Commercial Vehicle Group, Inc. 10-Q

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 six months ended June 30, 2021 and 2020. 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 2020 Form 10-K. 21 Table of Contents Business Overview CVG is a global provider of components and assemblies into two primary end markets – the global vehicle market and the U.S. technology integrator markets. The company provides components and assemblies to global vehicle companies to build original equipment and provides aftermarket products for fleet owners. The company also provides mechanical assemblies to warehouse automation integrators and to U.S. military technology integrators. Commercial Trends in the North America Commercial Truck Markets Demand for our products may be driven by preferences of the end-user of the vehicle, particularly with respect to heavy-duty trucks. Heavy-duty truck OEMs generally afford the end-user the ability to specify many of the component parts that will be used to manufacture the vehicle, including a wide variety of cab interior styles and colors, brand and type of seats, type of seat fabric and color, and interior styling. Certain of our products are only utilized in heavy-duty trucks, such as our storage systems, sleeper boxes and privacy curtains. To the extent that demand for higher content vehicles increases or decreases, our revenues and gross profit will be impacted positively or negatively. Current trends include future adoption of electric vehicles in the commercial truck segment. Commercial truck makers are developing electric models of all classes of trucks and buses in their fleets. This has created an increased number of platform opportunities relative to historical trends of platform changes as well as the aftermarket opportunities. The Company competes to retain its existing positions on platforms that are getting refreshed, competitively win new positions on platforms on which it is not the incumbent supplier, and gain first mover positions on new Electric Vehicle platforms. The global truck market is evolving to include many offerings aimed at low emissions and less impact on the environment. The Company has a targeted growth plan that it is pursuing to grow the Company. In general, demand for our heavy-duty (or "Class 8") truck products is generally dependent on the number of new heavy-duty trucks manufactured in North America, which in turn is a function of general economic conditions, interest rates, changes in government regulations, consumer spending, fuel costs, freight costs, fleet operators' financial health and access to capital, used truck prices and our customers’ inventory levels. New heavy-duty truck demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy, which generates a significant portion of the freight tonnage hauled by commercial vehicles. With respect to the North American medium-duty (or "Class 5-7") market, we primarily participate in the Class 6 and 7 portion of the market. The medium-duty truck market is influenced by overall economic conditions but has historically been less cyclical than the North American Class 8 truck market, with highs and lows generally not as pronounced as the Class 8 truck market. The Company is a new entrant into the last-mile delivery vehicle market. This is a focus of business development activities and the Company has secured future business in 2022 and beyond. Commercial Trends in Warehouse Automation Subsystems Demand for our warehouse automation subsystems is derived by expansion of supply chain infrastructures to accommodate increased customer orders in e-commerce. As the percentage of products ordered on-line increases, the delivery mechanisms must expand and increase output. Additionally, desire for cost reduction, increased throughput volume and SKU proliferation, a greater variety of order and package types, more frequent product returns by end consumers, and COVID-19-driven social distancing protocols on warehouse floors all have driven increased investment in automated solutions by warehouse operators. CVG assembles the material handling subsystems incorporated into automated warehouses. Commercial Trends in Construction Equipment Demand for our construction equipment products is dependent on vehicle production. Demand for new vehicles in the global construction equipment market generally follows certain economic conditions around the world. Our products are primarily used in the medium- and heavy-duty construction equipment markets (vehicles weighing over 12 metric tons). Demand in the medium- and heavy-duty construction equipment market is typically related to the level of large scale infrastructure development projects, such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and commodities industries. Other Key Developments On April 30, 2021, the Company closed on $275 million in senior secured credit facilities, consisting of a $150 million Term Loan Facility and a $125 million Revolving Credit Facility. The Company recognized a loss on extinguishment of debt of approximately $7.2 million, including non-cash write off relating to deferred financing costs and unamortized discount of the 22 Table of Contents 2023 Term Loan Facility, a voluntary repayment premium, and certain fees related to the new Credit Facilities during the quarter ended June 30, 2021. The Company deferred $1.8 million of fees related to the new Credit Facilities. 