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Item 9A. Controls and Procedures

2021-03-09 compared with 2020-03-16 · 164 added, 126 removed, 224 unchanged (56% of the section changed)

Controls and Procedures

Restatement of Previously Issued Financial Statements

As described in Note 2 of the Notes to the Consolidated Financial Statements included within this Annual Report on Form 10-K, on March 12, 2020, the Audit Committee of the Board of Directors of the Company, after considering the recommendations of management, and discussing such recommendations with outside SEC counsel and KPMG, LLP, the Company's independent registered public accounting firm, concluded that our audited consolidated financial statements as of and for the year ended December 31, 2018, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and our unaudited consolidated financial statements as of and for the quarterly periods ended March 31, 2019 and 2018, June 30, 2019 and 2018, and September 30, 2019 and 2018, included in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2019, June 30, 2019 and September 30, 2019, should no longer be relied upon due to misstatements.

Accordingly, the consolidated financial statements for the year ended December 31, 2018, selected financial data (Item 6.

"Selected Financial Data") and relevant unaudited interim financial information for the quarterly periods ended March 31, 2019 and 2018, June 30, 2019 and 2018, September 30, 2019 and 2018, and December 31, 2018 included within this Annual Report on Form 10-K have been restated.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s disclosure control objectives.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the "Exchange Act,") as of the end of the period covered by this Annual Report on Form 10-K.

Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2019 our disclosure controls and procedures were not effective as a result of the material weaknesses discussed below.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining, under the direction of our chief executive officer and chief financial officer and supervision of the Board of Directors, adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

Management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

We have excluded from our assessment of internal control over financial reporting at December 31, 2019 the internal control over financial reporting of FSE, the assets of which were acquired in 2019 (see Note 5 in Item 8 of this Annual Report on Form 10-K).

As of and for the year ended December 31, 2019, the assets and revenue represented by the acquired business was $46.9 million and $12.8 million , respectively.

We evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of December 31, 2020.

Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2020 to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.

Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2019 as a result of the material weaknesses discussed below.

A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The Company identified errors in the accounting for prepaid production tooling (presented in other current assets in the Consolidated Balance Sheets), construction-in-progress and miscellaneous accounts receivable (presented in accounts receivable, net in the Consolidated Balance Sheets) in one manufacturing facility.

These errors resulted from material weaknesses due to an ineffective risk management process that resulted in ineffectively designed controls over balance sheet account reconciliations and review of manual journal entries.

The three material weaknesses identified resulted in material misstatements that have been corrected in the consolidated financial statements filed as part of this Annual Report on Form 10-K (Item 8.

“Financial Statements and Supplementary Data”, Note 2).

KPMG LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this annual report, has issued an attestation report on our internal control over financial reporting, which expressed an adverse opinion on the effectiveness of our internal control over financial reporting

Remediation Plan and Status

The Company has developed a remediation plan which includes, but is not limited to, an assessment of the Company’s processes and controls over balance sheet account reconciliations, manual journal entries and risk assessment.

Based on the results of that assessment, we intend to undertake such measures as deemed necessary, including:

Also, controls deemed effective now may become inadequate in the future because of changes in conditions, or because compliance with the policies or procedures has deteriorated or been circumvented.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020.

In making this assessment, management used the criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”).

Based on management’s assessment and the COSO criteria, management believes that our internal control over financial reporting was effective as of December 31, 2020.

Our independent registered public accounting firm, KPMG LLP, has issued a report on our internal control over financial reporting.

KPMG LLP’s report appears following Item 9A and expresses an unqualified opinion on the effectiveness of our internal control over financial reporting .

Remediation of Previously Reported Material Weakness

As disclosed in Part II, Item 9A Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, during the fourth quarter of fiscal 2019, we identified material weaknesses in internal control over financial reporting related to ineffective risk management process that resulted in ineffectively designed controls over balance sheet account reconciliations and review of manual journal entries.

During 2020, management implemented our previously disclosed remediation plan including:

• Enhancing the design of the balance sheet account reconciliation process to better enable the proper and timely review of balance sheet account reconciliations, including the supporting documentation thereto;

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• Enhancing the Company’s risk assessment process to reduce the risk of financial misstatements.

While the foregoing measures are intended to effectively remediate the material weaknesses described in this Item 9A, it is possible that additional remediation steps will be necessary.

As we continue to evaluate and implement our plan to remediate the material weaknesses, our management may decide to take additional measures to address the material weaknesses or modify the remediation steps described above.

Until these material weaknesses are remediated, we plan to continue to perform additional analyses and other procedures to help ensure that our consolidated financial statements are prepared in accordance with GAAP.

During the fourth quarter of 2020, we completed our testing of the operating effectiveness of the implemented controls and found them to be effective.

