount rate assumptions used to estimate the fair value of the reporting units was challenging as they represented subjective determinations of future market and economic conditions that were also sensitive to variation. Additionally, the audit effort associated with this estimate required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the goodwill impairment analysis. This included controls related to the Company’s determination of the estimated fair value of the reporting units over the:

•development of the revenue growth rate assumptions

•selection of the discount rate assumptions used to develop the estimate

•reconciliation of the aggregate reporting unit fair values to the Company’s market capitalization.

We evaluated the reasonableness of the Company’s forecasted revenue growth rates for the reporting units by comparing the growth assumptions to forecasted growth rates in analyst reports for the Company and industry reports. We compared the Company’s historical revenue forecasts to actual results to assess the Company’s ability to accurately forecast. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

•evaluating the discount rates used by management in the valuation, by comparing them against discount rate ranges that were independently developed using publicly available market data for comparable entities

•developing estimates of each reporting unit’s fair value using each reporting unit’s cash flow forecast and an independently developed discount rate, and comparing the results of these estimates of fair value to the Company’s fair value estimates

•evaluating the Company’s reconciliation of the aggregate reporting unit fair values to the Company’s market capitalization and assessing the reasonableness of the resulting implied premium by comparing it to a range of premiums from recent transactions in the Company’s industry.

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/s/ KPMG LLP

We have served as the Company’s auditor since 2012.

Columbus, Ohio

March 9, 2021

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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2020 and 2019

ASSETS (in thousands, except share and per share amounts)

Current assets:

Operating lease right-of-use asset, net 30,047 34,960

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current operating lease liabilities 9,236 7,620

Current portion of long-term debt 2,429 3,256

Long-term operating lease liabilities 23,932 29,414

Pension and other post-retirement liabilities 15,296 10,666

Stockholders’ equity:

Accumulated other comprehensive loss (45,006) (45,950)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 454,373 $ 435,826

The accompanying notes are an integral part of these consolidated financial statements.

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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2020, 2019 and 2018

(In thousands, except per share amounts)

Goodwill and other impairment 29,017 — —

Earnings (loss) per common share

Weighted average shares outstanding

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, 2020, 2019 and 2018

(In thousands)

Other comprehensive income (loss):

Foreign currency translation adjustments 5,008 (1,185) (5,675)

Derivative instruments, net of tax 977 (32) 496

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, 2020, 2019 and 2018

Shares Amount

(In thousands, except share data )

Surrender of common stock by employees (158,456) — (1,131) — — — (1,131)

Share-based compensation expense — — — 3,137 — — 3,137

Issuance of restricted stock 418,553 5 — — — — 5

Surrender of common stock by employees (130,141) — (985) — — — (985)

Share-based compensation expense — — — 2,845 — — 2,845

Cumulative effect of adoption of Topic 842 — — — — (72) — (72)

Issuance of restricted stock 544,787 (10) — — — — (10)

Surrender of common stock by employees (96,231) — (663) — — — (663)

Share-based compensation expense — — — 3,460 — — 3,460

The accompanying notes are an integral part of these consolidated financial statements.

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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2020, 2019 and 2018

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Impairment expense 29,017 — —

Noncash amortization of debt financing costs 1,929 1,393 1,404

Payment in kind interest expense 5,431 — —

Noncash loss (gain) on forward exchange contracts 299 1,972 (1,468)

Change in other operating items:

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from disposal/sale of property, plant and equipment 722 23 49

Payments for acquisition of business — (34,000) —

CASH FLOWS FROM FINANCING ACTIVITIES:

Early payment fee on debt and other debt issuance costs (2,779) (160) —

Surrender of common stock by employees (663) (985) (1,131)

Contingent consideration payment (1,000) — —

Other financing activities, net (445) (443) (329)

EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON CASH 2,302 (56) (2,387)

CASH:

SUPPLEMENTAL CASH FLOW INFORMATION:

The accompanying notes are an integral part of these consolidated financial statements.

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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2020, 2019 and 2018

1. Significant Accounting Policies

Organization - Commercial Vehicle Group, Inc. and its subsidiaries is a global provider of components and assemblies into two primary end markets – the global vehicle market and the U.S. technology integrator markets. The company provides components and assemblies to global vehicle companies to build original equipment and provides aftermarket products for fleet owners. The company also provides mechanical assemblies to warehouse automation integrators and to U.S. military technology integrators. References herein to the "Company", "CVG", "we", "our", or "us" refer to Commercial Vehicle Group, Inc. and its subsidiaries.

We have manufacturing operations in the United States, Mexico, China, United Kingdom, Belgium, Czech Republic, Ukraine, Thailand, India and Australia. Our products are primarily sold in North America, Europe, and the Asia-Pacific region.

We primarily manufacture customized products on a sequenced basis to meet the requirements of our customers. We believe our trucking products are used by a majority of the North American Commercial Truck markets, many construction vehicle original equipment manufacturers (“OEMs”), and many of the top e-commerce retailers.

We report our financial results by business segment; more specifically, Electrical Systems and Global Seating. The Company’s Chief Operating Decision Maker (“CODM”), its President and Chief Executive Officer, reviews financial information for these two reportable segments and makes decisions regarding the allocation of resources based on these segments. See Note 17, Segment Reporting, for more information.

Unless otherwise indicated, all amounts in the tables below are in thousands, except share and per share amounts.

Principles of Consolidation - The accompanying consolidated financial statements include the accounts of our wholly-owned or controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from those estimates. Certain prior period amounts have been reclassified to conform to footnote presentation for the current year.

Cash - Cash consists of deposits with high credit-quality financial institutions.

Accounts Receivable - Trade accounts receivable are stated at current value less allowances, which approximates fair value. We review our receivables on an ongoing basis to ensure that they are properly valued and collectible.

