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 three and nine month periods ended September 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, assemblies and systems to the traditional commercial vehicle market, the electric vehicle market, and the warehouse automation market. 22 Table of Contents 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 dictate the specifications of component parts that will be used to manufacture the vehicle, including a wide variety of cab interior styles and colors, brand and type of seats, type of seat fabric and color, and interior styling. Certain of our products are only utilized in heavy-duty trucks, such as our storage systems, sleeper boxes and privacy curtains. To the extent that demand for higher content vehicles increases or decreases, our revenues and gross profit will be impacted positively or negatively. Current trends include future adoption of electric vehicles in the commercial truck segment. Commercial truck makers are developing electric models of all classes of trucks and buses in their fleets. This has created an increased number of platform opportunities relative to historical trends of platform changes. The Company competes to retain its existing positions on platforms that are getting refreshed, competitively win new positions on platforms on which it is not the incumbent supplier, and gain first fit positions on new Electric Vehicle platforms. The global truck market is evolving to include many offerings aimed at low emissions and less impact on the environment. In general, demand for our heavy-duty (or "Class 8") truck products is generally dependent on the number of new heavy-duty trucks manufactured in North America, which in turn is a function of general economic conditions, supply chain constraints, interest rates, changes in government regulations, consumer spending, fuel costs, freight costs, fleet operators' financial health and access to capital, used truck prices and our customers’ inventory levels. New heavy-duty truck demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy, which generates a significant portion of the freight tonnage hauled by commercial vehicles. 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 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 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. T he Company 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. 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. 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 23 Table of Contents 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. 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. 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 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. 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 uncertainty. Consolidated Results of Operations 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 Revenues $ 239,610 $ 187,697 $ 51,913 27.7% Gross profit $ 30,144 $ 24,159 $ 5,985 24.8% Selling, general and administrative expenses $ 18,772 $ 15,266 $ 3,506 23.0% Interest expense $ 1,630 $ 5,461 $ (3,831) (70.2)% Provision (benefit) for income taxes $ 2,417 $ (959) $ 3,376 NM 1 Net income $ 7,511 $ 4,178 $ 3,333 79.8% 1. Not meaningful 24 Table of Contents Revenues . The increase in consolidated revenues resulted from: • a $15.8 million, or 22.9%, increase in OEM North American MD/HD Truck revenues; • a $25.2 million, or 215.4%, increase in warehouse automation revenues; • a $16.4 million, or 60.1%, increase in OEM construction equipment revenues; • a $0.7 million, or 2.8%, increase in aftermarket and OES revenues; and • 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 $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 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 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 $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 $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 $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. Segment Results Electrical System Segment Results 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 Revenues $ 164,112 $ 121,067 $ 43,045 35.6% Gross profit $ 23,662 $ 16,118 $ 7,544 46.8% Selling, general & administrative expenses $ 5,878 $ 3,895 $ 1,983 50.9% Operating income $ 17,784 $ 12,223 $ 5,561 45.5% 25 Table of Contents Revenues. The increase in Electrical System Segment revenues resulted from: • a $12.8 million, or 27.9%, increase in OEM North American MD/HD Truck revenues; • a $26.4 million, or 249.1% increase in warehouse automation revenues; • a $8.7 million, or 63.0%, increase in OEM construction equipment revenues; • a $0.6 million, or 6.2% decrease in aftermarket and OES revenue; and • 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 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 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 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 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 Revenues $ 76,490 $ 68,902 $ 7,588 11.0% Gross profit $ 6,484 $ 8,418 $ (1,934) (23.0)% Selling, general & administrative expenses $ 6,061 $ 3,646 $ 2,415 66.2% Operating income $ 423 $ 4,772 $ (4,349) (91.1)% Revenues. The increase in Global Seating Segment revenues resulted from: • a $3.0 million, or 12.9%, increase in OEM North American MD/HD Truck revenues; • a $7.7 million, or 57.0%, increase in OEM construction equipment revenues; • a $1.3 million, or 8.3%, increase in aftermarket and OES revenues; and • 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 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 