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. Although the economy has begun to recover, the COVID-19 pandemic has caused and continues to cause, significant volatility, uncertainty and economic disruptions to our business. While we continue to operate our facilities, we may experience production slowdowns and/or shutdowns at our manufacturing facilities in North America, Europe and Asia Pacific as a result of government orders, our inability to obtain component parts from suppliers and/or decreased customer demand. In addition, many of our suppliers and customers may experience production slowdowns and/or shutdowns, which may further impact our business, sales and results of operation. Continued impact on the Company's business, sales and results of operations from the COVID-19 pandemic may also result in additional valuation allowances being recorded against our deferred tax assets. The extent of the adverse effect of the COVID-19 pandemic on our business results depends on future developments, including the severity and duration of the pandemic and its overall impact on the economy. During the quarter ended June 30, 2021, while volume and demand is rebounding, we experienced supply constraints, labor constraints, material cost increases, and freight cost increases. The impact of the pandemic and related economic recovery 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 minimize disruptions and delays in production, focus on cost control and recovery through pricing adjustments, and take reasonable measures to protect our workforce. As we begin the third quarter, supply chains for our products continue to be negatively impacted by the global shortage of semiconductor chips. We are proactively managing labor shortages due to local dynamics around our primary manufacturing facilities, material inflation, freight costs increases, and global supply constraints. Specific to the comparative three and six month periods ended June 30, 2020, 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 continued through the end of 2020. Actions included headcount reductions, reduction in recurring consulting expenses, re-prioritization and decrease in capital spending and reduction in sales and marketing expenses. Additionally, the Company eliminated the 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. Consolidated Results of Operations Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 The table below sets forth certain consolidated operating data for the three months ended June 30 (dollars are in thousands): 2021 2020 $ Change % Change Revenues $ 257,941 $ 126,896 $ 131,045 103.3% Gross profit $ 34,368 $ 6,475 $ 27,893 430.8% Selling, general and administrative expenses $ 18,039 $ 16,840 $ 1,199 7.1% Goodwill and other impairment $ — $ 150 $ (150) (100.0)% Interest expense $ 2,818 $ 5,309 $ (2,491) (46.9)% Loss on extinguishment of debt $ 7,155 $ — $ 7,155 100.0% Provision (benefit) for income taxes $ 1,546 $ (3,122) $ 4,668 NM 1 Net income (loss) $ 5,095 $ (12,497) $ 17,592 NM 1 1. Not meaningful 23 Table of Contents Note, overall fluctuations in results from operations during the three months ended June 30, 2021 compared to three months ended June 30, 2020 were primarily driven by a very weak second quarter of 2020 impacted by the COVID-19 pandemic. Revenues . The increase in consolidated revenues resulted from: • a $60.4 million, or 191.1%, increase in OEM North American MD/HD Truck revenues; • a $41.5 million, or 384.3%, increase in warehouse automation revenues; • a $17.8 million, or 72.7%, increase in OEM construction equipment revenues; • a $6.2 million, or 29.4%, increase in aftermarket and OES revenues; and • a $5.1 million, or 17.8% increase in other revenues. Second quarter 2021 revenues were favorably impacted by foreign currency exchange translation of $6.8 million, which is reflected in the change in revenues above. Gross Profit . The $27.9 million increase in gross profit is primarily attributable to the increase in sales volume and improved cost structure, partially offset by material price increases and sales mix. Included in gross profit is cost of revenues, which increased $103.2 million, or 85.7%, as a result of an increase in raw material and purchased component costs of $76.9 million, or 105.5%, and an increase in labor and overhead expenses of $26.3 million, or 55.3%. As a percentage of revenues, gross profit margin was 13.3% for the three months ended June 30, 2021 compared to 5.1% for the three months ended June 30, 2020. 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 $1.2 million compared to the three months ended June 30, 2020, primarily due to the reduced wages and benefits in 2020 as a result of the temporary actions taken in response to the COVID-19 pandemic. The increase was offset by a $3.3 million decrease in charge for Contingent Consideration and $1.0 million decrease in charges associated with ongoing Restructuring Initiatives. As a percentage of revenues, SG&A expense was 7.0% for the three months ended June 30, 2021 compared to 13.3% for the three months ended June 30, 2020. Interest Expense . Interest associated with our debt was $2.8 million and $5.3 million for the three months ended June 30, 2021 and 2020, respectively. The decrease in interest expense primarily related to a $1.2 million decrease in Payment In Kind interest expense resulting from the loan amendment that occurred in the second quarter of 2020 and a lower interest expense of $1.0 million due to refinancing of the Company's long term debt. 