The allowance for credit losses is used to record the estimated risk of loss related to our customers’ inability to pay. This allowance is maintained at a level that we consider appropriate based on factors that affect collectability, such as the financial health of our customers, historical trends of charge-offs and recoveries and current and expected economic market conditions. As we monitor our receivables, we identify customers that may have payment problems, and we adjust the allowance accordingly, with the offset to selling, general and administrative expense. Account balances are charged off against the allowance when recovery is considered remote.

Inventories - Inventories are valued at the lower of first-in, first-out cost or market and are measured at the lower of cost or net realizable value. Inventory quantities on-hand are regularly reviewed and when necessary provisions for excess and obsolete inventory are recorded based primarily on our estimated production requirements, taking into consideration expected market volumes and future potential use.

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Inventories consisted of the following as of December 31:

Property, Plant and Equipment - Property, plant and equipment are stated at cost, net of accumulated depreciation.

Property, plant, and equipment, net consisted of the following as of December 31:

Property, plant and equipment, net $ 62,776 $ 73,686

For financial reporting purposes, depreciation is computed using the straight-line method over the estimated useful lives (generally 15 to 40 years for buildings and building improvements, three to 20 years for machinery and equipment, three to seven years for tools and dies, and three to five years for computer hardware and software). Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for major betterments and renewals that extend the useful lives of property, plant and equipment are capitalized and depreciated over the remaining useful lives of the asset. When assets are retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements or the term of the lease, whichever is shorter. Accelerated depreciation methods are used for tax reporting purposes. Depreciation expense for property, plant and equipment for each of the years ended December 31, 2020, 2019 and 2018 was $15.1 million , $13.6 million and $14.0 million, respectively.

We review long-lived assets for recoverability whenever events or changes in circumstances indicate that carrying amounts of an asset group may not be recoverable. Our asset groups are established by determining the lowest level of cash flows available. If the estimated undiscounted cash flows are less than the carrying amounts of such assets, we recognize an impairment loss in an amount necessary to write down the assets to fair value as estimated from expected future discounted cash flows. Estimating the fair value of these assets is judgmental in nature and involves the use of significant estimates and assumptions. We base our fair value estimates on assumptions we believe to be reasonable, but that are inherently uncertain.

Leases - The Company adopted ASU No. 2016-02, Leases (“Topic 842”) as of January 1, 2019, using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of 2019. The cumulative effect of this transition was recorded as an increase to Accumulated deficit of $0.1 million as of this date.The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As most leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The length of a lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. The Company made an accounting policy election to not recognize lease assets or liabilities for leases with a term of 12 months or less. Additionally, when accounting for leases, the Company combines payments for leased assets, related services and other components of a lease.

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recognized to the extent that recorded goodwill exceeds the fair value of goodwill. Estimated fair values of the reporting unit are Level 3 measures and are developed under an income approach that discounts estimated future cash flows using risk-adjusted interest rates and also the market approach.

Revenue Recognition - We recognize revenue when our performance obligation has been satisfied and control of products has been transferred to a customer, which typically occurs upon shipment. Revenue is measured based on the amount of consideration we expect to receive in exchange for the transfer of goods or services.

Refer to Note 2, Revenue Recognition, for our revenue recognition policies.

Income Taxes - We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities based on enacted tax laws and rates expected to be in place when the deferred tax items are realized. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that a portion of the deferred tax assets will not be realized. We provide a valuation allowance for deferred tax assets when it is more likely than not that a portion of such deferred tax assets will not be realized.

We evaluate tax positions for recognition by determining, based on the weight of available evidence, whether it is more likely than not the position will be sustained upon audit. Any interest and penalties related to our uncertain tax positions are recognized in income tax expense.

Comprehensive Income (Loss) - Comprehensive income (loss) reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources including foreign currency translation, derivative instruments and pension and other post-retirement adjustments. See Note 14, Accumulated Other Comprehensive Loss, for a rollforward of activity in accumulated comprehensive loss.

Fair Value of Financial Instruments - The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (i.e., inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1 - Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 - Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets and inactive markets.

Level 3 - Significant unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

Concentrations of Credit Risk - Financial instruments that potentially subject us to concentrations of credit risk consist primarily of accounts receivable. We sell products to various companies throughout the world in the ordinary course of business. We routinely assess the financial strength of our customers and maintain allowances for anticipated losses. As of December 31, 2020, receivables from our five top customers represented approximately 48% of total receivables.

Foreign Currency Translation - Our functional currency is the local currency. Accordingly, all assets and liabilities of our foreign subsidiaries are translated using exchange rates in effect at the end of the period; revenue and costs are translated using average exchange rates for the period. The related translation adjustments are reported in accumulated other comprehensive income (loss) in stockholders’ equity. Translation gains and losses arising from transactions denominated in a currency other than the functional currency of the entity are included in the results of operations.

Foreign Currency Forward Exchange Contracts - We use forward exchange contracts to hedge certain foreign currency transaction exposures. We estimate our projected revenues and purchases in certain foreign currencies or locations and hedge a portion of the anticipated long or short position. The contracts typically run from one month to eighteen months. All forward foreign exchange contracts that are not designated as hedging instruments have been marked-to-market and the fair value of contracts recorded in the Consolidated Balance Sheets with the offsetting non-cash gain or loss recorded in our Consolidated Statements of Operations. For forward contracts that are designated as hedging instruments, the gains and losses are recorded in accumulated other comprehensive income (loss) and recognized in the Consolidated Statement of Operations when the contracts are settled. We do not hold or issue foreign exchange options or forward contracts for trading purposes.

Interest Rate Swap Agreement - We use an interest rate swap agreement to fix the interest rate on a portion of our variable interest debt thereby reducing exposure to interest rate changes. The interest rate swap agreement was not designated as a hedging instrument; therefore, the interest rate swap agreement has been marked-to-market and the fair value of the agreement recorded in the Consolidated Balance Sheets with the offsetting gain or loss recorded in interest and other expense in our Consolidated Statements of Operations.

