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 in 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 systems, assemblies and components to the global commercial vehicle market, the electric vehicle market, and the industrial automation markets. We deliver real solutions to complex design, engineering and manufacturing problems while creating positive change for our customers, industries, and communities we serve.

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 to meet the requirements of our customer. We believe our products are used by a majority of the North American Commercial Truck markets, many construction vehicle OEMs and top e-commerce retailers.

Commercial Trends in the Vehicle Solutions and Aftermarket & Accessories Segments

Demand for our products may be driven by preferences of the end-user of the vehicle, particularly with respect to heavy-duty trucks in North America. Heavy-duty truck OEMs generally dictate the specifications of 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. 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 fit 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.

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, supply chain constraints, 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 315,128 units in 2022. According to a February 2023 report by ACT Research, a publisher of industry market research, North American Class 8 production levels are expected to decrease to 305,000 units in 2023. ACT Research estimated that the average age of active North American Class 8 trucks was 5.8 years in 2022. 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 was 241,172 units in 2022. According to a February 2023 report by ACT Research, North American Class 5-7 truck production is expected to increase to 242,000 units in 2023. We primarily participate in the class 6 and 7 portion of the medium-duty truck market.

Commercial Trends in the Electrical Systems Segment

Demand for our Electrical Systems products, such as wire harnesses, is primarily driven by construction equipment 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.

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Other Key Developments

In the first quarter of 2022, Russian military forces invaded Ukraine. We have approximately 1,200 employees in the Ukraine located in our facility near L'viv. While the facility was temporarily shut-down, we have resumed operations in L'viv and also set up additional capacity in the Czech Republic.

The invasion of Ukraine by Russia and the retaliatory measures taken by the U.S., NATO and other countries have created global security concerns and economic uncertainty that could have a lasting impact on regional and global economies. We cannot be certain that international tensions will not affect our facility in the Ukraine, including due to the Russian invasion, electrical outages, cyber-attacks and periodic battles with separatists closer to our facility. In addition, certain of our employees in Ukraine may be conscripted into the military and/or sent to fight in the ongoing conflict. Furthermore, most of our products manufactured in Ukraine are shipped across the border from Ukraine to the Czech Republic for further delivery to our customers. If the border crossing were to be closed or restricted for any reason, or if our customers decide to stop ordering from us or shift orders to our competitors, we would experience a loss of the use of our Ukrainian facility, which could have an adverse effect on our results of operations and financial condition.

The COVID-19 pandemic has caused and continues to cause, significant volatility, uncertainty and economic disruptions to our business. During the twelve months ended December 31, 2022, we experienced shutdowns at our plant in Shanghai, China due to the COVID-19 pandemic. 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 inconsistent 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. The extent of the adverse effect of the COVID-19 pandemic on our business results depends on a number of factors beyond our control.

While backlog continues to be strong in the truck markets, all markets we operate in were impacted by supply chain constraints which caused volatility on our customers' production schedules and had a negative impact on our results. Overall, we continued to experience global supply chain disruptions and significant inflation, including longer lead-times to procure parts from China and due to port backups, labor inflation, chip shortages, steel and other raw material inflation, labor shortages and freight cost increases. The impact of the pandemic, the related economic recovery and global inflationary pressures continue to be uneven from period to period and across our global footprint based on local and regional outbreaks. We continue to proactively monitor, assess and seek to minimize disruptions and delays in production due to labor shortages or customer schedules, focus on cost control and recovery through pricing adjustments, and take reasonable measures to protect our workforce.

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, organically growing in targeted areas, strengthening its product portfolio, increasing its margins and adding to its business segments through a focused M&A program. The Company expects to diversify its revenue and profits by product, customer, platform, and end market. Our products include seating systems, plastic components, cab structures, warehouse automation subsystems, electrical wire harnesses, mirrors, wipers and other accessories.

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

•A growing amount of future business in 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.

We expect to lessen our dependence on certain products and markets, broaden the company’s customer list, broaden the company’s product offering and increase our margins. The goal is to become less cyclical and less customer concentrated and increase focus 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, such as implementing restructuring as needed.

We are also supplementing our organic strategies by evaluating strategic acquisition opportunities. The company has many opportunities to accomplish this type of business improvement 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.

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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

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Consolidated Results

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

1.Not meaningful

Revenues. The increase in consolidated revenues resulted from:

•a $68.5 million, or 11.1%, increase in sales to OEM;

•a $91.6 million, or 55.7%, decrease in industrial automation sales;

•a $12.2 million, or 6.8%, increase in aftermarket and OES sales; and

•a $20.9 million, or 228.4%, increase in other revenues.

Twelve months ended December 31, 2022 revenues were unfavorably impacted by foreign currency exchange translation of $18.6 million, which is reflected in the change in revenues above. The increase in revenues was primarily driven by increased pricing to offset material cost increases and increased sales volume, offset by sales volume decreases in the Industrial Automation segment.

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costs of $23.5 million, or 4.1%; an increase in wages and benefits of $3.5 million, or 4.8%; and an increase in overhead expenses of $15.5 million, or 7.4%. As a percentage of revenues, gross profit margin was 8.8% for the year ended December 31, 2022 compared to 12.2% for the year ended December 31, 2021.

Other (Income) Expense. Other expense increased $11.3 million in the year ended December 31, 2022 as compared to the year ended December 31, 2021 due primarily to a settlement of the Company's U.S. Pension Plan liabilities of $9.2 million as well as an unfavorable change in foreign currency of $1.3 million.

Interest Expense. Interest associated with our debt was $9.8 million and $11.2 million for the years ended December 31, 2022 and 2021, respectively. The decrease primarily related to lower interest rates, partially offset by a higher average debt balance during the respective comparative periods.

Loss on extinguishment of debt. On May 12, 2022, the Company refinanced its long-term debt, which resulted in a loss of $0.9 million, including a $0.6 million non-cash write off relating to deferred financing costs of the Term Loan facility due 2026 and $0.3 million of other associated fees. During the twelve months ended December 31, 2021 the Company refinanced its long-term debt, which resulted in a loss of $7.2 million, including a $3.7 million non-cash write off relating to deferred financing costs and unamortized discount of the 2023 Term Loan Facility, a voluntary repayment premium of $3.0 million and $0.5 million of other associated fees.

Provision (Benefit) for Income Taxes. Income tax expense of $20.9 million and $8.4 million were recorded for the year ended December 31, 2022 and 2021, respectively. The period over period change in income tax was primarily impacted by establishing a full valuation allowance on our U.S. deferred tax assets of $24.5 million offset by the elimination of a $9.9 million valuation allowance on our United Kingdom (U.K.) deferred tax asset.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Consolidated Results

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

1.Not meaningful

Fluctuations in results from operations during the twelve months ended December 31, 2021 compared to twelve months ended December 31, 2020 were primarily driven by weak operating performance during the second and third quarters of 2020 as a result of the COVID-19 pandemic.