As a result, we have concluded the material weaknesses have been remediated as of December 31, 2020.

Changes in Internal Control over Financial Reporting

Other than described above in this Item 9A, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except for the remediation of the material weaknesses and changes described above, there were no changes during the quarter ended December 31, 2020 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule II;

Valuation and Qualifying Accounts and Reserves (collectively, the consolidated financial statements), and our report dated March 16, 2020 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Material weaknesses related to an ineffective risk assessment process that resulted in ineffectively designed controls over balance sheet account reconciliations and review of manual journal entries have been identified and included in management’s assessment.

The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

The Company acquired First Source Electronics, LLC (FSE) during 2019, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, FSE’s internal control over financial reporting associated with total assets of $46.9 million and total revenues of $12.8 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2019.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of FSE.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes to consolidated financial statements (collectively, the consolidated financial statements), and our report dated March 9, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Other Information

On March 12, 2020, the Board of Directors of the Company, approved adjustments to the Company’s manufacturing facility footprint and capacity utilization, and selling, general and administrative costs.

These restructuring and cost reduction actions are expected to lower operating costs by $5 million to $7 million annually when fully implemented by early 2021 .

Pre-tax costs associated with these actions are expected to be $6 million to $8 million , the majority of which is employee-related separation costs and other costs associated with the transfer of manufacturing production and subsequent closure of facilities.

The amounts and timing may vary materially based upon various factors.

See “Forward-Looking Information” and Risk Factors in this Annual Report on Form 10-K.

In connection with the Company's efforts to reduce cost in the face of uncertainty during the COVID-19 pandemic, the original 2020 annual incentive plan was set aside and the corresponding accrual was taken to zero in the second quarter of 2020.

As the Company's end markets recovered and management successfully executed a recovery plan in the second-half of 2020, the Compensation Committee of the Board of Directors (the “Committee”) established a discretionary dollar amount for distribution to active bonus eligible employees based on actual second-half financial outcomes and success in the execution of the Company's long term growth and diversification strategy.

Effective March 8, 2021, the Committee exercised discretion and approved cash bonuses to the Company’s named executive officers as follows:

Bevis, President and Chief Executive Officer $ 500,000 1

Christopher H.

Bohnert, Chief Financial Officer $ 54,167

Bowen, SVP & Managing Director $ 188,760

Pursuant to the Employment Agreement between the Company and Mr.

Bevis was entitled to a guaranteed minimum bonus of $375,000, and the Committee elected to increase that bonus award to $500,000.

On March 8, 2021, the Company entered into a Change in Control & Non-Competition Agreement with Christopher H.

Bohnert, the Company’s Chief Financial Officer (the “Bohnert CIC Agreement”).

The Bohnert CIC Agreement provides for certain payouts to Mr.

Bohnert and vesting of certain awards in the event Mr.

Bohnert’s employment is terminated on account of his death, disability, retirement, without cause or for good reason.

The foregoing description of the terms of the Bohnert CIC Agreement does not purport to be complete, and is qualified in its entirety by reference to the full text of the Bohnert CIC Agreement, a copy of which is attached as Exhibit 10.28 to this Annual Report on Form 10-K and incorporated herein by reference.

On March 8, 2021, the Company entered into a Change in Control & Non-Competition Agreement with Angela O’Leary, the Company’s Chief Accounting Officer (the “O’Leary CIC Agreement”).

The O’Leary CIC Agreement provides for certain payouts to Ms.

O’Leary and vesting of certain awards in the event Ms.

O’Leary employment is terminated on account of her death, disability, retirement, without cause or for good reason.

The foregoing description of the terms of the O’Leary CIC Agreement does not purport to be complete, and is qualified in its entirety by reference to the full text of the O’Leary CIC Agreement, a copy of which is attached as Exhibit 10.29 to this Annual Report on Form 10-K and incorporated herein by reference.

Directors, Executive Officers and Corporate Governance

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The following table sets forth certain information with respect to our directors as of March 9, 2021:

Principal Position(s)

Chairman and Director

President, Chief Executive Officer and Director

Name Age Principal Position(s)

Griffin 73 Chairman and Director

Bevis 61 President, Chief Executive Officer and Director

Fix 66 Director

Rancourt 58 Director

Stipp 61 Director

The following biographies describe the business experience of our directors:

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Griffin has also served as Chairman of the Board of Directors of another public company, been on numerous committees of each company where he has served as a Director and brings a depth of knowledge about corporate governance from those roles to his service on the Board of Commercial Vehicle Group.

Griffin earned a Master of Business Administration degree from Northwest University and a Bachelor of Science degree in Finance from Miami University.

