What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-08-03 · 121 added, 119 removed, 223 unchanged (52% 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 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.

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.

CVG is a global provider of components, assemblies and systems to the traditional commercial vehicle market, the electric vehicle market, and the warehouse automation market.

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.

Heavy-duty truck OEMs generally dictate the specifications of component parts that will be used to manufacture the vehicle, including a wide variety of cab interior styles and colors, brand and type of seats, type of seat fabric and color, and interior styling.

Certain of our products are only utilized in heavy-duty trucks, such as our storage systems, sleeper boxes and privacy curtains.

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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.

This has created an increased number of platform opportunities relative to historical trends of platform changes.

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.

In general, demand for our heavy-duty (or "Class 8") truck products is generally dependent on the number of new heavy-duty trucks manufactured in North America, which in turn is a function of general economic conditions, supply chain constraints, interest rates, changes in government regulations, consumer spending, fuel costs, freight costs, fleet operators' financial health and access to capital, used truck prices and our customers’ inventory levels.

New heavy-duty truck demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy, which generates a significant portion of the freight tonnage hauled by commercial vehicles.

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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.

The Company is a new entrant into making components, sub-assemblies and systems for the last-mile delivery vehicle market.

This is a focus of business development activities and the Company has secured business for 2021 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.

As the percentage of products ordered on-line increases, the delivery mechanisms must expand to 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.

T he Company assembles the material handling subsystems incorporated into automated warehouses.

Commercial Trends in Construction Equipment

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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

2023 Term Loan Facility, a voluntary repayment premium, and certain fees related to the new Credit Facilities during the quarter ended June 30, 2021.

During the nine months ended September 30, 2021, the Company recognized a loss on extinguishment of debt of approximately $7.2 million, including a non-cash write off relating to deferred financing costs and unamortized discount of the 2023 Term Loan Facility, a voluntary repayment premium, and certain fees related to the new Credit Facilities.

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.

On October 25, 2021, the Company entered into an amendment (the “Amendment”) to the Credit Agreement.

The Amendment permits the Company to engage in supply chain financing arrangements with financial institutions to cover up to $20.0 million in accounts receivable from customers per month.

Additionally, the Amendment increases the Company’s capital expenditure

investment threshold from $25.0 million to $32.0 million.

On October 25, 2021, the Company provided notice to the Volvo Group (“Volvo”) of the Company’s intention to terminate its agreement with Volvo, with such termination to become effective twelve months from the date of notice, absent the parties reaching mutually agreeable terms upon which to continue their relationship.

The Company is focused on implementing customer price increases where margin on product is not meeting profitability targets.

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.

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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.

While backlog was strong in the truck markets during the quarter ended September 30, 2021, all markets we operate in were impacted by supply chain constraints which caused volatility on our customers' production schedules and had a negative impact on our results.

Overall, we continued to experience global supply chain disruptions in the third quarter, including longer lead-times to procure parts from China and due to port backups, labor inflation, chip shortages, steel and other raw material inflation, 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 continue to proactively monitor, assess and minimize to the extent possible disruptions and delays in production due to labor shortages or customer schedules, focus on cost control and recovery through pricing adjustments, and take reasonable measures to protect our workforce.

As we begin the fourth quarter, supply chains for our products continue to be negatively impacted by the global shortage of semiconductor chips.

We are proactively managing to the extent possible labor shortages due to local dynamics around our primary manufacturing facilities, material inflation, freight costs increases, and global supply constraints.

On November 1, 2021, the Company's Board of Directors approved a restructuring program to align the Company’s cost structure to support margin expansion.

The program includes workforce reductions and footprint optimization across segments.

We expect the restructuring cost to be between $4.0 million to $6.0 million for the entire program.

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.

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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):

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

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

2021 2020 $ Change % Change

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Selling, general and administrative expenses $ 18,772 $ 15,266 $ 3,506 23.0%

Goodwill and other impairment $ — $ 150 $ (150) (100.0)%

Interest expense $ 1,630 $ 5,461 $ (3,831) (70.2)%

Loss on extinguishment of debt $ 7,155 $ — $ 7,155 100.0%

Provision (benefit) for income taxes $ 2,417 $ (959) $ 3,376 NM 1

Net income (loss) $ 5,095 $ (12,497) $ 17,592 NM 1

Net income $ 7,511 $ 4,178 $ 3,333 79.8%

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.

The increase in consolidated revenues resulted from:

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• a $0.7 million, or 2.8%, increase in aftermarket and OES revenues;

• 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.