Revenues. The increase in consolidated revenues resulted from:

•a $143.6 million, or 26.1%, increase in sales to OEM;

•a $99.1 million, or 151.9%, increase in industrial automation sales;

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•a $6.4 million, or 6.4%, increase in aftermarket and OES sales; and

•a $4.8 million, or 112.0%, increase in other revenues.

Twelve months ended December 31, 2021 revenues were favorably impacted by foreign currency exchange translation of $13.2 million, which is reflected in the change in revenues 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 increase in gross profit is primarily attributable to the increase in sales volume, increased pricing to offset material cost increases, and an improved cost structure. Cost of revenues increased $209.0 million, or 32.5% as a result of an increase in raw material and purchased component costs of $160.7 million, or 39.3%; an increase in wages and benefits of $17.0 million, or 30.3%; and an increase in overhead expenses of $31.3 million, or 17.5%. As a percentage of revenues, gross profit margin was 12.2% for the year ended December 31, 2021 compared to 10.3% for the year ended December 31, 2020.

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses consist primarily of wages and benefits and other expenses such as Contingent Consideration, marketing, travel, legal, audit, rent and utilities costs, which are not directly or indirectly associated with the manufacturing of our products. SG&A expenses increased $1.2 million in the year ended December 31, 2021 as compared to the year ended December 31, 2020 primarily as a result of wages and benefits returning to or increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 due to the temporary actions taken in response to the COVID-19 pandemic. The increase was offset by a decrease in non-recurring payments relating to CEO transition and investigation expense incurred during the twelve months ended December 31, 2020 of $5.2 million, a $4.4 million decrease in charge for Contingent Consideration, and a $1.5 million decrease in charges associated with ongoing restructuring initiatives. As a percentage of revenues, SG&A expense was 7.1% for the twelve months ended December 31, 2021 compared to 9.5% for the twelve months ended December 31, 2020.

Impairment Expense. As a result of the Company's market capitalization having a value less than the carrying value of its equity for a period of time and market conditions impacting long-lived assets, the Company determined it had impairment indicators during the twelve months ended December 31, 2020. Accordingly, we recognized a $27.1 million impairment of goodwill and impairment of long-lived assets of $1.9 million for the twelve months ended December 31, 2020, which did not recur in 2021.

Other (Income) Expense. Other income increased $1.6 million in the year ended December 31, 2021 as compared to the year ended December 31, 2020 due primarily to a favorable change in foreign currency of $0.9 million.

Interest Expense. Interest associated with our debt was $11.2 million and $20.6 million for the years ended December 31, 2021 and 2020, respectively. The decrease primarily related to a lower interest expense of $7.0 million due to refinancing of the Company's long term debt in April 2021, a decrease of $3.2 million in Payment In Kind interest expense resulting from the loan amendment that occurred in the second quarter of 2020 and a favorable change in interest rate swap adjustments of $1.0 million.

Loss on extinguishment of debt. On April 30, 2021, the Company refinanced its long-term debt, which resulted in a loss of $7.2 million, including a $3.7 million non-cash write off relating to deferred financing costs and unamortized discount of the 2023 Term Loan Facility, a voluntary prepayment premium of $3.0 million and $0.5 million of other fees associated with the new debt.

Provision (Benefit) for Income Taxes. Income tax expense of $8.4 million and an income tax benefit of $7.5 million were recorded for the year ended December 31, 2021 and 2020, respectively. The period over period change in income tax was primarily attributable to the $32.1 million pre-tax income generated in the current year versus the $44.5 million pre-tax loss sustained in the prior year period.

SEGMENT RESULTS OF OPERATIONS

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Vehicle Solutions Segment Results

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 and Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The table below sets forth certain Vehicle Solutions Segment operating data for the twelve months ended, (dollars are in thousands):

Revenues. The increase in 2022 revenues of $80.8 million from 2021 primarily resulted from increased pricing to offset material cost pass-through and new business wins offset by lower shipments caused by the COVID-19 shutdown in China. The increase in 2021 revenues of $132.3 million from 2020 was primarily a result of increased sales volume and increased pricing to offset material cost increases.

Gross Profit. The decrease in 2022 gross profit of $4.6 million from 2021 was primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases. Included in gross profit is cost of revenues, which increased $85.4 million, or 19.1%, in line with the sales increase of 16.2%. The cost of revenue increase included an increase in raw material and purchased component costs of $66.4 million, or 22.3%; an increase in wages and benefits of $3.2 million, or 10.2%; and an increase in overhead expenses of $15.8 million, or 13.2%. The increase in 2021 gross profit of $18.2 million from 2020 was primarily attributable to the increase in sales volume and increased pricing to offset material cost increases.

As a percentage of revenues, gross profit for each of the years in the three‐year period ended December 31, 2022, was 7.9%, 10.1%, and 8.8%, respectively. The decrease in gross profit in 2022 from 2021 was primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases. The increase in gross profit in 2021 from 2020 was primarily due to recovery from COVID-19 related disruptions which peaked during 2020.

Selling, General and Administrative Expenses. The decrease in 2022 SG&A expenses of $2.0 million from 2021 was primarily due to lower incentive compensation and health care expense. The increase in 2021 SG&A expenses of $4.4 million from 2020 was primarily due to wages and benefits returning to or increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 due to the Company's temporary actions taken in response to the COVID-19 pandemic.

Impairment Expense. The Company recorded an impairment of goodwill and long-lived assets for the twelve months ended December 31, 2020.

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Electrical Systems Segment Results

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 and Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The table below sets forth certain Electrical Systems Segment operating data for the twelve months ended, (dollars are in thousands):

Goodwill and other impairment — — — — $ 1,150 (1,150) (100.0)

Revenues. The increase in 2022 revenues of $11.4 million from 2021 is primarily attributable to increased pricing to offset material cost pass-through and new business wins. The increase in 2021 revenues of $27.9 million from 2020 was primarily a result of increased sales volume and increased pricing to offset material cost increases.

Gross Profit. The increase in 2022 gross profit of $3.2 million from 2021 was primarily due to increased sales volume and increased pricing to offset material cost increases. Included in gross profit is cost of revenues, which increased $8.2 million, or 5.5%, in line with the sales increase of 6.8%. The cost of revenue increase included an increase in raw material and purchased component costs of $4.7 million, or 5.6%; an increase in wages and benefits of $3.8 million, or 16.3%; and a decrease in overhead expenses of $0.3 million, or 0.7%. The increase in 2021 gross profit of $8.6 million from 2020 was primarily attributable to the increase in sales volume and increased pricing to offset material cost increases.