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Recently Issued Accounting Pronouncements

In October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-10, "Codification Improvements". The ASU updates various codification topics by clarifying and improving disclosure requirements to align with the SEC's regulations. We will adopt ASU 2020-10 as of the reporting period beginning January 1, 2021. Adoption of this update is not expected to have a material impact on the Company's consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Also, in January 2021, the FASB issued ASU No. 2021-01 "Reference Rate Reform (Topic 848): Scope", to clarify that certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. ASU 2020-04 and ASU 2021-01 are effective beginning on March 12, 2020 and the amendments will be applied prospectively through December 31, 2022. We are evaluating the effect these ASUs will have on the Company.

Accounting Pronouncements Implemented During the Year Ended December 31, 2020

In March 2020, the FASB issued ASU No. 2020-03, "Codification Improvements to Financial Instruments". The ASU clarifies disclosure guidance for fair value options, adds clarifications to the subsequent measurement of fair value, clarifies disclosure for depository and lending institutions, clarifies the line-of-credit or revolving-debt arrangements guidance, and the interaction of Financial Instruments - Credit Losses (Topic 326) with Leases (Topic 842) and Transfers and Servicing-Sales of Financial Assets (Subtopic 860-20). In accordance with ASU 2020-03, the Company adopted the guidance as of March 31, 2020. We were not materially impacted by the implementation of this pronouncement.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". ASU 2017-04 provides simplification for the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Annual impairment tests should be completed by comparing the fair value of a reporting unit to its carrying amount and impairment should not exceed the goodwill allocated to the reporting unit. Additionally, this ASU eliminated the requirement to assess reporting units with zero or negative carrying amounts. The Company implemented ASU 2017-04 as of January 1, 2020 with no material impact. Subsequent to such implementation, we fully impaired our goodwill. Refer to Note 4, Goodwill and Intangible Assets, for more details.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326)". The ASU requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The FASB subsequently issued ASU No. 2018-19, "Codification Improvements to Topic 326: Financial Instruments - Credit Losses", in November 2018 which provided further guidance on assessment of receivables for operating leases. ASU No. 2019-04, "Codification Improvements to Topic 326, Topic 815 and Topic 825" and ASU No. 2019-05, "Targeted Transition Relief", that were issued in April and May of 2019 do not materially impact the Company. In November 2019, the FASB issued ASU No. 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses", which further clarified and improved the Codification to make it easier to understand and apply. The Company implemented ASU 2016-13, ASU 2018-19 and ASU 2019-11 as of January 1, 2020 and the ASUs did not have a material impact on the Company's consolidated financial statements.

2. Revenue Recognition

Our products include electrical wire harnesses, control panels, electro-mechanical and cable assemblies; Trim; Seats; and cab structures and sleeper boxes; mirrors, wipers, controls and warehouse automation subsystems. We sell these products, except warehouse automation subsystems, into multiple geographic regions including North America, Europe and Asia-Pacific and to multiple customer end markets including MD/HD Truck OEMs, Construction OEMs, industrial, military, Bus OEMs, the aftermarket and other markets. We sell warehouse automation subsystems to warehouse automation customers. The nature, timing and uncertainty of recognition of revenue and associated cash flows across the varying product lines, geographic regions and customer end markets is substantially consistent.

Contractual Arrangements - Revenue is measured based on terms and conditions specified in contracts or purchase orders with customers. We have long-term contracts with some customers that govern overall terms and conditions which are accompanied by purchase orders that define specific order quantities and/or price. We have many customers with which we conduct business for which the terms and conditions are outlined in purchase orders without a long-term contract. We generally do not have customer contracts with minimum order quantity requirements.

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Amount and Timing of Revenue Recognition - The transaction price is based on the consideration to which the Company will be entitled in exchange for transferring control of a product to the customer. This is defined in a purchase order or in a separate pricing arrangement and represents the stand-alone selling price. Our payment terms vary by customer. None of the Company's business arrangements as of December 31, 2020, contained a significant financing component. We typically do not have multiple performance obligations requiring us to allocate a transaction price.

We recognize revenue at the point in time when we satisfy a performance obligation by transferring control of a product to a customer, usually at a designated shipping point and in accordance with customer specifications. Estimates are made for variable consideration resulting from quality, delivery, discounts or other issues affecting the value of revenue and accounts receivable. This amount is estimated based on historical trends and current market conditions, and only amounts deemed collectible are recognized as revenues.

Other Matters - Shipping and handling costs billed to customers are recorded in revenues and costs associated with outbound freight are generally accounted for as a fulfillment cost and are included in cost of revenues. We generally do not provide for extended warranties or material customer incentives. Our customers typically do not have a general right of return for our products.

We had outstanding customer accounts receivable, net of allowances, of $151.1 million as of December 31, 2020 and $115.1 million as of December 31, 2019. We generally do not have other assets or liabilities associated with customer arrangements.

Revenue Disaggregation -The following is the composition, by product category, of our revenues:

Twelve Months Ended December 31, 2020

Electrical Systems Global Seating Corporate/Other Total

Twelve Months Ended December 31, 2019

Electrical Systems Global Seating Corporate/Other Total

Twelve Months Ended December 31, 2018

Electrical Systems Global Seating Corporate/Other Total

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3. Debt

Debt consisted of the following at December 31:

Unamortized discount and issuance costs (4,374) (3,528)

Total long-term debt, net of current portion $ 144,147 $ 153,128

Term Loan and Security Agreement

On April 12, 2017, the Company entered into a $175.0 million senior secured term loan credit facility (the “Term Loan Facility”), maturing on April 12, 2023, pursuant to a term loan and security agreement (the “TLS Agreement”) with the Company and certain subsidiaries of the Company party thereto as guarantors, Bank of America, N.A., as administrative agent, and other lender parties thereto.

