What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-18 · 251 added, 72 removed, 188 unchanged (63% of the section changed)

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis below describes material changes in financial condition and results of operations as reflected in our condensed consolidated financial statements for the three months ended March 31, 2020 and 2019 .

This discussion and analysis should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2019 Form 10-K.

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Commercial Vehicle Group, Inc.

(through its subsidiaries) is a leading supplier of electrical wire harnesses, seating systems, and a full range of other cab related products for the global commercial vehicle markets, including medium- and heavy-duty trucks ("MD/HD Truck") and medium- and heavy-construction vehicles.

We also supply electrical wire harnesses, control panels, electro-mechanical and cable assemblies, seating systems and other products to automotive, military, bus, agriculture, transportation, mining, industrial and off-road recreational markets.

(through its subsidiaries) is a leading supplier of seating systems, electro-mechanical assemblies, engineered material products, and warehouse automation subsystems for many markets including the following:

trucking, military, warehouse automation, bus, agriculture, specialty transportation, mining, industrial equipment and off-road recreational markets.

We have manufacturing operations in the United States, Mexico, China, United Kingdom, Czech Republic, Ukraine, Thailand, India and Australia.

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We are differentiated from automotive industry suppliers by our ability to manufacture low volume, customized products on a sequenced basis to meet the requirements of our customers.

We believe our products are used by a majority of the North American MD/HD Truck and many medium- and heavy-duty construction vehicle original equipment manufacturers (“OEMs”), and to a lesser extent other makers of industrial equipment.

We believe our products are used by a majority of the North American medium- and heavy-duty truck ("MD/HD Truck") and many medium- and heavy-duty construction vehicle original equipment manufacturers (“OEMs”), and other makers of industrial equipment.

Business Overview

For the three months ended March 31, 2020 , approximately 50% of our revenue was generated from sales to North American MD/HD Truck OEMs and approximately 20% from sales to OEMs in the global construction equipment market.

Our remaining revenue was primarily derived from sales to the aftermarket, OE service organizations, military market and specialty markets.

For the six months ended June 30, 2020, approximately 34% of our revenue was generated from sales to North American MD/HD Truck OEMs and approximately 18% from sales to OEMs in the global construction equipment market.

Our remaining revenue was primarily derived from sales to the aftermarket, OE service organizations, industrial, military and specialty markets.

We are having success with our strategy to diversify our end markets by growing in the industrial / material handling, and military end markets, primarily through the success of the FSE acquisition.

These markets offer high growth rates and provide a balance to our traditional, cyclical end markets.

Demand for our products may be driven by preferences of the end-user of the vehicle, particularly with respect to heavy-duty trucks.

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North American heavy-duty truck production was 345,000 units in 2019.

While CVG is not providing 2020 guidance, according to the April 2020 report by ACT Research, a publisher of industry market research, North American Class 8 production levels are expected to decrease to 116,000 units in 2020, steadily increase to 330,000 units in 2023 and then decline to 265,000 units in 2025.

While CVG is not providing 2020 guidance, according to the July 2020 report by ACT Research, a publisher of industry market research, North American Class 8 production levels are expected to decrease to 169,000 units in 2020, steadily increase to 336,000 units in 2023 and then decline to 267,000 units in 2025.

ACT Research estimated that the average age of active North American Class 8 trucks was 6.3 and 6.6 years in 2019 and 2018, respectively.

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North American medium-duty (or "Class 5-7") truck production steadily increased from 249,000 units in 2017 to 281,000 units in 2019.

While CVG is not providing 2020 guidance, according to the April 2020 report by ACT Research, North American Class 5-7 truck production is expected to decrease to 125,000 units in 2020, steadily increase to 274,000 units in 2025.

While CVG is not providing 2020 guidance, according to the July 2020 report by ACT Research, North American Class 5-7 truck production is expected to decrease to 166,000 units in 2020, steadily increase to 274,000 units in 2025.

We primarily participate in the class 6 and 7 portion of the medium-duty truck market.

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As more specifically described in Note 20, on September 17, 2019, the Company acquired substantially all of the assets and certain liabilities of First Source Electronics, LLC.

The industrial and military markets we serve in North America have been robust and continue to show growth opportunities.

The global spread of the novel strain of coronavirus ("COVID-19") that has been declared a pandemic by the World Health Organization and the preventative measures taken to contain or mitigate the outbreak has caused, and are continuing to cause, significant volatility, uncertainty and economic disruptions.

The outbreak has resulted in governments around the world implementing increasingly stringent measures to contain or mitigate the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments and other measures consistent with applicable government guidelines.

Specifically, in the United States, most states placed restrictions on business operations and issued stay-at-home orders for residents beginning in late March and early April.

Although many of these restrictions were eased or lifted throughout the country during May and June, COVID-19 continues to spread, business operations remain challenging, and unemployment is at historically high levels.

On June 8, 2020, the National Bureau of Economic Research declared that a recession began in the United States in February 2020.

Based on the preliminary estimate released by the Bureau of Economic Analysis on July 30, 2020, the U.S.

gross domestic product (the “GDP”) decreased at an annual rate of 32.9% in the second quarter of 2020.