As a percentage of revenues, gross profit for each of the years in the three‐year period ended December 31, 2022, was 13.3%, 12.3%, and 8.6%, respectively. The increase in 2022 gross profit margin was primarily due to increased sales volume and increased pricing to offset material cost increases. The increase in 2021 from 2020 was primarily due to recovery from COVID-19 related disruptions which peaked during 2020.

Selling, General and Administrative Expenses. 2022 SG&A expenses decreased $0.4 million from 2021, essentially flat on a percent of sales basis. The increase in 2021 SG&A expenses of $2.2 million from 2020 was primarily due to wages and benefits returning to or increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 due to the temporary actions taken by the Company in response to the COVID-19 pandemic.

Impairment Expense. The Company recorded an impairment of goodwill and long-lived assets for the twelve months ended December 31, 2020.

Aftermarket & Accessories Segment Results

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 and Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The table below sets forth certain Aftermarket & Accessories Segment operating data for the twelve months ended, (dollars are in thousands):

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Revenues. The increase in 2022 revenues of $17.9 million from 2021 resulted from increased sales volume and increased pricing to offset material cost pass-through. The increase in 2021 revenues of $7.5 million from 2020 was primarily a result of increased sales volume and increased pricing to offset material cost increases.

Gross Profit. The increase in 2022 gross profit of $0.9 million from 2021 is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases. Included in gross profit is cost of revenues, which increased $17.0 million, or 17.4%. The cost of revenue increase included an increase in raw material and purchased component costs of $7.9 million, or 12.6%; an increase in wages and benefits of $2.9 million, or 35.6%; and an increase in overhead expenses of $6.2 million, or 23.3%. The increase in 2021 gross profit of $1.3 million from 2020 was consistent with the revenue increase.

As a percentage of revenues, gross profit for each of the years in the three‐year period ended December 31, 2022, was 14.1%, 15.5%, and 15.4%, respectively. The decrease in 2022 gross profit margin is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases. The twelve months ended December 31, 2022 results include charges of $1.4 million associated with the restructuring program.

Selling, General and Administrative Expenses. The increase in 2022 SG&A expenses of $1.0 million from 2021, consistent with the prior year amount on a percent of sales basis.

Industrial Automation Segment Results

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 and Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Contemporaneously with the filing of this Form 10-K, we updated our reportable segments to rename Warehouse Automation to Industrial Automation. The table below sets forth certain Industrial Automation Segment operating data for the twelve months ended, (dollars are in thousands):

1.Not meaningful

Revenues. The decrease in 2022 revenues of $100.2 million from 2021 primarily resulted from lower sales volume due to decreased customer demand. The increase in 2021 revenues of $86.3 million from 2020 was primarily a result of increased volume of sales and increased pricing to offset material cost increases.

Gross Profit. The decrease in 2022 gross profit of $32.0 million from 2021 was primarily attributable to lower sales volume and an inventory charge of $10.4 million. Included in gross profit is cost of revenues, which decreased $68.2 million, or 43.1%, in line with the sales decrease of 53.3%. The cost of revenue decrease included a decrease in raw material and purchased component costs of $55.5 million, or 44.0%; a decrease in wages and benefits of $6.4 million, or 63.3%; and a decrease in overhead expenses of $6.3 million, or 28.8%. The increase in 2021 gross profit of $16.5 million from 2020 was primarily attributable to the increase in sale volume and increased pricing to offset material cost increases.

As a percentage of revenues, gross profit for each of the years in the three‐year period ended December 31, 2022, was (2.6)%, 15.8%, and 13.0%, respectively. The decrease in gross profit as a percentage of revenues in 2022 from 2021 is a result of lower sales volumes and the increase in 2021 from 2020 was primarily due to fixed cost leverage. The twelve months ended December 31, 2022 results include charges of $1.7 million associated with the restructuring program.

Selling, General and Administrative Expenses. SG&A expenses decreased $0.5 million in 2022 compared to 2021.SG&A expenses decreased $3.6 million in 2021 compared to 2020 as a result of wages and benefits returning to or increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 due to the Company's temporary actions taken in response to the COVID-19 pandemic, offset by a $5.0 million decrease in charge for Contingent Consideration.

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Impairment Expense. The Company recorded an impairment of goodwill and long-lived assets for the twelve months ended December 31, 2020.

Liquidity and Capital Resources

At December 31, 2022, the Company had no borrowings under its revolving credit facility. At December 31, 2022, the Company had liquidity of $180.6 million, consisting of $31.8 million of cash and $148.8 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, 2022 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 of December 31, 2022, we had no borrowings under our revolving credit facility, outstanding letters of credit of $1.2 million and borrowing availability of $148.8 million.

As of December 31, 2022, cash of $31.7 million was held by foreign subsidiaries. The Company had a $0.5 million deferred tax liability as of December 31, 2022 for the expected future income tax implications of repatriating cash from the foreign subsidiaries for which no indefinite reinvestment assertion has been made.

Covenants and Liquidity

On May 12, 2022, the Company entered into an amendment to increase its existing senior secured credit facilities to $325 million from $275 million consisting of a $175 million Term Loan A and a $150 million Revolving Credit Facility. The amendment provides the Company with additional capital flexibility to execute upon its transformation and growth initiatives. As part of the amended terms of the agreement, the maturity date of the Senior Secured Credit Facilities has been extended by twelve months to May 12, 2027, the interest rate decreased by 50 bps at various leverage ratios based on SOFR, and the maximum consolidated total leverage ratio increased from 3.25x to 3.75x until December 31, 2022 with a quarterly step down of 25 bps to 3.00x leverage by September 30, 2023 and the maximum consolidated total leverage ratio will remain at this level thereafter. Further, separate from the Company’s annual $35 million capital spending cap, a one-time $45 million capital project basket was included in the amendment. All other key provisions, including the $75 million accordion, acquisition holiday, and other baskets remain unchanged.

Our ability to comply with the covenants in the Credit Agreement, as discussed in Note 3, Debt, of our Consolidated Financial Statements 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 and other covenants in the Credit 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.

Cash Flows

(In thousands)

Net cash provided (used) by operating activities $ 68,947 $ (29,832) $ 34,372

Effect of currency exchange rate changes on cash (2,279) 842 2,302

Operating activities. For the year ended December 31, 2022, net cash provided by operations was $68.9 million compared to net cash used in operations of $29.8 million for the year ended December 31, 2021. Net cash provided by operating activities is

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primarily attributable to the decrease in working capital expenditures for the year ended December 31, 2022 as compared to the prior year period.