• a $6.2 million, or 15.1% decrease in other revenues.

Third quarter 2021 revenues were favorably impacted by foreign currency exchange translation of $2.4 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.

The $6.0 million increase in gross profit is primarily attributable to the increase in sales volume, increased pricing to offset material cost increases, and an improved cost structure.

Included in gross profit is cost of revenues, which increased $45.9 million, or 28.1%, as a result of an increase in raw material and purchased component costs of $32.8 million, or 30.9%, and an increase in labor and overhead expenses of $13.1 million, or 22.9%.

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.

As a percentage of revenues, gross profit margin was 12.6% for the three months ended September 30, 2021 compared to 12.9% for the three months ended September 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.

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

SG&A expenses increased $3.5 million compared to the three months ended September 30, 2020, primarily due to wages and benefits returning to or increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 as a result of the temporary actions taken in response to the COVID-19 pandemic.

As a percentage of revenues, SG&A expense was 7.8% for the three months ended September 30, 2021 compared to 8.1% for the three months ended September 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.

Interest associated with our debt was $1.6 million and $5.5 million for the three months ended September 30, 2021 and 2020, respectively.

The decrease in interest expense primarily related to a $1.8 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 $2.0 million due to refinancing of the Company's long term debt in April 2021.

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.

An income tax provision of $2.4 million and an income tax benefit of $1.0 million were recorded for the three months ended September 30, 2021 and 2020, respectively.

The period over period change in income tax was primarily attributable to a $6.7 million increase in pre-tax income versus the prior year period and a period-specific $2.0 million income tax benefit recorded in the prior year period for the impact of the high-tax exception to GILTI.

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.

Net income was $7.5 million for the three months ended September 30, 2021 compared to $4.2 million for the three months ended September 30, 2020.

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

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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):

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

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

2021 2020 $ Change % Change

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Selling, general & administrative expenses $ 5,878 $ 3,895 $ 1,983 50.9%

Operating income (loss) $ 18,552 $ (6,165) $ 24,717 NM 1

Not meaningful

Operating income $ 17,784 $ 12,223 $ 5,561 45.5%

The increase in Electrical System Segment revenues resulted from:

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• a $8.7 million, or 63.0%, increase in OEM construction equipment revenues;

• a $4.7 million, or 66.2% increase in aftermarket and OES revenue;

• a $0.5 million, or 1.8%, increase in other revenues.

• a $0.6 million, or 6.2% decrease in aftermarket and OES revenue;

• a $4.3 million, or 10.4%, decrease in other revenues.

Electrical System Segment revenues were favorably impacted by foreign currency exchange translation of $0.7 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.

The increase in gross profit was primarily attributable to the increase in sales volume and increased pricing to offset material cost increases.

Included in gross profit is cost of revenues, which increased $35.5 million, or 33.8%, as a result of an increase in raw material and purchased component costs of $25.7 million, or 37.3%, and an increase in labor and overhead expenses of $9.8 million, or 27.2%.

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.

As a percentage of revenues, gross profit margin was 14.4% for the three months ended September 30, 2021 compared to 13.3% for the three months ended September 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.

SG&A expenses increased $2.0 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to an increase in wages and benefits in the 2021 period compared to 2020 reduced wage and benefit levels as a result of the temporary actions taken in response to the COVID-19 pandemic, offset by a $0.4 million decrease in charge for Contingent Consideration.

On a percentage of revenues basis, SG&A expense was consistent with the prior year period.

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):

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

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

2021 2020 $ Change % Change

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Operating income $ 423 $ 4,772 $ (4,349) (91.1)%

The increase in Global Seating Segment revenues resulted from:

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• a $7.7 million, or 57.0%, increase in OEM construction equipment revenues;

• a $1.5 million, or 10.7%, increase in aftermarket and OES sales;

• a $5.8 million, or 48.3%, increase in other revenues.

• a $1.3 million, or 8.3%, increase in aftermarket and OES revenues;

• a $4.4 million, or 26.3%, decrease in other revenues.

Global Seating Segment revenues were favorably impacted by foreign currency exchange translation of $1.7 million, which is reflected in the change in revenues above.

The increase in revenue was primarily driven by increased pricing to mitigate material cost increases.

Gross Profit.

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

The decrease in gross profit is primarily attributable to supply chain disruptions including labor constraints, material inflation and freight cost increases, partially offset by increased pricing to mitigate the material cost increases.

Included in gross profit is cost of revenues, which increased $9.5 million, or 15.7%, as a result of an increase in raw material and purchased component costs of $5.9 million, or 14.9%, and an increase in labor and overhead expenses of $3.6 million, or 17.4%.