Miller has served as President and Chief Executive Officer and a Director since November 2015.

Miller, who most recently was President of the Company’s Global Truck & Bus Segment, has been with the Company since 2005.

During this time, he served in the capacity of Senior Vice President & General Manager of Aftermarket;

Senior Vice President of Global Purchasing;

Vice President of Global Sales;

Vice President & General Manager of North American Truck and Vice President & General Manager of Structures.

As of December 2018, Mr.

Miller was appointed to the board of directors for Federal Signal Corporation, where he serves as a member of the Audit Committee.

Prior to joining the Company, Mr.

Miller held engineering, sales, and operational leadership positions with Hayes Lemmerz International, Alcoa, Inc.

and ArvinMeritor.

Qualifications :

Miller has broad operational and management experience.

He has over 21 years of experience in senior and executive management positions with multi-national corporations including responsibility for determining and executing successful strategies.

Prior to becoming President and Chief Executive Officer, Mr.

Miller managed many aspects of the Company’s operations and commercial activities at a senior level.

Miller holds a Master of Business Administration degree from the Harvard University Graduate School of Business and a Bachelor of Science degree in Industrial Engineering from Purdue University.

Bevis has served as a Director since June 2014.

He has 25 years of business leadership experience, 21 years of Director experience, including over 15 years as a CEO.

He was a business leader at both GE and Emerson Electric.

He has led or directed 8 businesses in 6 industries, 150+ operating facilities in 22 countries, 12 new business/new plant startups, 11 acquisitions, 25+ global refinancings, and 24 business/plant expansions.

Bevis has been Chairman and CEO of Boxlight Corporation since January 2020 and has been a Director since March 2018.

From October 2017 to February 2019, Mr.

Bevis served as President of OmniMax International.

From August 2012 to April 2017, Mr.

Griffin earned a Master of Business Administration degree from Northwestern University and a Bachelor of Science degree in Finance from Miami University.

Bevis has served as President and Chief Executive Officer since March 2020 and as a Director since June 2014.

He brings 27 years of leadership experience to the position, including 24 years of experience as a business leader with leadership assignments at GE and Emerson Electric;

and 16 years of experience as a CEO, President and Director of global manufacturing companies.

He has worked in public companies for 15+ years and private companies for 15+ years.

Bevis served as President, Chief Executive Officer and Director of Xerium Technologies, Inc.

(NYSE:XRM) from August 2012 to April 2017, and served as Chairman and CEO of Boxlight Corporation from January 2020 to March 2020 and served as a Director of Boxlight Corporation from March 2018 to March 2020.

Qualifications :

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He has over 30 years of experience in senior and executive management positions in the finance field which includes responsibility for determining and executing successful strategies.

Rancourt, in addition to being a member of Audit and Compensation Committees, has also served on the Nominating and Governance Committee of the Company.

Rancourt received a Bachelor of Science degree in Accounting from Central Washington University.

has served as Director since March 2020.

In November 2020, Mr.

Ray retired as President, Engineered Fastening at Stanley Black & Decker, Inc.

where he held various global industrial P&L and operational leadership roles since 2013.

Prior to Stanley Black & Decker, Mr.

Ray spent more than 25 years in global P&L and engineering leadership roles at TE Connectivity, Delphi and GM.

Ray has served on the Board of RR Donnelley and Sons since February 2021.

Qualifications :

Ray brings extensive expertise in electronics and electrical engineering within global industrial and automotive operations which is closely aligned with CVG’s long-term growth strategy.

Ray earned a Master of Science degree in Manufacturing Management from Kettering University and a Bachelor of Science degree in Electrical and Electronics Engineering from Howard University.

Stipp has served as a Director since February 2019.

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Executive Officers

Information regarding our executive officers is set forth in Item 1 of Part I of this Annual Report on Form 10-K under the heading “Executive Officers of the Registrant.”

The following table sets forth certain information with respect to our executive officers as of March 9, 2021:

Name Age Principal Position(s)

Bevis 61 President, Chief Executive Officer and Director

Christopher H.

Bohnert 54 Chief Financial Officer

Bowen 64 Senior Vice President and Managing Director of Global Seating

Bevis has served as President and Chief Executive Officer since March 2020 and as a Director since June 2014.

He brings 27 years of leadership experience to the position, including 24 years of experience as a business leader with leadership assignments at GE and Emerson Electric;

and 16 years of experience as a CEO, President and Director of global manufacturing companies.

He has worked in public companies for 15+ years and private companies for 15+ years.

Bevis served as President, Chief Executive Officer and Director of Xerium Technologies, Inc.

Christopher H.

Bohnert has served as Chief Financial Officer since October 2020.

Bohnert, has more than 25 years of global financial leadership experience across a wide range of industries.