For the year ended December 31, 2021, net cash used in operations was $29.8 million compared to net cash provided by operations of $34.4 million for the year ended December 31, 2020. Net cash used in operating activities is primarily attributable to the increase in working capital expenditures for the year ended December 31, 2021 as compared to the prior year period.

In 2023, we expect capital expenditures to be in the range of $20 million to $25 million.

Investing activities. For the year ended December 31, 2022, net cash used in investing activities was $19.7 million compared to $17.6 million for the year ended December 31, 2021.

For the year ended December 31, 2021, net cash used in investing activities was $17.6 million compared to $6.4 million for the year ended December 31, 2020. The increase in net cash used in investing activities is primarily due to a return to normal investment following the COVID-19 pandemic slowdown which impacted 2020.

Financing activities. For the year ended December 31, 2022, net cash used in financing activities was $50.1 million compared to the net cash provided by financing activities of $31.0 million for the year ended December 31, 2021. Net cash used in financing activities for the year ended December 31, 2022 is primarily attributable to $43.2 million of net repayments under our credit facilities compared to net borrowings of $43.0 million in the prior year.

For the year ended December 31, 2021, net cash provided by financing activities was $31.0 million compared to the net cash used in financing activities of $19.3 million for the year ended December 31, 2020. Net cash provided by financing activities for the year ended December 31, 2021 is attributable to $49.4 million of net borrowings under the revolving credit facility offset by $8.0 million of costs attributed to debt amendment and extinguishment completed during the twelve months ended December 31, 2021 and a $5.0 million Contingent Consideration payment.

Debt and Credit Facilities

The debt and credit facility summaries described in Note 3, Debt, to our consolidated financial statements in Item 8 in this Annual Report on Form 10-K are incorporated in this section by reference.

Contractual Obligations and Commercial Commitments

The following table reflects our contractual obligations as of December 31, 2022 (in thousands):

Payments Due by Period

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

We estimated future interest payments based on the effective interest rate as of December 31, 2022. Since December 31, 2022, there have been no material changes outside the ordinary course of business to our contractual obligations as set forth above.

We expect to contribute approximately $1.1 million to our U.K. pension plan in 2023. During the year ended December 31, 2022, the Company settled its U.S. Pension Plan liabilities.

Generally, 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, 2022, we were not a party to significant purchase obligations for goods or services.

Critical Accounting Policies and Estimates

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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 certain customers in the Vehicle Solutions segment 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.

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 approximately 50% of the outstanding Term Loan Facility, which was an initial aggregate amount of $87.5 million thereby reducing exposure to interest rate changes. A change in our variable interest rate of 100 basis points for a full twelve-month period would have an approximate $1.0 million impact on interest expense assuming approximately 50% of our average fiscal 2022 variable-rate term loan debt had not been hedged via an interest rate swap agreement.

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,

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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, 2022 are more fully described in Note 6, Fair Value Measurement, to our consolidated financial statements in Item 8 in this Annual Report on Form 10-K.

At December 31, 2022 and 2021, 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, 2022 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, 2022 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, Indian Rupee, Thai Baht, and Ukrainian Hryvnia. Foreign currency translation adversely impacted fiscal year 2022 revenues by $18.6 million.

Effects of Inflation

Inflation potentially affects us in two principal ways. First, borrowings under our revolving credit facility are 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 36

Consolidated Balance Sheets as of December 31, 2022 and 2021 40

Notes to Consolidated Financial Statements 43

Item 15 - Exhibits 77

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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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, 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, 2022, 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 6, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 a critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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 a product 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, 2022, the Company recorded $981.6 million of revenue.

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.

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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. We performed a software-assisted data analysis to assess certain relationships among revenue transactions. For a selection of transactions, we (1) compared the amount of revenue recorded to a combination of Company internal data, executed contracts, and/or 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.

/s/ KPMG LLP

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

Columbus, Ohio

March 6, 2023

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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2022, 2021 and 2020

(In thousands, except per share amounts)

Goodwill and other impairment — — 29,017

Loss on extinguishment of debt 921 7,155 —

Income (loss) before provision for income taxes (1,067) 32,125 (44,500)

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, 2022, 2021 and 2020

(In thousands)

Other comprehensive income (loss):

Foreign currency translation adjustments (4,366) (1,421) 5,008

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

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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2022 and 2021

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

Current assets:

Operating lease right-of-use asset, net 26,372 26,116

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current operating lease liabilities 7,421 9,048

Current portion of long-term debt 10,938 9,375

Long-term operating lease liabilities 19,422 18,519

Pension and other post-retirement liabilities 8,428 9,905

Stockholders’ equity:

Accumulated other comprehensive loss (31,550) (42,438)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 470,268 $ 507,693

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, 2022, 2021 and 2020

Shares Amount

(In thousands, except share data )

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

Issuance of restricted stock 933,139 8 — — — — 8

Surrender of common stock by employees (148,358) — (1,279) — — — (1,279)

Share-based compensation expense — — — 6,254 — — 6,254

Share-based compensation expense — — — 5,805 — — 5,805

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, 2022, 2021 and 2020

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Impairment expense — — 29,017

Noncash amortization of debt financing costs 350 1,008 1,929

Pension plan settlement 9,202 — —

Payment in kind interest expense — 2,254 5,431

Noncash loss (gain) on forward exchange contracts (43) (788) 299

Loss on extinguishment of debt 921 7,155 —

Settlement of derivative contract 3,900 — —

Change in other operating items:

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from disposal/sale of property, plant and equipment — 87 722

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of term loan facility (24,375) (3,750) —

Borrowings under revolving credit facility 65,200 86,200 —

Repayment of revolving credit facility (114,600) (36,800) —

Borrowings under ABL revolving credit facility — 11,300 15,000

Repayment of ABL revolving credit facility — (11,300) (15,000)

Surrender of common stock by employees (1,342) (1,279) (663)

Debt extinguishment payments and early payment fees on debt — (3,031) —

Other financing activities, net (201) (342) (445)

Net cash provided by (used in) financing activities (50,091) 31,011 (19,262)

EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON CASH (2,279) 842 2,302

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, 2022, 2021 and 2020

1. Significant Accounting Policies

Organization - Commercial Vehicle Group, Inc. and its subsidiaries is a global provider of systems, assemblies and components to the global commercial vehicle market, the electric vehicle market, and the industrial automation markets. References herein to the "Company", "CVG", "we", "our", or "us" refer to Commercial Vehicle Group, Inc. and its subsidiaries.

We primarily manufacture customized products to meet the requirements of our customer. We believe our products are used by a majority of the North American Commercial Truck manufacturers, many construction vehicle original equipment manufacturers ("OEMs"), parts and service dealers, distributors, as well as top e-commerce retailers.