The interest on the Term Loan Facility is variable and is comprised of 1) an applicable margin of either (i) 5.00% for base rate loans or (ii) 6.00% for LIBOR loans, in each case except for the period from April 1, 2020 through September 30, 2021, in which period such margin will be as amended by the Term Amendment, and 2) an applicable rate of either (i) base rate for any day(the “Base Rate”), a per annum rate equal to the greater of (a) the prime rate for such day, (b) the federal funds rate for such day, plus 0.50%, or (c) LIBOR for a 30 day interest period as of such day, plus 1.00%, or (ii) LIBOR as quoted two business days prior to the commencement of an interest period provided that LIBOR at no time falls below 1.00%. There was $0.1 million in accrued interest as of December 31, 2020. The unamortized deferred financing fees of $3.1 million and original issue discount of $1.3 million are netted against the aggregate book value of the outstanding debt to arrive at a balance of $146.6 million as of December 31, 2020 and are being amortized over the remaining life of the agreement. The weighted average interest rate was 10.71% as of December 31, 2020 and 8.29% as of December 31, 2019.

The Term Loan Facility is a senior secured obligation of the Company. Our obligations under the TLS Agreement are guaranteed by the Company and certain subsidiaries of the Company. The obligations of the Company and the guarantors under the TLS Agreement are secured (subject to certain permitted liens) by a first-priority lien on substantially all of the non-current assets (and a second priority lien on substantially all of the current assets) of the Company and the guarantors, including a first priority pledge of certain capital stock of the domestic and foreign subsidiaries directly owned by the Company and the guarantors. The liens, the security interests and all of the obligations of the Company and the guarantors and all provisions regarding remedies in an event of default are subject to an intercreditor agreement among the Company, the guarantors, the agent for the lenders party to the Company’s revolving credit facility and the collateral agent under the TLS Agreement.

On May 11, 2020, the Company and certain of its subsidiaries, as guarantors or co-borrowers, as applicable, entered into an Amendment No. 1 (the “Term Amendment”), which amends TLS Agreement covenants. As amended, from April 1, 2020 through September 30, 2021, loans outstanding under the TLS Agreement accrue interest at a per annum rate based on (at the Company's election) the Base Rate plus 9.50% or the LIBOR rate plus 10.50%. The Company has the option of setting aside a portion of the interest accrual, not to exceed 4.5%, as Payment In Kind and adding such amount to the outstanding principal balance in lieu of paying such interest amount in cash. Commencing October 1, 2021, loans under the TLS Agreement will accrue interest at a per annum rate based on (at the Company's election) the Base Rate plus 5.00% or the LIBOR rate plus 6.00%.

Terms, Covenants and Compliance Status

The TLS Agreement contains customary restrictive covenants, including limitations on our ability and the ability of our subsidiaries to: incur additional debt; pay dividends or other restricted payments; make investments; engage in transactions with affiliates; create liens on assets; and consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries. In addition, the TLS Agreement contains a financial maintenance covenant requiring the Company to maintain a total leverage ratio as of the last day of any fiscal quarter not to exceed the ratios set forth in the applicable table within the TLS Agreement.The TLS Agreement also contains customary reporting and other affirmative covenants.

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The Term Amendment added a new minimum consolidated liquidity covenant of $40.0 million, to be tested each fiscal quarter through the fiscal quarter ending September 30, 2021, temporarily suspended the leverage ratio covenant through the fiscal quarter ending December 31, 2020, and reset the leverage ratio covenant levels for quarterly periods ended on or after March 31, 2021. In addition, amendments were made to certain restrictive covenants, the effect of which are to limit the Company's ability to incur additional debt, grant liens, repurchase the Company's stock and to issue dividends or make acquisitions.

We were in compliance with the covenants as of December 31, 2020.

The TLS Agreement requires the Company to repay principal of approximately $1.1 million on the last day of each quarter commencing with the quarter ending September 30, 2017 with the remaining outstanding principal due at maturity on April 12, 2023. The TLS Agreement, as amended, includes a hard call premium on repayments of the term loans outstanding thereunder of 2% on amounts repaid through June 30, 2021 and 1% on amounts repaid through June 30, 2022, subject to certain exceptions.

The TLS Agreement requires the Company to make mandatory prepayments with excess cash flow, the proceeds of certain asset dispositions and upon the receipt of insurance or condemnation proceeds; and in the case of an asset disposition or insurance or condemnation event, to the extent the Company does not reinvest the proceeds within the periods set forth in the TLS Agreement. A mandatory prepayment of $4.2 million pursuant to the TLS Agreement was made during the first quarter of 2019 as a result of our 2018 Excess Cash Flow Period.

Revolving Credit Facility

On April 12, 2017, Commercial Vehicle Group Inc. and certain subsidiaries, collectively the "borrowers", entered into the Third Amended and Restated Loan and Security Agreement (the "Third ARLS Agreement") increasing its senior secured revolving credit facility (the "Revolving Credit Facility") to $65 million from $40 million and setting the maturity date to April 12, 2022. Up to an aggregate of $10 million is available to the borrowers for the issuance of letters of credit, which reduces availability under the Third ARLS Agreement.

The Third ARLS Agreement included amendments to certain definitions and covenants including, but not limited to, amendments to (i) permitted debt, (ii) permitted distributions, (iii) distribution of assets, and (iv) the calculation of EBITDA. The Third ARLS Agreement contains a fixed charge coverage ratio maintenance covenant of 1.00:1.00 and amended the availability threshold for triggering compliance with the fixed charge coverage ratio.

The borrowers’ obligations under the Revolving Credit Facility are secured (subject to certain permitted liens) by a first-priority lien on substantially all of the current assets (and a second priority lien on substantially all of the non-current assets) of the borrowers. Each of the Company and each other borrower is jointly and severally liable for the obligations under the Revolving Credit Facility and unconditionally guarantees the prompt payment and performance thereof. The liens, the security interests and all of the obligations of the Company and each other borrower and all provisions regarding remedies in an event of default are subject to an intercreditor agreement among the Company, certain of its subsidiaries, the agent under the Third ARLS Agreement and the collateral agent for the lenders party to the Company’s Term Loan Facility.