Bohnert was previously with Calumet Specialty Products Partners, L.P.

where he served as Chief Accounting Officer and subsequently Chief Financial Officer for Finished Lubricants & Chemicals, from 2017 to October 2020.

Prior to that, Mr.

Bohnert served as Chief Accounting Officer of Titan International, Inc.

from 2015 to 2017.

From 2013 to 2015, Mr.

Bohnert served as Chief Financial Officer of Silgan Plastics Corporation.

From 2005 to 2012, Mr.

Bohnert was Chief Financial Officer of AB Mauri Fleischmann’s.

Bohnert began his career in public accounting at KPMG LLP.

Bohnert holds a Bachelor of Science degree in Business Administration, Economics, and Accountancy from the University of Missouri, and a Master of Science in Accountancy from the University of South Carolina.

Bohnert is also a Certified Public Accountant (Inactive status).

Bowen has served as Senior Vice President and Managing Director of Global Seating since November 2018 and previously served as Senior Vice President & Managing Director of Global Construction, Agriculture & Military markets.

He joined the Company in June 2017.

Prior to joining CVG, Mr.

Bowen served as President of the North America and Asia Pacific markets for Dayco Products, LLC for more than 35 years.

Bowen is a graduate of the Citadel, The Military College of South Carolina and holds a Bachelor of Science in Business Administration.

There are no family relationships between any of our directors or executive officers.

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Outstanding Options,

Warrants and Rights

Weighted-average

Warrants and Rights Weighted-average

Exercise Price of

Options, Warrants

and Rights Number of

Remaining Available

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The information required by Item 12 is incorporated herein by reference to the section labeled “Security Ownership of Certain Beneficial Owners and Management,” which appears in CVG’s 2020 Proxy Statement.

Certain Relationships, Related Transactions and Director Independence

Item 13 Certain Relationships, Related Transactions and Director Independence

The information required by Item 13 is incorporated herein by reference to the sections labeled “Certain Relationships and Related Transactions” and “Proposal No.

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3 - Ratification of Appointment of the Independent Registered Public Accounting Firm,” which appears in CVG’s 2021 Proxy Statement.

Exhibits, Financial Statements Schedules

(1) LIST OF FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule of the Corporation and its subsidiaries is included herein:

Schedule II - Valuation and Qualifying Accounts and Reserves.

COMMERCIAL VEHICLE GROUP, INC.

AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

December 31, 2019 , 2018 and 2017

Accounts Receivable Allowances:

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

Balance - Beginning of the year

Currency translation adjustment

Balance - End of the year

Income Tax Valuation Allowance:

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

Balance - Beginning of the year

Balance - End of the year

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted.

LIST OF EXHIBITS

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000-50890), filed on May 22, 2009.

Certificate of Designations, Preferences and Rights of Series B Junior Participating Preferred Stock (incorporated by reference to the Company’s Current Report (File No.

001-34365,) filed on June 25, 2020).

Registration Rights Agreement, dated July 6, 2005, among the Company, the subsidiary guarantors party thereto and the purchasers named therein (incorporated herein by reference to the Company’s current report on Form 8-K (File No.

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001-34365), filed on April 13, 2017).

Description of Securities.

Description of Securities (incorporated by reference to the Company’s annual report on Form 10-K (File No.

001-34365), filed on March 16, 2020.

Commercial Vehicle Group, Inc.

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001-34365), filed on March 24, 2016).

Change in Control & Non-Competition Agreement dated October 24, 2014 with Stacie Fleming (incorporated by reference to the Company’s current report on Form 8-K (File No.

001-34365), filed on October 28, 2014).

Change in Control & Non-Competition Agreement dated February 1, 2016 with Dale McKillop (incorporated by reference to the Company's Annual Report on Form 10-K (File No.

001-34365), filed on March 12, 2018).

Retention Bonus Agreement between the Company and Mr.

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001-34365), filed on August 3, 2016).

Offer letter, dated May 25, 2017, to Douglas Bowen.

Change in Control & Non-Competition Agreement dated November 7, 2017 with Douglas Bowen.

Offer letter, dated May 25, 2017, to Douglas Bowen (incorporated by reference to Exhibit 10.20 to the Company’s annual report on Form 10-K (File No.

001-34365), filed on March 16, 2020).

Change in Control & Non-Competition Agreement dated November 7, 2017 with Douglas Bowen (incorporated by reference to Exhibit 10.21 to the Company’s annual report on Form 10-K (File No.

001-34365), filed on March 16, 2020).

Offer letter, dated March 23, 2020, to Harold Bevis (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K (File No.

001-34365), filed on March 26, 2020)

Employment Agreement between Harold C.