We report our financial results by business segment; more specifically, Vehicle Solutions, Electrical Systems, Aftermarket & Accessories and Industrial Automation. The Company’s Chief Operating Decision Maker (“CODM”), its President and Chief Executive Officer, reviews financial information for these four reportable segments and makes decisions regarding the allocation of resources based on these segments. See Note 16, 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 basis 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. During the years ended December 31, 2022 and 2021, we recorded an inventory charge of $10.4 million and zero, respectively. The charge recorded during the year ended December 31, 2022 was primarily related to decreased demand in the Industrial Automation segment.

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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 $ 67,805 $ 63,126

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, 2022, 2021 and 2020 was $14.8 million, $15.1 million and $15.1 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 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's accounting policy election is 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.

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.

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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 13, Other Comprehensive (Income) 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, 2022, receivables from our five top customers represented approximately 47.7% 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 formally designated at inception as a hedging instrument. Therefore, changes in the fair value of the interest rate swap are recorded in accumulated other comprehensive income (loss) and recognized in the Consolidated Statement of Operations when the contracts are settled.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("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. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company will apply the guidance to impacted transactions during the transition period. The Company does not expect the adoption of this standard to have a material impact on the Company’s Consolidated Financial Statements. Effective May 12, 2022, the Company transitioned all of its U.S. Dollar borrowings from LIBOR to the Secured Overnight Financing Rate ("SOFR"). See Note 3, Debt for further discussion.

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2. Revenue Recognition

Our products include seating systems, plastic components, cab structures, warehouse automation subsystems, electrical wire harnesses, mirrors, wipers and other accessories. We sell these products into multiple geographic regions including North America, Europe and Asia-Pacific and to multiple end markets. The nature, timing and uncertainty of recognition of revenue and associated cash flows across the varying product lines, geographic regions and customer end markets is substantially consistent.

Contractual Arrangements - Revenue is measured based on terms and conditions specified in contracts or purchase orders with customers. We have long-term contracts with some customers that govern overall terms and conditions which are accompanied by purchase orders that define specific order quantities and/or price. We have many customers with which we conduct business 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.

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, 2022, 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 $152.6 million as of December 31, 2022 and $174.5 million as of December 31, 2021. 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, 2022

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Twelve Months Ended December 31, 2021

Twelve Months Ended December 31, 2020

3. Debt

Debt consisted of the following at December 31:

Revolving credit facility — 49,400

Unamortized discount and issuance costs (63) (694)

Total long-term debt, net of current portion $ 141,499 $ 185,581

Credit Agreement

On April 30, 2021, the Company and certain of its subsidiaries entered into a credit agreement (the “Credit Agreement”) between, among others, Bank of America, N.A. as administrative agent (the “Administrative Agent”) and other lenders party thereto (the “Lenders”) pursuant to which the Lenders made available a $150 million Term Loan Facility (the “Term Loan Facility”) and a $125 million Revolving Credit Facility (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”). Subject to the terms of the Credit Agreement, the Revolving Credit Facility includes a $10 million swing line sublimit and a $10 million letter of credit sublimit. The Credit Agreement provides for an incremental term facility agreement and/or an increase of the Revolving Credit Facility (together, the “Incremental Facilities”), in a maximum aggregate amount of (a) up to the date of receipt of financial statements for the fiscal quarter ending June 30, 2022, $75 million, and (b) thereafter, (i) $75 million less the aggregate principal amount of Incremental Facilities incurred before such date, plus (ii) an unlimited amount if the pro forma consolidated total leverage ratio (assuming the Incremental Facilities are fully drawn) is less than 2.50:1.0.

The proceeds of the Credit Facilities were used, together with cash on hand of the Company, to (a) fund the redemption, satisfaction and discharge of all of the Company’s outstanding secured credit facility due 2023 (the “2023 Term Loan Facility”) issued pursuant to a term facility agreement (the “Term Facility Agreement”) between, among others, Bank of America, N.A. as administrative agent and other lender parties thereto, (b) fund the redemption, satisfaction and discharge of all of the Company’s asset-based revolving credit facility (the “ABL Revolving Credit Facility”) issued pursuant to a facility agreement

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(the “ABL Facility Agreement”) between, among others, Bank of America, N.A. as agent and certain financial institutions as lenders, (c) pay transaction costs, fees and expenses incurred in connection therewith and in connection with the Credit Agreement, and (d) for working capital and other lawful corporate purposes of the Company and its subsidiaries.

On May 12, 2022, the Company and certain of its subsidiaries entered into a second amendment (the “Amendment”) to its Credit Agreement pursuant to which the Lenders upsized the existing term loan facility to $175 million in aggregate principal amount and increased the revolving credit facility commitments by $25 million to an aggregate of $150 million in revolving credit facility commitments. The Revolving Credit Facility includes a $10 million swing line sublimit and a $10 million letter of credit sublimit. The amended Credit Agreement provides for an incremental term facility agreement and/or an increase of the Revolving Credit Facility (together, the “Incremental Facilities”), in a maximum aggregate amount of (a) up to the date of receipt of financial statements for the fiscal quarter ending June 30, 2022, $75 million, and (b) thereafter, (i) $75 million less the aggregate principal amount of Incremental Facilities incurred before such date, plus (ii) an unlimited amount if the pro forma consolidated total leverage ratio (assuming the Incremental Facilities are fully drawn) is less than 2.50:1.0. Further, separate from the Company’s annual $35 million capital spending cap, a one-time $45 million capital project basket was included in the Amendment. All other key provisions, including the $75 million accordion, acquisition holiday, and other baskets remain unchanged. The Credit Facilities mature on May 12, 2027 (the “Maturity Date”).

The Amendment resulted in a loss on extinguishment of debt of $0.9 million, including $0.6 million non-cash write off relating to deferred financing costs and unamortized discount of the Term Loan Facility and $0.3 million of other fees associated with the Amendment, recorded in our Consolidated Statements of Operations for the twelve months ended December 31, 2022.

The proceeds of the Credit Facilities will be used, together with cash on hand of the Company, to (a) pay transaction costs, fees and expenses incurred in connection therewith and in connection with the Amended Credit Agreement and (b) for working capital and other lawful corporate purposes of the Company and its subsidiaries.

At December 31, 2022 we had no borrowings under the Revolving Credit Facility, outstanding letters of credit of $1.2 million and availability of $148.8 million. The unamortized deferred financing fees associated with the Revolving Credit Facility were $1.3 million as of December 31, 2022 and December 31, 2021, and are being amortized over the remaining life of the Credit Agreement. At December 31, 2021, we had $49.4 million of borrowings under the Revolving Credit Facility and outstanding letters of credit of $1.4 million.