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.

As a percentage of revenues, gross profit margin was 8.5% for the three months ended September 30, 2021 compared to 12.2% for the three months ended September 30, 2020.

The decrease in gross profit was primarily attributable to the challenges in passing along material and freight cost increases to our customers.

Additionally, volatile customer schedules, supply chain constraints and freight cost inflation have caused inefficiencies in our operations.

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.

SG&A expenses increased $2.4 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to wages and benefits returning to or

increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 due to the temporary actions taken in response to the COVID-19 pandemic.

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):

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

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

2021 2020 $ Change % Change

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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.

Fluctuations in results from operations during the nine months ended September 30, 2021 compared to nine months ended September 30, 2020 were primarily driven by weak second and third quarters of 2020 as a result of the COVID-19 pandemic.

The increase in consolidated revenues resulted from:

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• a $5.9 million, or 7.8%, increase in aftermarket and OES revenues;

• 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.

• a $1.0 million, or 1.1% decrease in other revenues.

Nine months ended 2021 revenues were favorably impacted by foreign currency exchange translation of $12.7 million, which is reflected in the change in revenues above.

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.

The $44.7 million increase in gross profit is primarily attributable to the increase in sales volume, increased pricing to offset material cost increases, and an improved cost structure.

Included in gross profit is cost of revenues, which increased $196.3 million, or 43.5%, as a result of an increase in raw material and purchased component costs of $149.6 million, or 52.7%, and an increase in labor and overhead expenses of $46.7 million, or 27.9%.

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.

As a percentage of revenues, gross profit margin was 12.9% for the nine months ended September 30, 2021 compared to 10.2% for the nine months ended September 30, 2020.

Selling, General and Administrative Expenses .

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.

SG&A expenses increased $2.5 million compared to the nine months ended September 30, 2020, primarily due to wages and benefits returning to or increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 due to the temporary actions taken in response to the COVID-19 pandemic.

This increase was offset by a decrease in non-recurring payments relating to CEO transition and investigation expenses incurred during the nine months ended September 30, 2020 of $5.0 million, a $3.5 million decrease in charge for Contingent Consideration, and a $1.0 million decrease in charges associated with ongoing restructuring initiatives.

As a percentage of revenues, SG&A expense was 7.1% for the nine months ended September 30, 2021 compared to 10.0% for the nine months ended September 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.

Accordingly, we recognized a $27.1 million impairment of goodwill and impairment of long-lived assets of $1.9 million for the nine months ended September 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.

Other expenses decreased $1.9 million in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 due primarily to a favorable change in foreign currency of $1.3 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.

Interest associated with our debt was $9.5 million and $15.4 million for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in interest expense primarily related to a lower interest expense of $3.5 million due to refinancing of the Company's long term debt in April 2021, a $1.4 million decrease in Payment In Kind interest expense resulting from the loan amendment that occurred in the second quarter of 2020 and a favorable change in interest rate swap adjustments of $1.0 million.

Loss on extinguishment of debt.

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

Provision (Benefit) for Income Taxes.

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.

An income tax provision of $6.5 million and an income tax benefit of $11.4 million were recorded for the nine months ended September 30, 2021 and 2020, respectively.

The period over period change in income tax was primarily attributable to a $71.9 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.

Net income was $21.1 million for the nine months ended September 30, 2021 compared to a net loss of $32.9 million for the nine months ended September 30, 2020.

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

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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):

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

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

2021 2020 $ Change % Change

5 unchanged sentences

Not meaningful

The increase in Electrical System Segment revenues resulted from:

3 unchanged sentences

• a $5.0 million, or 17.6% increase in aftermarket and OES revenue;

• a $0.3 million, or 0.5%, increase in other revenues.

• a $3.8 million, or 3.8%, decrease in other revenues.

Electrical System 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 was primarily attributable to the increase in sales volume.

The increase in gross profit was primarily attributable to the increase in sales volume and increased pricing to offset material cost increases.

Included in gross profit is cost of revenues, which increased $154.6 million, or 55.4%, as a result of an increase in raw material and purchased component costs of $120.3 million, or 69.0%, and an increase in labor and overhead expenses of $34.3 million, or 32.7%.

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.

As a percentage of revenues, gross profit margin was 13.5% for the nine months ended September 30, 2021 compared to 9.2% for the nine months ended September 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.