This sharp decline in the GDP represents the lowest quarter since the U.S.

government began tracking this measure in 1947 and illustrates the difficulty of the economic environment in which we are currently operating.

While we continue to operate certain of our facilities, we are experiencing, and may continue to experience, production slowdowns and/or shutdowns at our manufacturing facilities in North America, Europe and Asia Pacific as a result of government orders, our inability to obtain component parts from suppliers and/or decreased customer demand.

In addition, many of our suppliers and customers are also experiencing, and may continue to experience, production slowdowns and/or shutdowns, which may further impact our business, sales and results of operation.

In addition, many of our suppliers and customers are also experiencing, and may continue to 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 future developments, including the severity and duration of the pandemic and its overall impact on the economy.

As a result of the rapid changes in our end market conditions, our OEM customer ordering patterns and general uncertainties around the impacts of COVID-19 on businesses such as government-mandated shut downs, the Company will not be providing 2020 guidance related to North American Class 5-8 truck and global construction production.

Business Response to COVID-19

Business Actions During COVID-19

In March 2020, we began implementing certain business continuity processes focused on maintaining productivity and service levels while prioritizing the health, welfare and safety of our employees and customers.

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In March 2020, the Company borrowed $15 million on its revolving credit facility as a proactive measure to preserve financial flexibility in consideration of general economic and financial market uncertainty resulting from the COVID-19 pandemic.

During 2019 , the Company began implementing cost reduction and manufacturing capacity rationalization initiatives (the "Restructuring Initiatives") in response to declines in end market volumes.

Furthermore, the Company is implementing additional cost reduction initiatives and is considering further manufacturing capacity rationalization initiatives in response to the COVID-19 pandemic.

These actions were initiated in 2019 and are expected to continue through 2020 and into 2021.

The Restructuring Initiatives consist primarily of headcount reductions in each segment and at corporate, as well as costs associated with transfer of production and subsequent closure of facilities.

In addition to the Restructuring Initiatives, the Company began other measures including pay reductions, furloughs, suspension of the employer 401(k) match, suspension or reduction of capital spending and reduction in non-essential travel in an effort to mitigate the future risk of uncertainty.

According to ACT, second quarter 2020 North American heavy-duty and medium-duty truck build is expected to decline 65% to 75% as compared to the first quarter of 2020, as the North American Truck OEMs respond to COVID-19 and overall market conditions.

Although the Company's other end markets are not expected to decline as dramatically, we expect revenues for the three months ending June 30, 2020 to be significantly lower than the three months ending March 31, 2020.

Additionally, in the three months ended June 30, 2020, we amended our Term Loan Facility and Revolving Credit Facility.

The Term Loan Facility amendment temporarily suspends the leverage ratio covenant through the fiscal quarter ending December 31, 2020, and resets the leverage ratio covenant levels for quarterly periods ended March 31, 2021 through September 30, 2021, before returning to original leverage ratio covenant for the quarterly period ended on December 31, 2021.

The amendment also temporarily adds a new minimum consolidated liquidity covenant of $40 million for the quarters ended June 30, 2020 through September 30, 2021, and amends certain restrictive covenants limiting the Company’s ability to incur additional debt, grant liens, repurchase the Company’s stock and to issue dividends or make investments.

The amendment increases the ability of the company to restructure its operations.

The maturity date remains unchanged.

The Revolving Credit Facility amends the terms of the revolving loan agreement to align certain of the restrictive covenants with the restrictive covenants in the Term Loan Agreement, as amended.

In late March 2020, the Company took action to right-size the business and working capital profile to protect profit margin and liquidity levels.

We implemented a comprehensive program of cost reduction initiatives and manufacturing capacity rationalization initiatives.

These actions are expected to continue through 2020 and into 2021.

Actions included headcount reductions, reduction in recurring consulting expenses, reprioritization and decrease in capital spending and reduction in sales and marketing expenses.

Additionally, the Company eliminated Corporate Business Development, Aviation, Quality, Procurement and Operating Excellence departments.

The Company also implemented other temporary measures including pay reductions, plant shutdowns, furloughs, elimination of most annual incentive pay, suspension of the employer 401(k) match, and reduction in non-essential travel in an effort to mitigate the future risk of uncertainty.

We believe these purposeful actions will permanently lower the Company’s cost structure and preserve core growth initiatives.

According to ACT Research, third quarter 2020 North American heavy-duty truck build is expected to increase by approximately 50% as compared to the second quarter of 2020, as the North American Truck OEMs rebound from the second quarter which was negatively impacted by COVID-19.

Third quarter medium-duty truck build is expected to increase by approximately 30% as compared to the second quarter, per ACT Research.

Although the COVID-19 pandemic creates forecasting uncertainties, we currently anticipate revenues to increase 25% to 35% for the three months ending September 30, 2020, as compared to the three months ended June 30, 2020.

Our Long-Term Strategy

Our long-term strategy is to grow revenue by product, geography and end market.