Interest rates and fees

Amounts outstanding under the Credit Facilities and the commitment fee payable in connection with the Credit Facilities accrue interest at a per annum rate equal to (at the Company’s option) the base rate or the Term Secured Overnight Financing Rate ("SOFR"), including a credit spread adjustment, plus a rate which will vary according to the Consolidated Total Leverage Ratio as set forth in the most recent compliance certificate received by the Administrative Agent, as set out in the following table:

Guarantee and Security

All obligations under the Credit Agreement and related documents are unconditionally guaranteed by each of the Company’s existing and future direct and indirect wholly owned material domestic subsidiaries, subject to certain exceptions (the “Guarantors”). All obligations of the Company under the Credit Agreement and the guarantees of those obligations are secured by a first priority pledge of substantially all of the assets of the Company and of the Guarantors, subject to certain exceptions. The property pledged by the Company and the Guarantors includes a first priority pledge of all of the equity interests owned by the Company and the Guarantors in their respective domestic subsidiaries and a first priority pledge of the equity interests owned by the Company and the Guarantors in certain foreign subsidiaries, in each case, subject to certain exceptions.

Covenants and other terms

The Credit Agreement contains customary restrictive covenants, including, without limitation, limitations on the ability of the Company and its subsidiaries to incur additional debt and guarantees; grant certain liens on assets; pay dividends or make certain other distributions; make certain investments or acquisitions; dispose of certain assets; make payments on certain

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indebtedness; merge, combine with any other person or liquidate; amend organizational documents; make material changes in accounting treatment or reporting practices; enter into certain restrictive agreements; enter into certain hedging agreements; engage in transactions with affiliates; enter into certain employee benefit plans; make acquisitions; and other matters customarily included in senior secured loan agreements.

The Credit Agreement also contains customary reporting and other affirmative covenants, as well as customary events of default, including, without limitation, nonpayment of obligations under the Credit Facilities when due; material inaccuracy of representations and warranties; violation of covenants in the Credit Agreement and certain other documents executed in connection therewith; breach or default of agreements related to material debt; revocation or attempted revocation of guarantees; denial of the validity or enforceability of the loan documents or failure of the loan documents to be in full force and effect; certain material judgments; certain events of bankruptcy or insolvency; certain Employee Retirement Income Securities Act events; and a change in control of the Company. Certain of the defaults are subject to exceptions, materiality qualifiers, grace periods and baskets customary for credit facilities of this type.

The Credit Agreement includes (a) a minimum consolidated fixed charge coverage ratio of 1.20:1.0, and (b) a maximum consolidated total leverage ratio of 3.75:1.0 (which will be subject to step-downs to 3.50:1.0 at the end of the fiscal quarter ending March 31, 2023; to 3.25:1.0 at the end of the fiscal quarter ending June 30, 2023; and to 3.00:1.0 for each fiscal quarter on and after the fiscal quarter ending September 30, 2023).

We were in compliance with the covenants as of December 31, 2022.

Repayment and prepayment

The Credit Agreement requires the Company to make quarterly amortization payments to the Term Loan Facility at an annualized rate of the loans under the Term Loan Facility for every year as follows: 5.0%, 7.5%, 10.0%, 12.5% and 15.0%. The Credit Agreement also requires all outstanding amounts under the Credit Facilities to be repaid in full on the Maturity Date.

The Credit Agreement requires mandatory prepayments from the receipt of proceeds of dispositions or debt issuance, subject to certain exceptions and the Company's ability to re-invest and use proceeds towards acquisitions permitted by the Credit Agreement.

Voluntary prepayments of amounts outstanding under the Credit Facilities are permitted at any time, without premium or penalty.

Term Loan and Security Agreement

On April 12, 2017, the Company entered into the $175.0 million 2023 Term Loan Facility, maturing on April 12, 2023, pursuant to a term loan and security agreement (the “TLS Agreement”). On April 30, 2021, the 2023 Term Loan Facility was fully repaid and terminated as described below.

ABL Revolving Credit Facility

On September 18, 2019, the Company entered into an amendment of the Third Amended and Restated Loan and Security Agreement (the “Third ARLS Agreement”), dated as of April 12, 2017, which governed the Company’s ABL Revolving Credit Facility.

On March 1, 2021, the Company and certain of its subsidiaries entered into Amendment No. 3, which amended the terms of the Third ARLS Agreement, among other things, to extend the maturity date of the ABL Revolving Credit Facility to March 1, 2026 and to remove the condition that the first $7.0 million of the $90.0 million Revolver Commitments are available as a first-in, last-out facility.

The Third ARLS Agreement, as amended, also allowed the Company to increase the size of the ABL Revolving Credit Facility by up to $50.0 million with the consent of Lenders providing the increase in the ABL Revolving Credit Facility. On April 30, 2021, the ABL Revolving Credit Facility was fully repaid and terminated as described below.

Termination of TLS Agreement and Third ARLS Agreement

Effective on April 30, 2021, the Company issued a notice of redemption in respect of its 2023 Term Loan Facility and the ABL Revolving Credit Facility and deposited with the Bank of America, N.A., as Administrative Agent under the TLS Agreement and the Third ARLS Agreement proceeds from the Credit Facilities, together with cash on hand in an amount sufficient to discharge the Company’s obligations under the TLS Agreement and the Third ARLS Agreement and respective related agreements. All amounts under the 2023 Term Loan Facility and ABL Revolving Credit Facility were repaid and discharged in full on April 30, 2021 and the TLS Agreement and Third ARLS Agreement were terminated.

The discharge resulted in a loss on extinguishment of debt of $7.2 million, including $3.7 million non-cash write off relating to deferred financing costs and unamortized discount of the 2023 Term Loan Facility, a voluntary repayment premium of

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$3.0 million, and $0.5 million of other associated fees, recorded in our Consolidated Statements of Operations for the Twelve Months Ended December 31, 2021.

4. Intangible Assets

Our definite-lived intangible assets 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, 2022, 2021 and 2020. The estimated intangible asset amortization expense for each of the five succeeding fiscal years ending after December 31, 2022 is $3.4 million for the years ending December 31, 2023, $2.9 million for the year ending December 31, 2024 and $1.4 million for the years ending December 31, 2025 through 2027.

5. Fair Value Measurement

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

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

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

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

Our financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities, pension assets and liabilities. 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.

Recurring Measurements

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

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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, Czech Crown and Ukrainian Hryvnia, 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 for transactions denominated in Mexican Pesos are deferred in accumulated other comprehensive loss and recognized in cost of revenues in the period the related hedge transactions are settled. As of December 31, 2022, hedge contracts for transactions denominated Czech Crown were not designated as a hedging instruments; therefore, they are marked-to-market and the fair value of agreements is recorded in the Consolidated Balance Sheets with the offsetting gains and losses recognized in other (income) expense and recognized in cost of revenues in the period the related hedge transactions are settled in the Consolidated Statements of Operations.