On September 18, 2019, the Company and certain of its subsidiaries, as co-borrowers, entered into an Amendment No. 1 (the “Amendment”), which amends the terms of the Revolving Credit Facility to entitle the Company and the other named borrowers thereunder (subject to the terms and conditions described therein) to request loans and other financial accommodations in an amount equal to the lesser of $90.0 million and a borrowing base composed of accounts receivable and inventory (such facility, the “Tranche A Facility”). Of the $90.0 million, $7.0 million shall be available as a first-in, last-out facility (“Tranche B Facility”) at a 100 basis points premium, as reflected in the below applicable margin table.

On May 11, 2020, the Company and certain of its subsidiaries, as guarantors or co-borrowers, as applicable, entered into an Amendment No. 2 (the “Revolving Amendment”), which amends the terms of the Third ARLS Agreement to align certain of the restrictive covenants with the restrictive covenants set forth in the TLS Agreement, as amended.

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As amended, loans outstanding under the Third ARLS Agreement accrue interest at a per annum rate based on (at the Company’s election) the base rate or the LIBOR rate plus a margin determined by reference to availability under the Revolving Credit Facility as follows, subject to a LIBOR floor of 1.00%:

The applicable margin is subject to increase or decrease by the agent on the first day of the calendar month following each fiscal quarter end. If the agent is unable to calculate average daily availability for a fiscal quarter due to the borrowers' failure to deliver a borrowing base certificate when required, the applicable margin will be set at Level I until the first day of the calendar month following receipt of a borrowing base certificate. As of December 31, 2020, the applicable margin was set at Level III.

The unamortized deferred financing fees associated with our revolving credit facility of $0.4 million and $0.6 million as of December 31, 2020 and December 31, 2019, respectively, are being amortized over the remaining life of the agreement. As of December 31, 2020 and December 31, 2019, we did not have borrowings under the revolving credit facility and had outstanding letters of credit of $1.6 million, respectively. We had borrowing availability of $88.4 million at December 31, 2020.

The Company pays a commitment fee to the lenders equal to 0.35% per annum of the unused amounts under the revolving credit facility.

Terms, Covenants and Compliance Status

The Third ARLS Agreement requires the maintenance of a minimum fixed charge coverage ratio. The borrowers are not required to comply with the fixed charge coverage ratio requirement for so long as the borrowers maintain borrowing availability under the revolving credit facility at the greater of (i) $5,000,000 or (ii) ten percent (10%) of the revolving commitments. If borrowing availability falls below this threshold at any time, the borrowers would be required to comply with the fixed charge coverage ratio of 1.00:1.00 as of the end of each relevant fiscal quarter and would be required to continue to comply with these requirements until the borrowers have borrowing availability in excess of this threshold for 60 consecutive days. Since the Company had borrowing availability in excess of this threshold from December 31, 2019 through December 31, 2020, the Company was not required to comply with the minimum fixed charge coverage ratio covenant during the year ended December 31, 2020.

The Third ARLS Agreement contains customary restrictive covenants, including limitations on our ability and the ability of our subsidiaries to: incur additional debt; pay dividends or other restricted payments; make investments; engage in transactions with affiliates; create liens on assets; and consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries. The Third ARLS Agreement also contains customary reporting and other affirmative covenants. The Company was in compliance with these covenants as of December 31, 2020.

Voluntary prepayments of amounts outstanding under the Revolving Credit Facility are permitted at any time, without premium or penalty, other than (to the extent applicable) customary LIBOR breakage charges.

The Third ARLS Agreement requires the borrowers to make mandatory prepayments upon the receipt of insurance or condemnation proceeds in respect of the revolving credit facility’s priority collateral.

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4. Goodwill and Intangible Assets

Our intangible assets as of December 31 were comprised of the following:

Definite-lived intangible assets:

The aggregate intangible asset amortization expense was $3.4 million for the fiscal year ended December 31, 2020 and $2.0 million and $1.3 million for the fiscal years ended December 31, 2019 and 2018 respectively. The estimated intangible asset amortization expense for each of the five succeeding fiscal years ending after December 31, 2020 is $3.4 million for years 2021 through 2023, $2.8 million for the year ending December 31, 2024 and $1.4 million for the year ending December 31, 2025.

Goodwill represents the excess of acquisition purchase price over the fair value of net assets acquired. During the first quarter of 2020, as a result of the Company’s market capitalization value being less than the carrying value of its equity for a duration of time, the Company determined it had an impairment indicator. Accordingly, the Company estimated the fair value of each of the reporting units with goodwill by discounting the estimated cash flows of each reporting unit. The estimated fair values of the reporting units were then compared to their net carrying values as of March 31, 2020 and, as a result, the Company recognized $27.1 million impairment of goodwill, which represented the carrying amount of goodwill prior to the impairment charge. The impairment charge is presented in Goodwill and other impairment expense in the Consolidated Statements of Operations.

The changes in the carrying amounts of goodwill for the years ended December 31 are as follows:

Electrical Systems Global Seating Total

Finalization of FSE purchase accounting (537) — (537)

Currency translation adjustment — (205) (205)

Balance - end of the year $ — $ — $ —

Electrical Systems Global Seating Total

Finalization of FSE purchase accounting 20,365 — 20,365

Currency translation adjustment — (125) (125)

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5. Business Combinations

On September 17, 2019, the Company entered into and closed on an Asset Purchase Agreement (the “Agreement”) with First Source Electronics, LLC (“FSE”), Kevin Popielarczyk and Richard Vuoto and the Company’s wholly-owned subsidiary, CVG FSE, LLC (“CVG FSE”). The Agreement provided for the acquisition by CVG FSE of substantially all of the assets and certain liabilities of FSE in exchange for a cash purchase price of $34.0 million, subject to a net working capital adjustment, plus a right to earn up to $10.8 million in contingent milestone payments. The purchase was funded through domestic cash on hand and $2.0 million of borrowings under our revolving credit facility. FSE is in the business of manufacturing, distributing, marketing and selling cable and electro-mechanical assemblies, control panels and other business and consumer electronics products and services. FSE improves our ability to participate in the progression of digitalization, connectivity and associated power and data applications. Furthermore, this strategic acquisition complements our high-complexity, low-to-medium volume electrical business, provides an entry into the warehouse automation market, and provides the opportunity to leverage our global footprint and to increase cross-selling opportunities.