Our products include electrical wire harnesses and electro-mechanical and cable assemblies, Trim, mirrors, wipers and controls, cab structures and sleeper boxes, and Seats.

Our products include electrical wire harnesses and electro-mechanical and cable assemblies, Trim, molded plastics, mirrors, wipers and controls, cab structures and sleeper boxes, and Seats.

We intend to allocate resources consistent with our strategy;

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The acquisition also complements our wire harness business, provides an entry into new markets, and provides us with an opportunity to leverage our global footprint and to increase cross-selling opportunities.

Strategic Footprint Repositioning

The Company is strategically repositioning its operations to grow faster, innovate rapidly, and lower its costs.

This repositioning involves twelve facilities.

The Company’s business in the warehouse automation and military markets continues to grow with solid long-term outlook.

We have taken strategic actions to significantly expand our footprint, capacity, and product complexity to serve these diverse markets.

These actions are expected to support between $100.0 million to $150.0 million of new business, depending on the mix.

Anchor customer business has already been established for this multi-plant expansion with key actions underway as follows:

Expanding our Elkridge, MD plant by securing new space at an adjacent property.

This plant is the main plant for

our manufacturing warehouse automation subsystems and military subsystems.

Repurposing floor space and creating new manufacturing capability in our Vonore, TN plant.

Repurposing floor space and creating new manufacturing capability in our Chillicothe, OH plant.

Repurposing floor space and creating new manufacturing capability in our Monona, IA plant.

Moving certain production from Monona, IA plant to our low cost facility in Agua Prieta, Mexico.

Design and installation of a new medium-duty seat production line in our Saltillo, Mexico plant.

The Company is also permanently consolidating a portion of our cost structure dedicated to mature markets through several deliberate actions including the redistribution of our centralized R&D capabilities to speed the time to market for new products and expand our ability to innovate in the Asian market.

The key actions underway in this area are as follows:

Consolidation of our Piedmont, AL plant into our Vonore, TN plant.

Consolidation of one-half of our existing manufacturing footprint at our Concord, NC plant with our low cost facility in Saltillo, Mexico.

Consolidation of our corporate R&D center and activities into two existing U.S.

plants and improving our R&D capabilities at our Shanghai, China site, with the goal of increased innovation in each market.

Closure of our facility in Morelos, Mexico, and consolidation of equipment into our Agua Prieta, Mexico plant.

We expect our strategic footprint realignment to help us expand in growth areas, reduce costs in mature areas, and increase our ability to innovate.

We believe we are on track to permanently reduce our annualized costs by over $15.0 million in mature markets through a combination of staff reductions, facility consolidations, and operational improvements.

We believe these actions will make us stronger, increase our competitiveness, accelerate the speed of our innovation, and increase our opportunities to win.

We are leveraging our know-how to serve top tier OEMs with high quality, on-time delivery of complex subsystems into new areas.

We believe these actions will enable new value and new growth.

Consolidated Results of Operations

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

The table below sets forth certain consolidated operating data for the three months ended March 31 (dollars are in thousands):

(as restated)

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

The table below sets forth certain consolidated operating data for the three months ended June 30 (dollars are in thousands):

(as restated) $ Change % Change

Revenues $ 126,896 $ 243,190 $ (116,294) (47.8) %

Gross Profit $ 6,475 $ 32,436 $ (25,961) (80.0) %

Selling, General and Administrative Expenses $ 15,984 $ 16,248 $ (264) (1.6) %

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• a $21.4 million, or 453.3%, increase in industrial and military revenues primarily attributable to the FSE acquisition;

• a $12.9 million, or 37.9%, decrease in aftermarket and OES revenues;

• a $14.4 million, or 37.9%, decrease in other revenues.

First quarter 2020 revenues were adversely impacted by foreign currency exchange translation of $1.2 million , which is reflected in the change in revenues above.

While the end markets CVG serves were anticipated to decline somewhat in 2020 as compared to 2019, the sharp market declines noted in the second quarter of 2020 were primarily a result of the COVID-19 pandemic on the end markets we serve.

These sharp market declines were partially offset by increased sales in industrial and military end markets we serve through the FSE business.

Second quarter 2020 revenues were adversely impacted by foreign currency exchange translation of $1.8 million, which is reflected in the change in revenues above.

Gross Profit .

The decrease in gross profit is primarily attributable to the decrease in sales volume.

Included in gross profit is cost of revenues, which decreased $43.3 million , or 20.6% , as a result of an decrease in raw material and purchased component costs of $31.9 million , or 23.4% ;

Included in gross profit is cost of revenues, which decreased $90.3 million, or 42.9%, as a result of a decrease in raw material and purchased component costs of $63.5 million, or 46.6%;

a decrease in wages and benefits of $9.1 million, or 46.8%;

and a decrease in overhead expenses of $17.7 million, or 32.3%.

Commodity and other material costs, as well as difficult labor markets, have stabilized.

Commodity and other material costs, as well as difficult labor markets, have stabilized, but management cannot predict whether the COVID-19 pandemic will adversely impact these costs in future periods.