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 $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 26 Table of Contents 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 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 Revenues $ 742,673 $ 501,698 $ 240,975 48.0% Gross profit $ 95,633 $ 50,937 $ 44,696 87.7% Selling, general and administrative expenses $ 52,529 $ 50,066 $ 2,463 4.9% Goodwill and other impairment $ — $ 29,017 $ (29,017) (100.0)% Other (income) expense $ (1,127) $ 749 $ (1,876) NM 1 Interest expense $ 9,489 $ 15,393 $ (5,904) (38.4)% Loss on extinguishment of debt $ 7,155 $ — $ 7,155 100.0% Provision (benefit) for income taxes $ 6,491 $ (11,375) $ 17,866 NM 1 Net income (loss) $ 21,096 $ (32,913) $ 54,009 NM 1 1. Not meaningful 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. Revenues . The increase in consolidated revenues resulted from: • a $90.1 million, or 51.5%, increase in OEM North American MD/HD Truck revenues; • a $100.4 million, or 327.0%, increase in warehouse automation revenues; • a $45.6 million, or 54.4%, increase in OEM construction equipment revenues; • a $5.9 million, or 7.8%, increase in aftermarket and OES revenues; and • 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 $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 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 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 nine months ended September 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. 27 Table of Contents Other Expense. 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 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 $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 $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. Segment Results Electrical System Segment Results 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 Revenues $ 501,458 $ 307,376 $ 194,082 63.1% Gross profit $ 67,710 $ 28,208 $ 39,502 140.0% Selling, general & administrative expenses $ 16,505 $ 15,884 $ 621 3.9% Goodwill and other impairment $ — $ 23,415 $ (23,415) (100.0)% Operating income (loss) $ 51,205 $ (11,091) $ 62,296 NM 1 1. Not meaningful 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. Revenues. The increase in Electrical System Segment revenues resulted from: • a $73.2 million, or 68.0%, increase in OEM North American MD/HD Truck revenues; • a $98.3 million, or 332.1% increase in warehouse automation revenues; • a $21.4 million, or 52.2%, increase in OEM construction equipment revenues; • a $5.0 million, or 17.6% increase in aftermarket and OES revenue; and • 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 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 13.5% for the nine months ended September 30, 2021 compared to 9.2% for the nine months ended September 30, 2020. 28 Table of Contents Selling, General and Administrative Expenses . 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 . 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 nine months ended September 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 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 Revenues $ 252,482 $ 198,744 $ 53,738 27.0% Gross profit $ 27,966 $ 23,133 $ 4,833 20.9% Selling, general & administrative expenses $ 17,016 $ 12,379 $ 4,637 37.5% Goodwill and other impairment $ — $ 4,809 $ (4,809) (100.0)% Operating income $ 10,950 $ 5,945 $ 5,005 84.2% 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. Revenues. The increase in Global Seating Segment revenues resulted from: • a $16.9 million, or 25.1%, increase in OEM North American MD/HD Truck revenues; • a $24.2 million, or 56.5%, increase in OEM construction equipment revenues; • a $0.9 million, or 1.9%, increase in aftermarket and OES sales; and • a $11.8 million, or 28.9%, increase in other revenues. Global Seating Segment revenues were favorably impacted by foreign currency exchange translation of $8.5 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 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 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 $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 nine months ended September 30, 2020. Accordingly, we recognized a $4.8 million impairment of goodwill for the nine months ended September 30, 2020. 29 Table of Contents Liquidity and Capital Resources 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 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; 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. 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 September 30, 2021 September 30, 2020 (In thousands) Net cash provided by (used in) operating activities $ (20,889) $ 30,772 Net cash used in investing activities (11,399) (5,452) Net cash provided by (used in) financing activities 16,073 (11,199) Effect of currency exchange rate changes on cash (685) (31) Net increase (decrease) in cash $ (16,900) $ 14,090 Operating activities. 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 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 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. Net cash 30 Table of Contents 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 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 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 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 (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; (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 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, 31 Table of Contents 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.