The contingent milestone payments are payable based on achieving certain earnings before interest, taxes, depreciation and amortization ("EBITDA") thresholds over the periods from (a) September 18, 2019 through September 17, 2020, (b) September 18, 2019 through March 17, 2021, (c) September 18, 2019 through September 17, 2022 and (d) March 18, 2021 through September 17, 2022. The payment amount will be determined on a sliding scale for reaching between 90% and 100% of the respective EBITDA targets. The fair value for the milestone payments is based on a Monte Carlo simulation utilizing forecasted EBITDA through September 17, 2022 and a discount rate of 21.0%. The estimate of $4.7 million was recorded within other long-term liabilities in the Consolidated Balance Sheet as of September 30, 2019. The total undiscounted contingent milestone payments is estimated at $10.8 million. The contingent consideration was revalued each quarter under the same valuation technique applied during purchase accounting. The fair value of contingent consideration increased during the year ended December 31, 2020 by $5.1 million, due to remeasurement which is recognized in Selling, general and administrative expenses in the Consolidated Statements of Operations. A payment of $1.0 million was made during the fourth quarter of 2020 based on achievement of the first EBITDA threshold. The fair value is $8.8 million as of December 31, 2020, based on a discount rate of 16.8%.

The Agreement contains customary indemnification provisions and provided for the establishment of an escrow fund of $3.0 million of the purchase price to secure indemnification claims by CVG FSE for an 18-month period. The Company is a party to the Agreement solely as a guarantor of CVG FSE’s payment obligations.

The FSE Acquisition was accounted for under the acquisition method of accounting. Under acquisition accounting, the acquired tangible and intangible assets and liabilities of FSE have been recorded at their respective fair values. The Company has completed its assessment of fair values of assets acquired and liabilities assumed, and the final amounts are reflected in the table below. The purchase price associated with the FSE Acquisition exceeded the preliminary fair value of the net assets acquired by approximately $19.8 million. This reflects an increase of $2.2 million from the initial valuation as of December 31, 2019. A final adjustment to the purchase price was made in the three months ended March 31, 2020 reducing goodwill by $0.5 million. The excess purchase price over net assets acquired is recorded as goodwill and was determined as follows:

Initial cash paid, net of working capital adjustment $ 34,000

Purchase price adjustment (537)

Contingent consideration at fair value 4,700

Total consideration $ 38,163

Net assets at fair value 18,335

Excess of total consideration over net assets acquired $ 19,828

In the first quarter of 2020, pursuant to the asset purchase agreement a final adjustment resulted in a $0.5 million reduction in the initial consideration paid and goodwill. The valuation is final as of March 31, 2020. The allocation of the fair value of the

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assets acquired and liabilities assumed, at acquisition and as adjusted for the final adjustment at December 31, 2020, were as follows:

Preliminary Purchase Price Allocation Adjustment Final Purchase Price Allocation

Property, plant and equipment 503 — 503

Other long-term liabilities (1,174) (1,174)

1.As disclosed in Note 4, Goodwill and Intangible Assets, the full value of the Company's goodwill was impaired during the three months ended March 31, 2020.

6. Fair Value Measurement

At December 31, 2020, our financial instruments included cash, accounts receivable, accounts payable, accrued liabilities and our revolving credit facility. The carrying value of these instruments approximates fair value as a result of the short duration of such instruments or due to the variability of the interest cost associated with such instruments.

Foreign Currency Forward Exchange Contracts. Our derivative assets and liabilities represent foreign exchange contracts that are measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk and counterparty credit risk. Based on the utilization of these inputs, the derivative assets and liabilities are classified as Level 2.

To manage our risk for transactions denominated in Mexican Pesos, we have entered into forward exchange contracts that are designated as cash flow hedge instruments, which are recorded in the Consolidated Balance Sheets at fair value. The gains and losses as a result of the changes in fair value of the hedge contract is deferred in accumulated other comprehensive loss and recognized in cost of revenues in the period the related hedge transactions are recognized.

Interest Rate Swap Agreement. To manage our exposure to variable interest rates, we have entered into an agreement (the “Interest Rate Swap Agreement”) with Bank of America, N.A. whereby the Company has agreed to exchange, at a specified interval, the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. The Interest Rate Swap Agreement is intended to mitigate the impact of rising interest rates on the Company and covers $80 million of outstanding debt under the senior secured term loan facility. The Company expects this agreement to remain effective during the remaining term of the Interest Rate Swap Agreement and records the impact of the agreement in interest expense in the Consolidated Statements of Operations.

The fair values of our derivative instruments and contingent consideration measured on a recurring basis as of December 31 and are categorized as follows:

Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3

Interest rate swap agreement 2 $ 936 $ — $ 936 $ — $ 150 $ — $ 150 $ —

1 Presented in the Consolidated Balance Sheets in other current assets and based on observable market transactions of spot and forward rates.

2 Presented in the Consolidated Balance Sheets in accrued liabilities and based on observable market transactions of forward rates.

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3 Presented in the Consolidated Balance Sheets in accrued liabilities and other and based on observable market transactions of forward rates.

4 Presented in the Consolidated Balance Sheets in accrued liabilities and other long term liabilities and based on a Monte Carlo valuation model.

5 Presented in the Consolidated Balance Sheets in accumulated other comprehensive income (loss) and based on observable market transactions of forward rates.

The following table summarizes the notional amount of our open foreign exchange contracts at December 31:

We consider the impact of our credit risk on the fair value of the contracts, as well as the ability to execute obligations under the contract.