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 repayment premium of $3.0 million and $0.5 million of other fees associated with the new debt. Provision (Benefit) for Income Taxes. An income tax provision of $1.5 million and an income tax benefit of $3.1 million were recorded for the three months ended June 30, 2021 and 2020, respectively. The period over period change in income tax was primarily attributable to a $22.3 million increase in pre-tax income versus the prior year period. Net Income (loss). Net income was $5.1 million for the three months ended June 30, 2021 compared to a net loss of $12.5 million for the three months ended June 30, 2020. The increase in net income is attributable to the factors noted above. 24 Table of Contents Segment Results Electrical System Segment Results Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 The table below sets forth certain Electrical Systems Segment operating data for the three months ended June 30 (dollars are in thousands): 2021 2020 $ Change % Change Revenues $ 175,104 $ 74,210 $ 100,894 136.0% Gross profit $ 23,776 $ 1,144 $ 22,632 1,978.3% Selling, general & administrative expenses $ 5,224 $ 7,309 $ (2,085) (28.5)% Operating income (loss) $ 18,552 $ (6,165) $ 24,717 NM 1 1. Not meaningful Note, overall fluctuations in results from operations during the three months ended June 30, 2021 compared to three months ended June 30, 2020 were primarily driven by a very weak second quarter of 2020 impacted by the COVID-19 pandemic. Revenues. The increase in Electrical System Segment revenues resulted from: • a $45.3 million, or 255.9%, increase in OEM North American MD/HD Truck revenues; • a $41.2 million, or 381.5% increase in warehouse automation revenues; • a $9.2 million, or 87.6%, increase in OEM construction equipment revenues; • a $4.7 million, or 66.2% increase in aftermarket and OES revenue; and • a $0.5 million, or 1.8%, increase in other revenues. Electrical System Segment revenues were favorably impacted by foreign currency exchange translation of $2.7 million, which is reflected in the change in revenues above. Gross Profit. The increase in gross profit was primarily attributable to the increase in sales volume. Included in gross profit is cost of revenues, which increased $78.3 million, or 107.1%, as a result of an increase in raw material and purchased component costs of $60.0 million, or 139.2%, and an increase in labor and overhead expenses of $18.3 million, or 61.0%. As a percentage of revenues, gross profit margin was 13.6% for the three months ended June 30, 2021 compared to 1.5% for the three months ended June 30, 2020. Selling, General and Administrative Expenses . SG&A expenses decreased $2.1 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to a $3.3 million decrease in charge for Contingent Consideration and $0.4 million decrease in charges associated with ongoing Restructuring Initiatives, offset by an increase in wages and benefits reduced in 2020 due to the temporary actions taken in response to the COVID-19 pandemic. Global Seating Segment Results Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 The table below sets forth certain Global Seating Segment operating data for the three months ended June 30 (dollars are in thousands): 2021 2020 $ Change % Change Revenues $ 84,898 $ 53,862 $ 31,036 57.6% Gross profit $ 10,594 $ 5,345 $ 5,249 98.2% Selling, general & administrative expenses $ 5,611 $ 3,810 $ 1,801 47.3% Operating income $ 4,983 $ 1,535 $ 3,448 224.6% 25 Table of Contents Note, overall fluctuations in results from operations during the three months ended June 30, 2021 compared to three months ended June 30, 2020 were primarily driven by a very weak second quarter of 2020 impacted by the COVID-19 pandemic. Revenues. The increase in Global Seating Segment revenues resulted from: • a $15.1 million, or 108.6%, increase in OEM North American MD/HD Truck revenues; • a $8.6 million, or 61.4%, increase in OEM construction equipment revenues; • a $1.5 million, or 10.7%, increase in aftermarket and OES sales; and • a $5.8 million, or 48.3%, increase in other revenues. Global Seating Segment revenues were favorably impacted by foreign currency exchange translation of $4.1 million, which is reflected in the change in revenues above. Gross Profit. The increase in gross profit is primarily attributable to the increase in sales volume. Included in gross profit is cost of revenues, which increased $25.8 million, or 53.2%, as a result of an increase in raw material and purchased component costs of $17.8 million, or 57.5%, and an increase in labor and overhead expenses of $8.0 million, or 45.5%. As a percentage of revenues, gross profit margin was 12.5% for the three months ended June 30, 2021 compared to 9.9% for the three months ended June 30, 2020. Selling, General and Administrative Expenses . SG&A expenses increased $1.8 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to the reduced wages and benefits in 2020 due to the temporary actions taken in response to the COVID-19 pandemic, and are consistent with the prior year amount on a percent of sales basis. Consolidated Results of Operations Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 The table below sets forth certain consolidated operating data for the six months ended June 30, (dollars are in thousands): 2021 2020 $ Change % Change Revenues $ 503,063 $ 314,001 $ 189,062 60.2% Gross profit $ 65,489 $ 26,778 $ 38,711 144.6% Selling, general and administrative expenses $ 33,757 $ 34,799 $ (1,042) (3.0)% Goodwill and other impairment $ — $ 29,017 $ (29,017) (100.0)% Other (income) expense $ (941) $ 536 $ (1,477) NM 1 Interest expense $ 7,859 $ 9,933 $ (2,074) (20.9)% Loss on extinguishment of debt $ 7,155 $ — $ 7,155 100.0% Provision (benefit) for income taxes $ 4,074 $ (10,416) $ 14,490 NM 1 Net income (loss) $ 13,585 $ (37,091) $ 50,676 NM 1 1. Not meaningful Note, overall fluctuations in results from operations during the six months ended June 30, 2021 compared to six months ended June 30, 2020 were primarily driven by a very weak second quarter of 2020 impacted by the COVID-19 pandemic. Revenues . The increase in consolidated revenues resulted from: • a $74.3 million, or 70.0%, increase in OEM North American MD/HD Truck revenues; • a $75.4 million, or 401.1%, increase in warehouse automation revenues; • a $29.0 million, or 51.1%, increase in OEM construction equipment revenues; • a $5.2 million, or 10.3%, increase in aftermarket and OES revenues; and • a $5.2 million, or 10.4% increase in other revenues. Six months ended 2021 revenues were favorably impacted by foreign currency exchange translation of $10.7 million, which is reflected in the change in revenues above. 26 Table of Contents Gross Profit . The $38.7 million increase in gross profit is primarily attributable to the increase in sales volume and improved cost structure, partially offset by material price increases and sales mix. Included in gross profit is cost of revenues, which increased $150.4 million, or 52.3%, as a result of an increase in raw material and purchased component costs of $116.8 million, or 65.8%, and an increase in labor and overhead expenses of $33.6 million, or 30.5%. As a percentage of revenues, gross profit margin was 13.0% for the six months ended June 30, 2021 compared to 8.5% for the six months ended June 30, 2020. 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 decreased $1.0 million compared to the six months ended June 30, 2020, primarily due to the decrease in non-recurring payments relating to CEO transition and investigation expenses incurred during the six months ended June 30, 2020 of $4.7 million, a $3.1 million decrease in charge for Contingent Consideration, and a $1.0 million decrease in charges associated with ongoing Restructuring Initiatives. The decrease was offset by an increase in wages and benefits that were reduced in 2020 due to the temporary actions taken in response to the COVID-19 pandemic. As a percentage of revenues, SG&A expense was 6.7% for the six months ended June 30, 2021 compared to 11.1% for the six months ended June 30, 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, the Company determined it had an impairment indicator during the six months ended June 30, 2020. Accordingly, we recognized a $27.1 million impairment of goodwill and impairment of long-lived assets of $1.9 million for the six months ended June 30, 2020. Other Expense. Other expenses decreased $1.5 million in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 due primarily to a favorable change in foreign currency of $1.1 million. Interest Expense . Interest associated with our debt, and other expense was $7.9 million and $9.9 million for the six months ended June 30, 2021 and 2020, respectively. The decrease in interest expense primarily related to a lower interest expense of $1.5 million due to refinancing of the Company's long term debt and a favorable change in interest rate swap adjustments of $1.0 million, offset by a $0.4 million increase in Payment In Kind interest expense resulting from the loan amendment that occurred in the second quarter of 2020. 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 repayment premium of $3.0 million and $0.5 million of other fees associated with the new debt. Provision (Benefit) for Income Taxes. An income tax provision of $4.1 million and an income tax benefit of $10.4 million were recorded for the six months ended June 30, 2021 and 2020, respectively. The period over period change in income tax was primarily attributable to a $65.2 million increase in pre-tax income versus the prior year period. Net Income (loss). Net income was $13.6 million for the six months ended June 30, 2021 compared to a net loss of $37.1 million for the six months ended June 30, 2020. The increase in net income is attributable to the factors noted above. Segment Results Electrical System Segment Results Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 The table below sets forth certain Electrical Systems Segment operating data for the six months ended June 30, (dollars are in thousands): 2021 2020 $ Change % Change Revenues $ 337,346 $ 186,308 $ 151,038 81.1% Gross profit $ 44,048 $ 12,090 $ 31,958 264.3% Selling, general & administrative expenses $ 10,627 $ 11,989 $ (1,362) (11.4)% Goodwill and other impairment $ — $ 23,415 $ (23,415) (100.0)% Operating income (loss) $ 33,421 $ (23,314) $ 56,735 NM 1 1. Not meaningful 27 Table of Contents Note, overall fluctuations in results from operations during the six months ended June 30, 2021 compared to six months ended June 30, 2020 were primarily driven by a very weak second quarter of 2020 impacted by the COVID-19 pandemic. Revenues. The increase in Electrical System Segment revenues resulted from: • a $60.4 million, or 97.6%, increase in OEM North American