Interest Rate Swaps. To manage our exposure to variable interest rates, we have entered into interest rate swaps 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 swaps are intended to mitigate the impact of rising interest rates on the Company and covers 50% of outstanding debt under the Term Loan Facility. Any changes in fair value are included in earnings or deferred through Accumulated other comprehensive loss, depending on the nature and effectiveness of the offset. Any ineffectiveness in a cash flow hedging relationship is recognized immediately in earnings in the consolidated statements of operations.

During the second quarter ended June 30, 2022, the Company entered into transactions to cash settle existing interest rate swaps and received proceeds of $3.9 million. The gain on the swap settlement has been recorded in Other comprehensive income (loss) and will be recognized over the life of the settled swaps. Following the settlement of the existing interest rate swaps, we entered into a new interest rate swap agreement to align with the SOFR rate and maturity date of the Credit Agreement.

Contingent Consideration. As a result of the acquisition of First Source Electronics, LLC (“FSE”) on September 17, 2019, the Company agreed to pay up to $10.8 million in contingent milestone payments (“Contingent Consideration”). The Contingent Consideration is 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. A payment of $5.0 million was made during the second quarter of 2021 based on achievement of the second EBITDA threshold, and the final payment of $4.8 million was made during the fourth quarter of 2022 based on achievement of the third EBITDA threshold. As of December 31, 2022, there was no remaining Contingent Consideration obligations.

The fair values of our derivative assets and liabilities 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

Assets:

Foreign exchange contract $ — $ — $ — $ — $ 1,375 $ — $ 1,375 $ —

Interest rate swap agreement $ 1,849 $ — $ 1,849 $ — $ 241 $ — $ 241 $ —

Liabilities:

Foreign exchange contract $ 356 $ — $ 356 $ — $ — $ — $ — $ —

Interest rate swap agreement $ — $ — $ — $ — $ 498 $ — $ 498 $ —

Contingent Consideration $ — $ — $ — $ — $ 4,409 $ — $ — $ 4,409

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Details of the changes in value for the Contingent Consideration that is measured using significant unobservable inputs (Level 3) are as follows:

Amount

Contingent Consideration liability balance at December 31, 2021 $ 4,409

Change in fair value 341

Contingent Consideration liability balance at December 31, 2022 $ —

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 fair value and presentation of derivatives in the Consolidated Balance Sheets at December 31 :

Derivative Asset

Balance SheetLocation Fair Value

Foreign exchange contracts Other current assets $ — $ 1,375

Interest rate swap agreement Other assets $ 1,849 $ —

Interest rate swap agreement Accrued liabilities and other $ — $ 241

Derivative Liability

Balance SheetLocation Fair Value

Foreign exchange contracts Accrued liabilities and other $ 356 $ —

Interest rate swap agreement Accrued liabilities and other $ — $ 498

Derivative Equity

Balance SheetLocation Fair Value

The following table summarizes the effect of derivative instruments on the Consolidated Statements of Operations:

Foreign exchange contracts Cost of revenues $ 3,236 $ 2,452

Interest rate swap agreements Interest expense $ (80) $ (9)

Foreign exchange contracts Other (income) expense $ (334) $ 134

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

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Other Fair Value Measurements

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 fair value as disclosed is classified as Level 2. The carrying amounts and fair values of our long-term debt obligations 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 $10.9 million and long-term debt of $141.5 million as of December 31, 2022, and current portion of long-term debt of $9.4 million and long-term debt of $185.6 million as of December 31, 2021.

6. 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 194 326

Interest on lease liabilities 13 27

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

Supplemental cash flow information related to leases is as follows:

Twelve Months Ended December 31, 2022 Twelve Months Ended December 31, 2021

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

Operating cash flows from operating leases $ 10,022 $ 11,250

Financing cash flows from finance leases $ 205 $ 348

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Supplemental balance sheet information related to leases is as follows:

Operating Leases

Current liabilities Current operating lease liabilities 7,421 9,048

Non-current liabilities Long-term operating lease liabilities 19,422 18,519

Total operating lease liabilities $ 26,843 $ 27,567

Finance Leases

Right-of-use assets, net Other assets $ 270 $ 468

Current liabilities Accrued liabilities and other 131 194

Non-current liabilities Other long-term liabilities 139 272

Total finance lease liabilities $ 270 $ 466

Weighted Average Remaining Lease Term

Operating leases 6.0 years 4.0 years

Finance leases 2.3 years 2.9 years

Weighted Average Discount Rate

Operating leases 8.4 % 8.0 %

Finance leases 3.9 % 4.7 %

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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7. 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 $ (224) $ 6,746 $ (9,345)

State taxes, net of federal benefit (297) 315 (1,086)

State tax rate change, net of federal benefit (33) (432) —

Change in uncertain tax positions 38 74 71

Share-based compensation (91) (857) (15)

GILTI, net of related foreign tax credit 365 39 (1,340)

Pension settlement 3,394 — —

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 $ 9,653 $ 7,371

Total noncurrent deferred tax assets $ 50,960 $ 46,088

Net noncurrent deferred tax assets $ 19,870 $ 27,717

Noncurrent deferred tax liabilities:

Amortization and fixed assets $ (827) $ (968)

Other temporary differences (287) (315)

Total noncurrent tax liabilities (8,572) (4,776)

Net noncurrent deferred tax liabilities $ (8,572) $ (4,776)

Deferred taxes are reflected in the Consolidated Balance Sheet as follows:

Net non-current deferred tax assets $ 12,275 $ 24,108

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. The Company believes that significant uncertainty exists with respect to the future realization of our U.S. deferred tax assets and has therefore established a full valuation allowance as of December 31, 2022. Separately, the Company reversed the valuation allowance on its U.K. deferred tax assets as it believes that the weight of the positive evidence, including the cumulative income position in the three most recent years and forecasts for a sustained level of future taxable income, was sufficient to overcome the weight of the negative evidence during the year ended December 31, 2022.

During 2022, we recorded an additional valuation allowance of $24.5 million primarily related to establishing a full valuation allowance on our U.S. deferred tax assets, and released $11.8 million in valuation allowances, $9.9 million of which related to the deferred tax assets of our U.K. 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.

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

As of December 31, 2022, the Company had net operating loss carryforwards of $90.5 million, of which $39.8 million related to foreign jurisdictions and $50.7 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.

As of December 31, 2022, we had $5.0 million of U.S. foreign tax credit carryforwards, 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. We have established valuation allowances for all foreign tax credits that we believe are more likely than not to expire before they can be utilized.

As of December 31, 2022, we had $1.7 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. We have established valuation allowances for all foreign tax credits that we believe are more likely than not to expire before they can be utilized.