The following table summarizes the effect of derivative instruments on the Consolidated Statements of Operations for derivatives not designated as hedging instruments at December 31:

Foreign exchange contracts Cost of revenues $ (1,811) $ 4

Interest rate swap agreement Interest expense $ (1,031) $ (1,818)

Long-term Debt. The fair value of long-term debt obligations is based on a fair value model utilizing observable inputs. Based on these inputs, our long-term debt is classified as Level 2. The carrying amounts and fair values of our long-term debt at December 31 are as follows:

CarryingAmount Fair Value CarryingAmount Fair Value

1 Presented in the Consolidated Balance Sheets as the current portion of long-term debt of $2.4 million and long-term debt of $144.1 million as of December 31, 2020, and current portion of long-term debt of $3.3 million and long-term debt of $153.1 million as of December 31, 2019.

Long-lived Assets. There are no fair value measurements of our long-lived assets and definite-lived intangible assets measured on a non-recurring basis, except for definite-lived intangibles acquired and contingent consideration as a part of the acquisition of First Source Electronics, LLC discussed in Note 5, Business Combination, as of December 31, 2020 and December 31, 2019. The contingent consideration is classified as Level 3 and valued based on a Monte Carlo valuation model.

For the period ended December 31, 2020, an impairment charge of $1.1 million was recognized for the Electrical Systems segment, $0.4 million related to an operating lease right-of-use asset and $0.7 million related to property, plant and equipment. Additionally, for the period ended December 31, 2020, an impairment charge of $0.8 million was recognized for the corporate aircraft and was based on the selling price, less selling costs, of $0.3 million. These impairment charges are presented in impairment expense in the Consolidated Statements of Operations.

Goodwill Impairment. For the period ended December 31, 2020, an impairment charge of $27.1 million was recognized for goodwill and was based on the estimated fair values of goodwill for the reporting units compared to the net carrying values at March 31, 2020. The impairment charge is presented in impairment expense in the Consolidated Statements of Operations.

No other non-recurring fair value measurements were assessed during the period ended December 31, 2020.

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7. Leases

The Company leases office, warehouse and manufacturing space and certain equipment under non-cancelable operating lease agreements that generally require us to pay maintenance, insurance, taxes and other expenses in addition to annual rental fees. Our leases have remaining lease terms of one year to nine years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year.

The components of lease expense are as follows:

Twelve Months Ended December 31,

Finance lease cost:

Amortization of right-of-use assets 394 341

Interest on lease liabilities 43 60

Total finance lease cost $ 437 $ 401

1.The Company recognized accelerated lease costs of $1.1 million during the year ended December 31, 2020 related to the corporate research and development center.

2.Includes variable lease costs, which are not significant.

Supplemental cash flow information related to leases is as follows:

Twelve Months Ended December 31, 2020 Twelve Months Ended December 31, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 10,571 $ 7,898

Financing cash flows from finance leases $ 446 $ 443

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Supplemental balance sheet information related to leases is as follows:

Operating Leases

Current liabilities Current operating lease liabilities $ 9,236 $ 7,620

Non-current liabilities Operating lease liabilities 23,932 29,414

Total operating lease liabilities $ 33,168 $ 37,034

Finance Leases 1

Accumulated depreciation (643) (343)

Right-of-use assets, net Other assets, net $ 767 $ 792

Current liabilities Accrued liabilities and other $ 293 $ 354

Non-current liabilities Other long-term liabilities 434 398

Total finance lease liabilities $ 727 $ 752

Weighted Average Remaining Lease Term

Operating leases 4.5 years 5.0 years

Finance leases 3.2 years 2.8 years

Weighted Average Discount Rate

Operating leases 8.0 % 9.1 %

Finance leases 5.1 % 7.2 %

1.Note that all new financing leases added during the twelve months ended December 31, 2020 were executed before the loan amendment discussed in Note 3, Debt, or May 11, 2020.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. We utilize an incremental borrowing rate, which is reflective of the specific term of the leases and economic environment of each geographic region, and apply a portfolio approach for certain machinery and equipment that have consistent terms in a specific geographic region.

Anticipated future lease costs, which are based in part on certain assumptions to approximate minimum annual rental commitments under non-cancelable leases, are as follows:

Year Ending December 31, Operating Financing Total

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8. Income Taxes

Pre-tax income (loss) consisted of the following for the years ended December 31:

A reconciliation of income taxes computed at the statutory rates to the reported income tax provision for the years ended December 31 follows:

Federal (benefit) provision at statutory rate $ (9,345) $ 4,527 $ 10,411

U.S./Foreign tax rate differential 492 393 731

State taxes, net of federal benefit (1,086) 308 619

State tax rate change, net of federal benefit — (41) (32)

Change in uncertain tax positions 71 15 84

Share-based compensation (15) (14) (50)

GILTI, net of related foreign tax credit (1,340) 730 1,194

(Benefit) Provision for income taxes $ (7,451) $ 5,778 $ 8,087

The provision (benefit) for income taxes for the years ended December 31 follows:

Current Deferred Total Current Deferred Total Current Deferred Total

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A summary of deferred income tax assets and liabilities as of December 31 follows:

Noncurrent deferred tax assets:

Amortization and fixed assets $ 5,094 $ 830

Other temporary differences not currently available for tax purposes 7,089 3,248

Total noncurrent deferred tax assets $ 42,422 $ 26,646

Net noncurrent deferred tax assets $ 25,981 $ 14,654

Noncurrent deferred tax liabilities:

Amortization and fixed assets $ (952) $ (2,501)

Pension obligations 161 —

Net operating loss carryforwards — 1,517

Other temporary differences not currently available for tax purposes (261) (578)

Total noncurrent tax liabilities (1,061) (1,558)

We assess whether valuation allowances should be established against deferred tax assets based on consideration of all available evidence using a “more likely than not” standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with unused tax attributes expiring and tax planning alternatives. In making such judgments, significant weight is given to evidence that can be objectively verified.