MD/HD Truck revenues; • a $72.1 million, or 383.5% increase in warehouse automation revenues; • a $12.5 million, or 45.6%, increase in OEM construction equipment revenues; • a $5.7 million, or 30.5% increase in aftermarket and OES revenue; and • a $0.3 million, or 0.5%, increase in other revenues. Electrical System Segment revenues were favorably impacted by foreign currency exchange translation of $3.8 million, which is reflected in the change in revenues above. Gross Profit. The increase in gross profit was primarily attributable to the increase in sales volume. Included in gross profit is cost of revenues, which increased $119.1 million, or 68.4%, as a result of an increase in raw material and purchased component costs of $94.6 million, or 89.9%, and an increase in labor and overhead expenses of $24.5 million, or 35.5%. As a percentage of revenues, gross profit margin was 13.1% for the six months ended June 30, 2021 compared to 6.5% for the six months ended June 30, 2020. Selling, General and Administrative Expenses . SG&A expenses decreased $1.4 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily as a result of a $3.1 million decrease in charge for Contingent Consideration offset by an increase in wages and benefits that were reduced in 2020 due to the temporary actions taken in response to the COVID-19 pandemic. 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, the Company determined it had an impairment indicator during the six months ended June 30, 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 Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 The table below sets forth certain Global Seating Segment operating data for the six months ended June 30, (dollars are in thousands): 2021 2020 $ Change % Change Revenues $ 175,992 $ 129,842 $ 46,150 35.5% Gross profit $ 21,482 $ 14,714 $ 6,768 46.0% Selling, general & administrative expenses $ 10,955 $ 8,733 $ 2,222 25.4% Goodwill and other impairment $ — $ 4,809 $ (4,809) (100.0)% Operating income $ 10,527 $ 1,172 $ 9,355 798.2% Note, overall fluctuations in results from operations during the six months ended June 30, 2021 compared to six months ended June 30, 2020 were primarily driven by a very weak second quarter of 2020 impacted by the COVID-19 pandemic. Revenues. The increase in Global Seating Segment revenues resulted from: • a $13.9 million, or 31.4%, increase in OEM North American MD/HD Truck revenues; • a $16.5 million, or 56.3%, increase in OEM construction equipment revenues; • a $0.5 million, or 1.6%, decrease in aftermarket and OES sales; and • a $16.3 million, or 67.1%, increase in other revenues. Global Seating Segment revenues were favorably impacted by foreign currency exchange translation of $7.0 million, which is reflected in the change in revenues above. 28 Table of Contents Gross Profit. The increase in gross profit is primarily attributable to the increase in sales volume. Included in gross profit is cost of revenues, which increased $39.4 million, or 34.2%, as a result of an increase in raw material and purchased component costs of $30.3 million, or 40.8%, and an increase in labor and overhead expenses of $9.1 million, or 22.2%. As a percentage of revenues, gross profit margin was 12.2% for the six months ended June 30, 2021 compared to 11.3% for the six months ended June 30, 2020. Selling, General and Administrative Expenses . SG&A expenses increased $2.2 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, consistent with the prior year amount on a percent of sales basis. Impairment Expense . As a result of the Company's market capitalization having a value less than the carrying value of its equity, the Company determined it had an impairment indicator during the six months ended June 30, 2020. Accordingly, we recognized a $4.8 million impairment of goodwill for the six months ended June 30, 2020. Liquidity and Capital Resources During the six months ended June 30, 2021, the Company borrowed $35.5 million under its revolving credit facility. At June 30, 2021, the Company had liquidity of $129.1 million, consisting of $41.0 million of cash and $88.1 million of availability from the revolving credit facility. Our primary sources of liquidity as of June 30, 2021 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 June 30, 2021, cash of $40.9 million was held by foreign subsidiaries. The Company had a $0.5 million deferred tax liability as of June 30, 2021 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 Our ability to comply with the covenants in the Credit Agreement, as discussed in Note 4, Debt, may be affected by economic or business conditions beyond our control. Based on our current forecast, we believe that we will be able to maintain compliance with the financial maintenance covenants and the fixed charge coverage ratio covenant, if applicable, and other covenants in the Credit Agreement for the next twelve months in accordance with Note 4, Debt; however, no assurances can be given that we will be able to comply. We base our forecasts on historical experience, industry forecasts and other assumptions that we believe are reasonable under the circumstances. If actual results are substantially different than our current forecast we may not be able to comply with our financial covenants. If we do not comply with the financial and other covenants in the Credit Agreement, the lenders could declare an event of default under the Credit Agreement and our indebtedness