Cost control and cost recovery initiatives, including pricing adjustments, reduced the impact of these cost pressures on gross profit.

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The Restructuring Initiatives consist primarily of headcount reductions in each segment and at corporate.

First quarter 2020 cost of revenues benefited from these initiatives.

As a percentage of revenues, gross profit margin was 10.9% for the three months ended March 31, 2020 compared to 13.6% for the three months ended March 31, 2019 .

In addition, the Company implemented a series of temporary reductions that will remain in place until conditions improve, including pay reductions, furloughs, suspension of the employer 401(k) match, and reductions in discretionary spending ("Temporary Actions").

Second quarter 2020 cost of revenues benefited from the initiatives that began in 2019 and the Temporary Actions.

The second quarter results include charges of $2.0 million associated with ongoing Restructuring Initiatives.

As a percentage of revenues, gross profit margin was 5.1% for the three months ended June 30, 2020 compared to 13.3% for the three months ended June 30, 2019.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses ("SG&A”) consist primarily of wages and benefits and other expenses such as marketing, travel, legal, audit, rent and utility costs which are not directly associated with the manufacturing of our products.

SG&A expenses increased $1.9 million compared to the three months ended March 31, 2019 due primarily to $2.4 million in costs associated with the investigation into the restatement of the Company’s financial statements and $2.3 million in costs associated with the CEO transition.

These costs were partially offset by cost reductions as a result of the Restructuring Initiatives and other reductions in costs.

SG&A expenses decreased $0.3 million compared to the three months ended June 30, 2019.

Before giving effect to certain charges, SG&A expenses reduced by $4.7 million due the Restructuring Initiatives and the Temporary Actions taken in response to the COVID-19 pandemic.

These reductions were offset by a $3.5 million charge for future milestone payments related to the performance of the FSE business, charges of $1.0 million associated with ongoing Restructuring Initiatives and charges of $0.4 million associated with the 2019 restatement investigation completed in the first quarter of 2020 that resulted in the restatement of the Company's 2019 financial statements.

Interest and Other Expense .

Interest, associated with our debt, and other expense was $5.1 million and $7.5 million for the three months ended June 30, 2020 and 2019, respectively.

The decrease in interest and other expense resulted primarily from a $2.5 million non-cash charge taken in prior year associated with the early payout of benefits to term vested participants in the U.S.

pension plan ("U.S.

Pension Plan"), which reduced future financial risk associated with the U.S.

Pension Plan and contributed to an improvement in funded status to approximately 100%.

Additionally in the second quarter of 2020, the

Company incurred Payment In Kind interest expense of $1.7 million resulting from the loan amendment that occurred in the first quarter of 2020, offset by lower interest expense of $0.4 million due to lower interest rates and favorable interest rate swap adjustments of $1.0 million,

(Benefit) Provision for Income Taxes.

An income tax benefit of $3.1 million and an income tax provision of $2.2 million were recorded for the three months ended June 30, 2020 and 2019, respectively.

The period over period change in income tax was primarily attributable to the pre-tax loss sustained in the current period versus the pre-tax income generated in the prior year period.

The income tax benefit for the three months ended June 30, 2020, was calculated based the Company's actual effective tax rate for the current year-to-date period due to the uncertainty of the impact of the COVID-19 pandemic on our full year income (loss).

See Note 15 of the "Notes to Condensed Consolidated Financial Statements" for additional details.

Net (Loss) Income.

Net loss was $12.5 million for the three months ended June 30, 2020 compared to $6.1 million net income for the three months ended June 30, 2019.

The decrease in net income is attributable to the factors noted above.

SEGMENT RESULTS

Electrical System Segment Results

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

The table below sets forth certain Electrical Systems Segment operating data for the three months ended June 30 (dollars are in thousands):

(as restated) $ Change % Change

Revenues $ 74,210 $ 141,947 $ (67,737) (47.7) %

Gross Profit $ 1,144 $ 17,761 $ (16,617) (93.6) %

Selling, General & Administrative Expenses $ 6,580 $ 3,676 $ 2,904 79.0 %

Operating (Loss) Income $ (6,165) $ 13,899 $ (20,064) (144.4) %

The decrease in Electrical System Segment revenues resulted from:

• a $59.0 million, or 76.9%, decrease in OEM North American MD/HD Truck revenues;

• a $11.4 million, or 52.1%, decrease in OEM construction equipment revenues;

• a $21.4 million, or 458.4% increase in industrial and military revenues primarily attributable to the FSE acquisition;

• a $6.2 million, or 46.6% decrease in aftermarket and OES revenue;

• a $12.5 million, or 49.4%, decrease in other revenues.

These sharp market declines were partially offset by increased sales in industrial and military end markets we serve through the FSE business.

Electrical System Segment revenues were adversely impacted by foreign currency exchange translation of $0.6 million, which is reflected in the change in revenues above.

Gross Profit.

The decrease in gross profit was primarily attributable to the decrease in sales volume.

Included in gross profit is cost of revenues, which decreased $51.1 million, or 41.2%, as a result of a decrease in raw material and purchased component costs of $35.4 million, or 45.1%;

a decrease in wages and benefits of $5.2 million, or 42.1%;

and a decrease in overhead expenses of $10.5 million, or 31.5%.