During 2020, we recorded additional valuation allowance of $4.5 million on the deferred tax assets of our United Kingdom subsidiary and certain U.S. federal and state tax attribute carryforwards, and released $0.1 million in valuation allowances related to the deferred tax assets of our Luxembourg subsidiary. We expect to be able to realize the benefits of all of our deferred tax assets that are not currently offset by a valuation allowance, as discussed above. In the event that our actual results differ from our estimates or we adjust these estimates in future periods, the effects of these adjustments could materially impact our financial position and results of operations.

Activity for the years ended December 31 is as follows (in thousands):

As of December 31, 2020, the Company had net operating loss carryforwards of $126.5 million, of which $49.1 million related to foreign jurisdictions and $77.4 million related to U.S. state jurisdictions. The carryforward periods for these net operating losses range from five years to indefinite. Utilization of these losses is subject to the tax laws of the applicable tax jurisdiction and may be limited by the ability of certain subsidiaries to generate taxable income in the associated tax jurisdiction. We have established valuation allowances for all net operating losses that we believe are more likely than not to expire before they can be utilized.

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As of December 31, 2020, we had $3.3 million of U.S. foreign tax credit carryforwards, net of a $1.7 million valuation allowance, primarily attributable to the deemed repatriation of the accumulated untaxed earnings of our foreign subsidiaries resulting from the U.S. Tax Reform. Utilization of these credits may be limited if the Company does not generate sufficient U.S. federal taxable income in future years. The credits begin to expire in 2027.

As of December 31, 2020, we had $0.9 million of research and development tax credit carryforwards related to our U.S. operations. Utilization of these credits may be limited if the Company does not generate sufficient U.S. federal taxable income in future years. The credits begin to expire in 2032.

As of December 31, 2020, cash of $41.9 million was held by foreign subsidiaries. During the year ended December 31, 2020, $11.2 million, net of $0.6 million in foreign withholding tax incurred, was repatriated from the Company's foreign subsidiaries. The Company had a $0.3 million deferred tax liability as of December 31, 2020 for the expected future income tax implications of repatriating cash from the foreign subsidiaries for which no indefinite reinvestment assertion has been made.

We file federal income tax returns in the U.S. and income tax returns in various states and foreign jurisdictions. In the U.S., we are generally no longer subject to tax assessment for tax years prior to 2017. In our major non-U.S. jurisdictions including China, Czech Republic, Mexico and the United Kingdom, tax years are typically subject to examination for three to five years.

As of December 31, 2020, and 2019, we provided a liability of $1.0 million and $0.9 million, respectively, for unrecognized tax benefits associated with our U.S. federal and state, and foreign jurisdictions. The majority of these unrecognized tax benefits are netted against their related non-current deferred tax assets.

We accrue interest and penalties related to unrecognized tax benefits through income tax expense. We had $0.5 million and $0.4 million accrued for the payment of interest and penalties as of December 31, 2020 and December 31, 2019, respectively. Accrued interest and penalties are included in the $1.0 million of unrecognized tax benefits.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (including interest and penalties) at December 31 follows:

Balance - Beginning of the year $ 908 $ 894 $ 811

Gross increase - tax positions in prior periods 73 70 66

Gross decreases - tax positions in prior periods — (39) (14)

Gross increases - current period tax positions — — 59

Lapse of statute of limitations — (12) (12)

Currency translation adjustment 25 (5) (16)

9. Accrued and Other Liabilities

Accrued and other liabilities consisted of the following as of December 31:

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10. Defined Contribution Plan, Pension and Other Post-Retirement Benefit Plans

Defined Contribution Plan - We sponsor a defined contribution plan covering eligible employees. Eligible employees can contribute on a pre-tax basis to the plan. In accordance with the terms of the 401(k) plan, we elect to match a certain percentage of the participants’ contributions to the plan, as defined. We recognized expense associated with the plan of $1.9 million, $4.6 million and $3.6 million for the years ended December 31, 2020, 2019, and 2018, respectively. The decrease in expense for the year ended December 31, 2020 as compared to the to the prior year period primarily resulted from the temporary suspension of the employer 401(k) match taken in response to the COVID-19 pandemic.

Pension and Other Post-Retirement Benefit Plans - We sponsor pension and other post-retirement benefit plans that cover certain hourly and salaried employees in the U.S. and United Kingdom. Each of the plans are frozen to new participants and to additional service credits earned. In December 2018, we consolidated the U.S. plans. Our policy is to make annual contributions to the plans to fund the minimum contributions, as required by local regulations.

During the three months ended March 31, 2019, the Company offered employees with deferred vested balances in the U.S. defined benefit pension plan the opportunity to voluntarily elect an early payout of their benefits. Payouts totaling $7.9 million were made during 2019 and were paid out of plan assets resulting in a non-cash settlement charge of $2.5 million, which was recorded in interest and other expense in the Consolidated Statements of Operations and is reflected in amortization of prior service cost in the net periodic (benefit) cost table below.

The change in benefit obligation, plan assets and funded status as of December 31 is as follows:

U.S. Pension and Other Post-Retirement Benefit Plans Non-U.S. Pension Plan

Change in benefit obligation:

Service cost — — 37 —

Participant contributions 2 6 — —

Change in plan assets:

Participant contributions 2 6 — —

Actuarial Loss - The projected U.S. benefit obligation includes a net loss of $2.9 million for the year ended December 31, 2020. The loss is a result of changes in key actuarial assumptions, including the decrease in the discount rate. The projected Non-U.S. benefit obligation includes a net loss of $7.5 million for the year ended December 31, 2020 driven primarily by a decrease in the discount rate assumption.

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Amounts recognized in the Consolidated Balance Sheets at December 31 consisted of:

U.S. Pension and Other Post-Retirement Benefit Plans Non-U.S. Pension Plan

Noncurrent assets $ 1,557 $ 633 $ — $ —

Current liabilities (20) (19) — —

CVGI US Equity

CVGI · 10-K · period ended 2020-12-31

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Item 8.Financial Statements and Supplementary Data

CVGI US Equity☆

CVGI · 10-K · period ended 2020-12-31

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Item 8.Financial Statements and Supplementary Data

CVGI US Equity