thereunder could be declared immediately due and payable. The Credit Agreement contain cross default provisions. If we are unable to borrow under the Credit Agreement, we will need to meet our capital requirements using alternative sources of liquidity which may not be available on acceptable terms. Any of these events would have a material adverse effect on our business, financial condition and liquidity. Sources and Uses of Cash June 30, 2021 June 30, 2020 (In thousands) Net cash provided by (used in) operating activities $ (24,812) $ 20,508 Net cash used in investing activities (6,909) (4,403) Net cash provided by financing activities 22,241 9,994 Effect of currency exchange rate changes on cash (52) (2,220) Net increase (decrease) in cash $ (9,532) $ 23,879 Operating activities. For the six months ended June 30, 2021, net cash used in operating activities was $24.8 million compared to net cash provided by operating activities of $20.5 million for the six months ended June 30, 2020. Net cash used in operating activities is primarily attributable to the increase in working capital for the six months ended June 30, 2021 as compared to the prior year period. 29 Table of Contents Investing activities. For the six months ended June 30, 2021, net cash used in investing activities was $6.9 million compared to $4.4 million for the six months ended June 30, 2020. In 2021, we expect capital expenditures to be in the range of $20 million to $25 million. Financing activities. For the six months ended June 30, 2021, net cash provided by financing activities was $22.2 million compared to $10.0 million for the six months ended June 30, 2020. Net cash provided by financing activities for the six months ended June 30, 2021 is attributable to $35.5 million of borrowings under the revolving credit facility offset by $8.0 million of costs attributed to debt amendment and extinguishment completed during the six months ended June 30, 2021 and a $5.0 million Contingent Consideration payment. 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 a repayment of the senior secured term loan credit facility and loan amendment costs. Debt and Credit Facilities The debt and credit facilities descriptions in Note 4, Debt are incorporated in this section by reference. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For a comprehensive discussion of our significant accounting policies, see "Note 1. Significant Accounting Policies", to our consolidated financial statements in Item 8 in our 2020 Form 10-K. Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments, often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Com mittee of our board of directors. For information about critical accounting estimates, see Critical Accounting Estimates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Form 10-K. At June 30, 2021, there have been no material changes to our critical accounting estimates from those disclosed in our 2020 Form 10-K. Forward-Looking Statements This Quarter Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. For this purpose, any statements contained herein that are not statements of historical fact, including without limitation, certain statements under “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding industry outlook, financial covenant compliance, anticipated effects of acquisitions, production of new products, plans for capital expenditures and our results of operations or financial position and liquidity, may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believe”, “anticipate”, “plan”, “expect”, “intend”, “will”, “should”, “could”, “would”, “project”, “continue”, “likely”, and similar expressions, as they relate to us, are intended to identify forward-looking statements. The important factors discussed in “Item 1A - Risk Factors”, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Such forward-looking statements represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations. Additionally, various economic and competitive factors could cause actual results to differ materially from those discussed in such forward-looking statements, including, but not limited to, factors which are outside our control, such as risks relating to (i) our financial condition and results of operations will be materially adversely affected by the coronavirus pandemic; (ii) volatility in and disruption to the global economic environment and changes in the regulatory and business environments in which we operate may have a material adverse effect on our business, results of operations and financial condition; (iii) material weaknesses in our internal control over financial reporting could have a significant adverse effect on our business and the price of our common stock; (iv) our results of operations could be materially and adversely affected by downturns in the U.S. and global economy which are naturally accompanied by related declines in freight tonnage hauled and in infrastructure development and other construction projects; (v) volatility and cyclicality in the commercial vehicle market could adversely affect us; (vi) we may be unable to successfully implement our business strategy and, as a result, our businesses and financial position and results of operations could be materially and adversely affected; (vii) we may be unable to complete strategic acquisitions or we may encounter unforeseen difficulties in integrating acquisitions; (viii) circumstances associated with our