SG&A expenses increased $0.6 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to an increase in wages and benefits in the 2021 period compared to 2020 reduced wage and benefit levels as a result of the temporary actions taken in response to the COVID-19 pandemic, offset by a $3.5 million decrease in charge for Contingent Consideration and a $0.4 million decrease in charges associated with ongoing restructuring initiatives.

Impairment Expense .

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.

Accordingly, we recognized a $22.3 million impairment of goodwill and an impairment of long-lived assets of $1.1 million for the nine months ended September 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):

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

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

2021 2020 $ Change % Change

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Operating income $ 10,950 $ 5,945 $ 5,005 84.2%

The increase in Global Seating Segment revenues resulted from:

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• a $24.2 million, or 56.5%, increase in OEM construction equipment revenues;

• a $0.5 million, or 1.6%, decrease in aftermarket and OES sales;

• a $0.9 million, or 1.9%, increase in aftermarket and OES sales;

• a $11.8 million, or 28.9%, increase in other revenues.

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Gross Profit.

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

The increase in gross profit is primarily attributable to the increase in sales volume and increased pricing to offset material cost increases.

Included in gross profit is cost of revenues, which increased $48.9 million, or 27.8%, as a result of an increase in raw material and purchased component costs of $36.2 million, or 31.8%, and an increase in labor and overhead expenses of $12.7 million, or 20.6%.

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.

As a percentage of revenues, gross profit margin was 11.1% for the nine months ended September 30, 2021 compared to 11.6% for the nine months ended September 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.

SG&A expenses increased $4.6 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to an increase in wages and benefits in the 2021 period compared to 2020 reduced wage and benefit levels as a result of the temporary actions taken in response to the COVID-19 pandemic, offset by a $0.2 million decrease in charges associated with ongoing restructuring initiatives.

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.

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 nine months ended September 30, 2020.

Accordingly, we recognized a $4.8 million impairment of goodwill for the nine months ended September 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.

During the nine months ended September 30, 2021, the Company borrowed $31.3 million under its revolving credit facility.

At September 30, 2021, the Company had liquidity of $125.9 million, consisting of $33.6 million of cash and $92.3 million of availability under the revolving credit facility.

Our primary sources of liquidity as of September 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.

As of September 30, 2021, cash of $33.5 million was held by foreign subsidiaries.

The Company had a $0.4 million deferred tax liability as of September 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.

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Any of these events would have a material adverse effect on our business, financial condition and liquidity.

On October 25, 2021, the Company entered into the Amendment to the Credit Agreement.

The Amendment permits the Company to engage in supply chain financing arrangements with financial institutions to cover up to $20.0 million in accounts receivable from customers per month.

Additionally, the Amendment increases the Company’s capital expenditure investment threshold from $25.0 million to $32.0 million.

Sources and Uses of Cash

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

(In thousands)

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Net cash used in investing activities (11,399) (5,452)

Net cash provided by financing activities 22,241 9,994

Net cash provided by (used in) financing activities 16,073 (11,199)

Effect of currency exchange rate changes on cash (685) (31)

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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.

For the nine months ended September 30, 2021, net cash used in operating activities was $20.9 million compared to net cash provided by operating activities of $30.8 million for the nine months ended September 30, 2020.

Net cash used in operating activities is primarily attributable to the increase in working capital for the nine months ended September 30, 2021 as compared to the prior year period.

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.

For the nine months ended September 30, 2021, net cash used in investing activities was $11.4 million compared to $5.5 million for the nine months ended September 30, 2020.

In 2021, we expect capital expenditures to be in the range of $16 million to $20 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.

For the nine months ended September 30, 2021, net cash provided by financing activities was $16.1 million compared to net cash used in financing activities of $11.2 million for the nine months ended September 30, 2020.

Net cash provided by financing activities for the nine months ended September 30, 2021 is attributable to $31.3 million of net borrowings under the revolving credit facility offset by $8.0 million of costs attributed to debt amendment and extinguishment completed during the nine months ended September 30, 2021 and a $5.0 million Contingent Consideration payment.

used in financing activities for the nine months ended September 30, 2020 is attributable to an additional repayment of $5.0 million of the senior secured term loan credit facility and loan amendment costs of $2.6 million.

Debt and Credit Facilities

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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.

At September 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

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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;

(ii) volatility in and disruption to the global economic environment (including inflationary pressures), continued supply chain disruptions 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;

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(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

significantly lower than expected;

(x) our profitability could be adversely affected if the actual production volumes for our customers’ vehicles are significantly lower than expected;

(xi) our major OEM customers may exert significant influence over us;

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(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;

(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;

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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