Second quarter 2020 cost of revenues benefited from the Restructuring Initiatives and the Temporary Actions, The second quarter results include charges of $1.6 million associated with ongoing Restructuring Initiatives.

As a percentage of revenues, gross profit margin was 1.5% for the three months ended June 30, 2020 compared to 12.5% for the three months ended June 30, 2019.

Selling, General and Administrative Expenses .

SG&A expenses increased $2.9 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily as a result of the decrease in revenues and cost reductions as a result of the Restructuring Initiatives and other reductions in costs.

Before giving effect to certain charges, SG&A expenses reduced by $0.4 million due the Restructuring Initiatives and the Temporary Actions taken in response to the COVID-19 pandemic.

These reductions were offset by a $3.5 million charge for future milestone payments related to the performance of the FSE business and charges of $0.4 million associated with ongoing restructuring initiatives.

Global Seating Segment Results

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

The table below sets forth certain Global Seating Segment operating data for the three months ended June 30 (dollars are in thousands):

(as restated) $ Change % Change

Revenues $ 53,862 $ 105,276 $ (51,414) (48.8) %

Gross Profit $ 5,345 $ 14,686 $ (9,341) (63.6) %

Selling, General & Administrative Expenses $ 3,683 $ 5,177 $ (1,494) (28.9) %

Operating (Loss) Income $ 1,535 $ 9,373 $ (7,838) (83.6) %

The decrease in Global Seating Segment revenues resulted from:

• a $33.1 million, or 70.4%, decrease in OEM North American MD/HD Truck revenues;

• a $6.9 million, or 32.9%, decrease in OEM construction equipment revenues;

• a $6.7 million, or 32.3%, decrease in aftermarket and OES sales;

• a $4.7 million, or 28.4%, decrease in other revenues.

Global Seating Segment revenues were adversely impacted by foreign currency exchange translation of $1.2 million, which is reflected in the change in revenues above.

Gross Profit.

The decrease in gross profit is primarily attributable to the decrease in sales volume.

Included in gross profit is cost of revenues, which decreased $42.1 million, or 46.4%, as a result of a decrease in raw material and purchased component costs of $31.0 million, or 50.0%;

a decrease in wages and benefits of $3.9 million, or 54.7%;

and a decrease in overhead expenses of $7.2 million, or 33.4%.

Second quarter 2020 cost of revenues benefited from the Restructuring Initiatives and the Temporary Actions.

The second quarter results include charges of $0.4 million associated with ongoing restructuring initiatives.

As a percentage of revenues, gross profit margin was 9.9% for the three months ended June 30, 2020 compared to 13.9% for the three months ended June 30, 2019.

Selling, General and Administrative Expenses .

SG&A expenses decreased $1.5 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Before giving effect to certain charges, SG&A expenses reduced by $1.7 million due the Restructuring Initiatives and the Temporary Actions taken in response to the COVID-19 pandemic.

These reductions were partially offset by charges of $0.2 million associated with ongoing restructuring initiatives.

Consolidated Results of Operations

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

The table below sets forth certain consolidated operating data for the six months ended June 30 (dollars are in thousands):

(as restated) $ Change % Change

Revenues $ 314,001 $ 486,354 $ (172,353) (35.4) %

Gross Profit $ 26,778 $ 65,525 $ (38,747) (59.1) %

Selling, General and Administrative Expenses $ 33,083 $ 31,447 $ 1,636 5.2 %

Impairment Expense $ 29,017 $ — $ 29,017 100.0 %

Interest and Other Expense $ 10,469 $ 11,886 $ (1,417) (11.9) %

(Benefit) Provision for Income Taxes $ (10,416) $ 5,417 $ (15,833) (292.3) %

Net (Loss) Income $ (37,091) $ 16,132 $ (53,223) (329.9) %

The decrease in consolidated revenues resulted from:

• a $139.4 million, or 56.8%, decrease in OEM North American MD/HD Truck revenues;

• a $32.7 million, or 36.3%, decrease in OEM construction equipment revenues;

• a $33.8 million, or 344.9%, increase in industrial and military revenues primarily attributable to the FSE acquisition;

• a $17.6 million, or 25.7%, decrease in aftermarket and OES revenues;

• a $16.4 million, or 22.6%, decrease in other revenues.

These sharp market declines were partially offset by increased sales in industrial and military end markets we serve through the FSE business.

Revenues were adversely impacted by foreign currency exchange translation of $3.0 million, which is reflected in the change in revenues above.

Gross Profit .

The decrease in gross profit is primarily attributable to the decrease in sales volume.

Included in gross profit is cost of revenues, which decreased $133.6 million, or 31.7%, as a result of an decrease in raw material and purchased component costs of $95.4 million, or (35.0)%;

a decrease in wages and benefits of $12.5 million, or (32.5)%;

and a decrease in overhead expenses of $25.7 million, or (23.5)%.

Cost of revenues benefited from the Restructuring Initiatives and the Temporary Actions.