As of December 31, 2022, cash of $31.7 million was held by foreign subsidiaries. During the year ended December 31, 2022, $11.7 million was repatriated from the Company's foreign subsidiaries. The Company had a $0.5 million deferred tax liability as of December 31, 2022 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, 2022, and 2021, we provided a liability of $1.1 million and $1.1 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 $0.9 million and $0.5 million accrued for the payment of interest and penalties as of December 31, 2022 and December 31, 2021, respectively. Accrued interest and penalties are included in the $1.1 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:

Gross increase - tax positions in prior periods 426 75 73

Gross decreases - tax positions in prior periods — — —

Lapse of statute of limitations (389) — —

Currency translation adjustment (41) 12 25

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8. Accrued and Other Liabilities

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

Contingent Consideration — 4,409

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

Defined Contribution Plan - We sponsor a defined contribution plan covering eligible employees. Eligible employees can contribute on a pre-tax basis to the plan. In accordance with the terms of the 401(k) plan, we elect to match a certain percentage of the participants’ contributions to the plan, as defined. We recognized expense associated with the plan of $4.6 million, $4.0 million and $1.9 million for the years ended December 31, 2022, 2021, and 2020, respectively. The increase in expense for the year ended December 31, 2021 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 in the year ended December 31, 2020.

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 year ended December 31, 2022, the Company settled its U.S. Pension Plan liabilities through lump-sum payments and purchase of an annuity contract. The lump-sum payments of $4.4 million and the annuity contract totaling $25.2 million were paid out of plan assets and resulted in an $9.2 million non-cash settlement charge, which was recorded in Other comprehensive income in the Consolidated Statements of Comprehensive Income (Loss) during the year ended December 31, 2022.

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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 — — — —

Participant contributions — 1 — —

Exchange rate changes — — (4,770) (460)

Change in plan assets:

Participant contributions — 1 — —

Exchange rate changes — — (3,744) (399)

Actuarial Gain - The projected U.S. benefit obligation includes a net gain of $7.8 million for the year ended December 31, 2022, which was a result of significant increase in actual interest rates as compared to the discount rate used in 2021 to estimate the total pension obligation. The projected Non-U.S. benefit obligation includes a net gain of $12.9 million for the year ended December 31, 2022 driven primarily by a significant increase in the discount rate assumption.

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 $ 3,967 $ 2,479 $ — $ —

Current liabilities (6) (126) — —

The components of net periodic cost (benefit) for the years ended December 31 were as follows:

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

1 Includes $9.2 million non-cash settlement charge arising from the early payout of the U.S. defined benefit plan benefits in the year ended December 31, 2022.

Net periodic cost (benefit) components, not inclusive of service costs, are recognized in Other (income) expense within the Consolidated Statements of Operations.

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Amounts Recognized in Other Comprehensive Income (Loss) -Amounts recognized in Other comprehensive income (loss), before taking into account income tax effects, at December 31 are as follows:

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

Other Changes in Plan Assets and Benefit Obligations Recognized in Comprehensive Income (Loss) - Amounts recognized as other changes in plan assets and benefit obligations in comprehensive income (loss), before taking into account income tax effects, for the year ended December 31 are as follows:

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

Prior service credit (6) (6) (54) (53)

Weighted-average assumptions used to determine benefit obligations at December 31 were as follows:

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

Weighted-average assumptions used to determine net periodic benefit cost at December 31 were as follows:

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

The rate of return assumptions are based on projected long-term market returns for the various asset classes in which the plans are invested, weighted by the target asset allocations. An incremental amount for active plan asset management and diversification, where appropriate, is included in the rate of return assumption. Our pension plan investment strategy is reviewed periodically, but no less frequently than annually. Due to the termination of the U.S. Pension Plan effective December 31, 2021, the related investments were reallocated to fixed income securities.

We employ a total return investment approach whereby a mix of equities, fixed income and real estate investments are intended to maximize the long-term return of plan assets taking into consideration a prudent level of risk. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio contains a diversified blend of equity, balanced, fixed income and real estate investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and large and small capitalizations. Other assets, such as real estate, are used judiciously to perhaps enhance long-term returns and to improve portfolio diversification. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on an ongoing basis in light of annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews. We expect to contribute approximately $1.1 million to our pension plans and our other post-retirement benefit plans in 2023.

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Our investment allocation target for our pension plans for 2022 and our weighted-average asset allocations of our pension assets for the years ended December 31, by asset category, are as follows:

Target Allocation Actual Allocations

U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.

Equity/Balanced securities — 42 — 53 — 42 — 52

Real estate and other — — — — — — 25 —

Our plan assets can be described as follows:

Equity Securities - Includes common stocks issued by U.S., United Kingdom and other international companies, equity funds that invest in common stocks and unit linked insurance policies. Equity investments generally allow near-term (within 90 days of the measurement date) liquidity and are held in issues that are actively traded to facilitate transactions at minimum cost.

BalancedSecurities - Includes funds primarily invested in a mix of equity and fixed income securities where the allocations are at the discretion of the investment manager. Investments generally allow near-term (within 90 days of the measurement date) liquidity and are held in issues that are actively traded to facilitate transactions at minimum cost.

Fixed Income Securities - Includes U.S. dollar-denominated and United Kingdom and other international marketable bonds and convertible debt securities as well as fixed income funds that invest in these instruments. Investments generally allow near-term liquidity and are held in issues that are actively traded to facilitate transactions at minimum cost.

The fair value of fixed income securities is determined by either direct or indirect quoted market prices. When the value of assets held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted market prices on regulated financial exchanges.

Real Estate - Real estate provides an indirect investment into a diversified and multi-sector portfolio of property assets. The fair value of real estate investments is determined by the fund managers. The fund managers value the real estate investments via independent third-party appraisals on a periodic basis. Assumptions used to revalue the properties are updated every quarter.

The fair values of our pension plan assets by asset category and by level as described in Note 6, Fair Value Measurement, for the years ended December 31, 2022 and 2021 are as follows:

Total Level 1 Level 2 NAV

Fixed income securities:

Corporate bonds 10 — 10 —

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Total Level 1 Level 2 NAV

Fixed income securities:

The fair value of our pension plan assets measured using significant unobservable inputs (Level 3) at December 31 are as follows:

Beginning balance $ 4,088

Actual return on assets held at reporting date —

Purchases, sales and settlements, net (4,088)

Ending balance $ —

The following table summarizes our expected future benefit payments of our pension and other post-retirement benefit plans:

Year Ending December 31, Pension Plans

10. Performance Awards

CVGI US Equity

CVGI · 10-K · period ended 2022-12-31

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 2022-12-31

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