acquisition and divestiture strategy could adversely affect our results of operations and financial condition; (ix) our customer base is concentrated and the loss of business from a major customer or the discontinuation of particular commercial vehicle platforms could reduce our revenues; (x) our profitability could be adversely affected if the actual production volumes for our customers’ vehicles are 30 Table of Contents significantly lower than expected; (xi) our major OEM customers may exert significant influence over us; (xii) we are subject to certain risks associated with our foreign operations; (xiii) the U.K.’s exit from the European Union (EU) could materially and adversely impact our results of operations, financial condition and cash flows; (xiv) we are subject to certain risks associated with our Mexican operations; (xv) decreased availability or increased costs of materials could increase our costs of producing our products; (xvi) we have invested substantial resources in markets where we expect growth and we may be unable to timely alter our strategies should such expectations not be realized; (xvii) our inability to compete effectively in the highly competitive commercial vehicle component supply industry could result in lower prices for our products, loss of market share and reduced gross margins, which could have an adverse effect on our revenues and operating results; (xviii) we may be unable to successfully introduce new products and, as a result, our business, and financial condition and results of operations could be materially and adversely affected (xix) we could experience disruption in our supply or delivery chain, which could cause one or more of our customers to halt or delay production; (xx) if we are unable to recruit or retain senior management and other skilled personnel, our business, operating results and financial condition could be materially and adversely affected; (xxi) we may be adversely impacted by labor strikes, work stoppages and other matters; (xxii) our earnings may be adversely affected by changes to the carrying values of our tangible and intangible assets as a result of recording any impairment charges deemed necessary; (xxiii) our inability to successfully achieve operational efficiencies could result in the incurrence of additional costs and expenses that could adversely affect our reported earnings; (xxiv) the geographic profile of our taxable income could adversely impact our tax provision and therefore our results of operations; (xxv) exposure to currency exchange rate fluctuations on cross border transactions and translation of local currency results into United States dollars could materially impact our results of operations; (xxvi) we have only limited protection for our proprietary rights in our intellectual property, which makes it difficult to prevent third parties from infringing upon our rights and our operations could be limited by the rights of others; (xxvii) our products may be susceptible to claims by third parties that our products infringe upon their proprietary rights; (xxviii) we may be subject to product liability claims, recalls or warranty claims, which could be expensive, damage our reputation and result in a diversion of management resources; (xxix) our businesses are subject to statutory environmental and safety regulations in multiple jurisdictions, and the impact of any changes in regulation and/or the violation of any applicable laws and regulations by our businesses could result in a material adverse effect on our financial condition and results of operations; (xxx) the agreement governing our senior secured revolving credit facility and the agreement governing our senior secured term loan credit facility contain covenants that may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions. If we are unable to comply with these covenants, our business, results of operations and liquidity could be materially and adversely affected; (xxxi) our indebtedness may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our indebtedness; (xxxii) the transition away from LIBOR may adversely affect our cost to obtain financing and may negatively impact our interest rate swap agreements; (xxxiii) our operating results, revenues and expenses may fluctuate significantly from quarter-to-quarter or year-to-year, which could have an adverse effect on the market price of our common stock; (xxxiv) our common stock has historically had a low trading volume with limited analyst coverage and, as a result, any sale of a significant number of shares may depress the trading price of our stock; stockholders may be unable to sell their shares above the purchase price; (xxxv) provisions in our charter documents and Delaware law could discourage potential acquisition proposals, could delay, deter or prevent a change in control and could limit the price certain investors might be willing to pay for our stock; (xxxvi) security breaches and other disruptions could compromise our information systems and expose us to liability, which could cause our business and reputation to suffer; and (xxxvii) we face risks related to health epidemics that could impact our sales and operating results as outlined under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for fiscal year ending December 31, 2020 and the Company's filings 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. 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.