The year to date results include charges of $2.1 million associated with ongoing restructuring initiatives.

As a percentage of revenues, gross profit margin was 8.5% for the six months ended June 30, 2020 compared to 13.5% for the six months ended June 30, 2019.

Selling, General and Administrative Expenses .

SG&A expenses increased $1.6 million compared to the six months ended June 30, 2019.

Before giving effect to certain charges, SG&A expenses reduced by $6.9 million due the Restructuring Initiatives and the Temporary Actions taken in response to the COVID-19 pandemic.

These reductions were offset by a $3.5 million charge for future milestone payments related to the performance of the FSE business, charges of $1.0 million associated with ongoing restructuring initiatives, charges of $2.8 million associated with the 2019 restatement investigation that resulted in the restatement of the Company’s financial statements and $2.3 million in costs associated with the CEO transition.

Impairment Expense .

As a result of the Company's market capitalization maintaining a value less than the carrying value of its equity, the Company determined it had an impairment indicator.

Accordingly, we recognized a $27.1 million impairment of goodwill and impairment of long-lived assets of $1.8 million for the quarter ended March 31, 2020 .

Accordingly, we recognized a $27.1 million impairment of goodwill for the six months ended June 30, 2020.

Additionally, the Company determined it had and impairment indicator of long-lived assets due to market conditions resulting in an impairment of $1.9 million for the six months ended June 30, 2020.

Interest and Other Expense .

Interest, associated with our debt, and other expense was $5.4 million and $4.4 million for the three months ended March 31, 2020 and 2019 , respectively.

The increase reflects unfavorable foreign exchange translation adjustments of $0.8 million in the three months ended March 31, 2020 compared to a favorable foreign exchange translation adjustment gain in prior year of $0.1 million .

Interest, associated with our debt, and other expense was $10.5 million and $11.9 million for the six months ended June 30, 2020 and 2019, respectively.

The decrease is primarily attributable to the prior year $2.5 million non-cash charge associated with the early payout of benefits to term vested participants in the U.S.

pension plan, which reduced future financial risk associated with the U.S.

Pension Plan and contributed to an improvement in funded status to approximately 100%.

Partially offsetting this decrease were unfavorable foreign exchange translation adjustments of $0.7 million in the six months ended June 30, 2020 compared to a favorable foreign exchange translation adjustment gain in the prior year of $0.1 million.

(Benefit) Provision for Income Taxes.

An income tax benefit of $7.3 million and an income tax provision of $3.2 million were recorded for the three months ended March 31, 2020 and 2019 , respectively.

An income tax benefit of $10.4 million and an income tax provision of $5.4 million were recorded for the six months ended June 30, 2020 and 2019, respectively.

The period over period change in income tax was primarily attributable to the pre-tax loss sustained in the current period versus the pre-tax income generated in the prior year period.

The income tax benefit for the three months ended March 31, 2020, was calculated based the Company's actual effective tax rate for the current year-to-date period.

The income tax benefit for the six months ended June 30, 2020, was calculated based the Company's actual effective tax rate for the current year-to-date period due to significant market uncertainty.

See Note 15 of the "Notes to Condensed Consolidated Financial Statements" for additional details.

Net (Loss) Income.

Net loss was $24.6 million for the three months ended March 31, 2020 compared to $10.0 million net income for the three months ended March 31, 2019 .

Net loss was $37.1 million for the six months ended June 30, 2020 compared to $16.1 million net income for the six months ended June 30, 2019.

The decrease in net income is attributable to the factors noted above.

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Electrical System Segment Results

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

The table below sets forth certain Electrical Systems Segment operating data for the three months ended March 31 (dollars are in thousands):

(as restated)

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

The table below sets forth certain Electrical Systems Segment operating data for the six months ended June 30 (dollars are in thousands):

(as restated) $ Change % Change

Revenues $ 186,308 $ 285,558 $ (99,250) (34.8) %

Gross Profit $ 12,090 $ 37,093 $ (25,003) (67.4) %

Selling, General & Administrative Expenses $ 10,531 $ 7,825 $ 2,706 34.6 %

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• a $33.8 million, or 348.0% increase in industrial and military revenues primarily attributable to the FSE acquisition;

• a $8.9 million, or 32%, decrease in aftermarket and OES revenues;

• a $16.9 million, or 33.2%, decrease in other revenues.

Electrical System Segment revenues were adversely impacted by foreign currency exchange translation of $0.4 million , which is reflected in the change in revenues above.

These sharp market declines were partially offset by increased sales in industrial and military end markets we serve through the FSE business Electrical System Segment revenues were adversely impacted by foreign currency exchange translation of $0.9 million, which is reflected in the change in revenues above.

Gross Profit.

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and a decrease in overhead expenses of $14.4 million, or 21.8%.

Commodity and other material costs, as well as the difficult labor markets, have stabilized.

First quarter 2020 cost of revenues benefited from the Restructuring Initiatives.

As a percentage of revenues, gross profit margin was 9.8% for the three months ended March 31, 2020 compared to 13.5 % for the three months ended March 31, 2019 .

Cost of revenues benefited from the Restructuring Initiatives and the Temporary Actions.

The year to date results include charges of $1.6 million associated with ongoing restructuring initiatives.

As a percentage of revenues, gross profit margin was 6.5% for the six months ended June 30, 2020 compared to 13.0% for the six months ended June 30, 2019.

Selling, General and Administrative Expenses .

SG&A expenses of $4.0 million decreased 4.8% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily as a result of the decrease in revenues and cost reductions as a result of the Restructuring Initiatives and other reductions in costs..

SG&A expenses increased $2.7 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Before giving effect to certain charges, SG&A expenses reduced by $1.2 million due the Restructuring Initiatives and the Temporary Actions taken in response to the COVID-19 pandemic.

Impairment Expense .

As a result of the Company's market capitalization maintaining a value less than the carrying value of its equity, the Company determined it had an impairment indicator.

Accordingly, we recognized a $22.3 million impairment of goodwill and an impairment of long-lived assets of $1.1 million for the quarter ended March 31, 2020 .

Accordingly, we recognized a $22.3 million impairment of goodwill and an impairment of long-lived assets of $1.1 million for the six months ended June 30, 2020.

Global Seating Segment Results

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

The table below sets forth certain Global Seating Segment operating data for the three months ended March 31 (dollars are in thousands):

(as restated)

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

The table below sets forth certain Global Seating Segment operating data for the six months ended June 30 (dollars are in thousands):

(as restated) $ Change % Change

Revenues $ 129,842 $ 209,337 $ (79,495) (38.0) %

Gross Profit $ 14,714 $ 28,466 $ (13,752) (48.3) %

Selling, General & Administrative Expenses $ 8,475 $ 10,514 $ (2,039) (19.4) %

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• a $15.2 million, or 34.1%, decrease in OEM construction equipment revenues;

• a $8.8 million, or 21.5%, decrease in aftermarket and OES revenue;

• a $5.9 million, or 19.7%, decrease in other revenues.

Global Seating Segment revenues were adversely impacted by foreign currency exchange translation of $2.0 million, which is reflected in the change in revenues above.

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and a decrease in overhead expenses of $11.3 million, or 25.9%.

Commodity and other material costs, as well as difficult labor markets, have stabilized.

First quarter 2020 cost of revenues benefited from the Restructuring Initiatives.

As a percentage of revenues, gross profit margin was 12.3% for the three months ended March 31, 2020 compared to 13.2 % for the three months ended March 31, 2019 .

Cost of revenues benefited from the Restructuring Initiatives and the Temporary Actions.

The year to date results include charges of $0.5 million associated with ongoing restructuring initiatives.

As a percentage of revenues, gross profit margin was 11.3% for the six months ended June 30, 2020 compared to 13.6% for the six months ended June 30, 2019.

Selling, General and Administrative Expenses .

SG&A expenses of $4.8 million decreased 10.2% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily as a result of the decrease in revenues and cost reductions as a result of the Restructuring Initiatives and other reductions in costs.

SG&A expenses decreased $2.0 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Before giving effect to certain charges, SG&A expenses reduced by $2.2 million due the Restructuring Initiatives and the Temporary Actions taken in response to the COVID-19 pandemic.

These reductions were partially offset by charges of $0.2 million associated with ongoing restructuring initiatives.

Impairment Expense .

As a result of the Company's market capitalization maintaining a value less than the carrying value of its equity, the Company determined it had an impairment indicator.

Accordingly, we recognized a $4.8 million impairment of goodwill for the quarter ended March 31, 2020 .

Accordingly, we recognized a $4.8 million impairment of goodwill for the six months ended June 30, 2020.

Critical Accounting Policies and Estimates

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We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We determined we had an impairment indicator specific to goodwill.

In the first quarter of 2020 we determined we had an impairment indicator specific to goodwill.

As a result, we impaired the full value of our goodwill, $27.1 million.

We also recorded impairments of long-lived assets of $1.8 million based on certain other impairment indicators.

We are not aware of other specific events or circumstances that would require updates to our estimates or judgments or require us to revise the carrying value of our long-lived assets, including property, plant and equipment and definite-lived intangible assets as of March 31, 2020 or May 18, 2020 , the date of issuance of this Quarterly Report on Form 10-Q.

We also recorded impairments of long-lived assets of $1.9 million based on certain other

impairment indicators for the six months ended June 30, 2020.

We are not aware of other specific events or circumstances that would require updates to our estimates or judgments or require us to revise the carrying value of our long-lived assets, including property, plant and equipment and definite-lived intangible assets as of June 30, 2020 or August 10, 2020, the date of issuance of this Quarterly Report on Form 10-Q.

These estimates may change as new events occur and additional information is obtained.

Actual results may differ from these estimates under different assumptions and conditions.

There were no other significant changes in our critical accounting estimates during the three months ended March 31, 2020 compared to those previously disclosed in “Critical Accounting Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2019 Form 10-K.

There were no other significant changes in our critical accounting estimates during the six months ended June 30, 2020 compared to those previously disclosed in “Critical Accounting Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2019 Form 10-K and Q1 2020 Form 10-Q.

Liquidity and Capital Resources

The Company borrowed $15.0 million under its revolving credit facility during the three months ended March 31, 2020 .

At March 31, 2020 , the Company had liquidity of $114.2 million ;

The Company borrowed $15.0 million under its revolving credit facility during the six months ended June 30, 2020.

At June 30, 2020, the Company had liquidity of $106.6 million;

$63.4 million of cash and $43.2 million of availability from the revolving credit facility.

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and (4) to return capital to our shareholders.

Our primary sources of liquidity during the three months ended March 31, 2020 were cash reserves and availability under our revolving credit facility.

Our primary sources of liquidity during the six months ended June 30, 2020 were cash reserves and availability under our revolving credit facility.

We believe that these sources of liquidity will provide adequate funds for our working capital needs, capital expenditures and debt service throughout the next twelve months.

However, no assurance can be given that this will be the case.

As of March 31, 2020 , we had $15.0 million borrowings under our revolving credit facility and had borrowing availability of $56.1 million .

For the three months ended March 31, 2020 , net cash provided by operating activities was $10.3 million compared to net cash used in operating activities of $6.0 million for the three months ended March 31, 2019 .

The improvement in net cash provided by

operating activities is primarily attributable to lower investment in working capital and other operating activities due to lower volume in the first quarter of 2020 compared to the prior year period.

For the three months ended March 31, 2020 , net cash used in investing activities was $3.5 million compared to $5.6 million for the three months ended March 31, 2019 .

As of June 30, 2020, we had $15.0 million borrowings under our revolving credit facility and had borrowing availability of $43.2 million.

For the six months ended June 30, 2020, net cash provided by operating activities was $20.5 million compared to $8.7 million for the six months ended June 30, 2019.

The improvement in net cash provided by operating activities is primarily attributable to the reduction in working capital associated with the sales declines in the six months ended June 30, 2020 as compared to the to the prior year period.

The cash generated by the working capital reduction was partially offset by the net loss in the current period compared to net income in the prior year period.

For the six months ended June 30, 2020, net cash used in investing activities was $4.4 million compared to $12.8 million for the six months ended June 30, 2019.

In 2020, we expect capital expenditures to be in the range of $8 to $12 million.

For the three months ended March 31, 2020 , net cash provided by financing activities was $13.8 million compared to net cash used in financing activities of $5.3 million for the three months ended March 31, 2019 .

Net cash provided by financing activities for the three months ended March 31, 2020 is attributable to $15.0 million of borrowings under the revolving credit facility offset by a repayment of the senior secured term loan credit facility.

Net cash used in financing activities for the three months ended March 31, 2019 is attributable to repayments of the senior secured term loan credit facility, including an excess cash flow payment on the facility.

As of March 31, 2020 , cash of $39.0 million was held by foreign subsidiaries.

For the six months ended June 30, 2020, net cash provided by financing activities was $10.0 million compared to net cash used in financing activities of $6.6 million for the six months ended June 30, 2019.

Net cash provided by financing activities for the six months ended June 30, 2020 is attributable to $15.0 million of borrowings under the revolving credit facility offset by repayments of the senior secured term loan credit facility.

Net cash used in financing activities for the six months ended June 30, 2019 is attributable to repayments of the senior secured term loan credit facility, including an excess cash flow payment on the facility.

As of June 30, 2020, cash of $42.1 million was held by foreign subsidiaries.

The Company currently maintains a $0.8 million deferred tax liability for the future income tax implications of repatriating earnings from the foreign subsidiaries for which it is not making the indefinite reinvestment assertion.

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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.

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.

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Investors are warned that actual results may differ from management’s expectations.

end markets, including the short-term and potential longer-term impact of the COVID-19 pandemic on Class 8 and Class 5-7 North America truck build rates and performance of the global construction equipment business, expected cost savings, the Company’s initiatives to address customer needs, organic growth, the Company’s plans to focus on certain segments and markets and the Company’s financial position or other financial information.

In particular, this Form 10-Q may contain forward-looking statements about Company expectations for future periods with respect to its plans to improve financial results and enhance the Company, the future of the Company’s end markets, including the short-term and potential longer-term impact of the COVID-19 pandemic on Class 8 and Class 5-7 North America truck build rates and performance of the global construction equipment business, expected cost savings, the Company’s initiatives to address customer needs, organic growth, the Company’s plans to focus on certain segments and markets and the Company’s financial position or other financial information.

These statements are based on certain assumptions that the Company has made in light of its experience as well as its perspective on historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances.

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(xxiii) the impact of health epidemics or widespread outbreak of contagious disease;

and (xxiv) various other risks as outlined under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for fiscal year ending December 31, 2019.

and (xxiv) various other risks as outlined under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for fiscal year ending December 31, 2019 and the Company's fillings with the SEC.

There can be no assurance that statements made in this Form 10-Q relating to future events will be achieved.

The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future

operating results over time.

All subsequent written and oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by such cautionary statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis