News Column

COMMERCIAL VEHICLE GROUP, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 8, 2014

The discussion and analysis presented below is concerned with material changes in financial condition and results of operations for our condensed consolidated balance sheets at June 30, 2014, and for our condensed consolidated statements of earnings for the three and six months ended June 30, 2014 and 2013. 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 Form 10-K for the fiscal year ended December 31, 2013 (the "2013 Form 10-K"). Company Overview We are a leading supplier of a full range of cab related products and systems for the global commercial vehicle market, including medium- and heavy-duty truck, medium and heavy-construction vehicle, military, bus, automotive, agriculture, specialty transportation and recreational markets. Our products include static and suspension seat systems, electronic wire harness assemblies, controls and switches, cab structures and components, interior trim systems (including instrument panels, door panels, headliners, cabinetry and floor systems), interior and exterior finishes and mirrors and wiper systems specifically designed for applications in commercial vehicles. We are differentiated from automotive industry suppliers by our ability to manufacture low volume customized products on a sequenced basis to meet the requirements of our customers. We believe that we have a leading position in several of our major markets and that we are a leading supplier in the North American commercial vehicle market offering complete cab systems, including cab body assemblies, sleeper boxes, seats, interior trim, flooring, wire harnesses, panel assemblies and other structural components. We believe our products are used by a majority of the North American heavy truck and certain leading global construction OEMs, which we believe creates an opportunity to cross-sell our products and offer a full range of cab related products and systems.



Business Overview

Demand for our heavy truck products is generally dependent on the number of new heavy truck commercial vehicles manufactured in North America, which is heavily influenced by the financial health and business outlook of the fleet owners that purchase trucks from the OEMs. This is generally a function of economic conditions, interest rates, changes in governmental regulations, consumer spending, fuel costs, and freight costs. New heavy truck commercial vehicle 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. The North American Class 8 market showed a modest decrease in 2013 as production levels decreased approximately 12% over 2012. According to the July 2014 report by ACT Research, a publisher of industry market research, North American Class 8 production levels are expected to increase from 245,000 in 2013 to 297,000 in 2014, peak at 306,000 in 2015, decline to 253,000 in 2018 and increase to 285,000 in 2019. We believe the demand for new heavy duty vehicles will be driven by several factors, including growth in freight volumes and the replacement of aging vehicles. ACT forecasts that the total U.S. freight composite will increase from 12.3 trillion tons in 2012 to 15.0 trillion tons in 2017. ACT estimates that the average age of active North American Class 8 trucks was 6.6 years in 2012, down slightly from 6.7 years in 2011, which was the highest average vehicle age over the previous 13 years. As vehicles age, their maintenance costs typically increase. ACT forecasts that the vehicle age will decline as aging fleets are replaced. In 2013, approximately 46% of our revenue was generated from sales to North American heavy-duty truck OEMs. Our remaining revenue in 2013 was primarily derived from sales to OEMs in the global construction equipment, aftermarket, OE service organizations, military and other commercial vehicle specialty markets. This sales mix trend continued into the first and second quarters of 2014. Demand for our products is driven to a significant degree by preferences of the end-user of the commercial vehicle, particularly with respect to heavy-duty OEM trucks. Unlike the automotive industry, commercial vehicle OEMs generally afford the end-user the ability to specify many of the component parts that will be used to manufacture the commercial vehicle, including a wide variety of cab interior styles and colors, the brand and type of seats, type of seat fabric and color and specific mirror styling. In addition, certain of our products are only utilized in heavy-duty OEM trucks, such as our storage systems, sleeper boxes, sleeper bunks and privacy curtains, and, as a result, changes in demand for heavy-duty OEM trucks or the mix of options on a vehicle can have a greater impact on our business than changes in the overall demand for commercial vehicles. To the extent that demand for higher content vehicles increases or decreases, our revenues and gross profit will be impacted positively or negatively.



Demand for our construction products is dependent on the overall vehicle demand for new commercial vehicles in the global construction equipment market and generally follows certain economic conditions around the world. Our products

16



--------------------------------------------------------------------------------

Table of Contents

are primarily used in the medium/heavy construction equipment markets (weighing over 12 metric tons). Demand in the medium/heavy construction equipment market is typically related to the level of larger scale infrastructure development projects such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and other raw material based industries. OEM demand for our products is directly correlated with new vehicle production. We generally compete for new business at the beginning of the development of a new vehicle platform and upon the redesign of existing programs. New platform development generally begins at least one to three years before the marketing of such models by our customers. Contract durations for commercial vehicle products generally extend for the entire life of the platform, which is typically five to seven years. In 2013, we concluded an in-depth evaluation of the Company that resulted in key initiatives intended to enhance the Company's growth prospects and profitability. An organizational spans and layers analysis was one of these key initiatives and resulted in a reduction in force thereby permitting the Company to repurpose that spend to the deployment of more value accretive activities. These activities included: enhancements in the manner to which we go to market, including the development of a product line management infrastructure; actions to institutionalize our operational excellence efforts; and the development of a centrally-led procurement organization. Management continues to explore opportunities to make the Company's cost structure more efficient, to create a more performance-based culture focused on becoming more global and better centered on product development, and to become more engaged with our customers. Our primary goal through these efforts is to deliver organic growth and improved penetration of the global markets we serve. As we continue to formulate plans to grow our business globally, we recognize customer expectations in markets outside the U.S. will be different in terms of technology, features and price point. We believe the enhancements in the manner to which we go to market referenced above will help grow our business globally. We intend to continue examining acquisition candidates that meet our strategic growth criteria including the addition of new customers, diversified global expansion opportunities or technology acquisition and development opportunities. However, we currently anticipate more focus will be placed on our organic growth opportunities and global expansion plans than merger and acquisition activities. Revenues and operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results to be expected in future operating quarters. Results of Operations The table below sets forth certain operating data expressed in dollars and as a percentage of revenues: Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Revenues $ 215,996 100.0 % $ 198,909 100.0 % $ 414,067 100.0 % $ 376,731 100.0 % Cost of revenues 187,811 87.0 176,035 88.5 361,578 87.3 335,772 89.1 Gross profit 28,185 13.0 22,874 11.5 52,489 12.7 40,959 10.9 Selling, general and administrative expenses 18,748 8.7 20,339 10.2 37,220 9.0 38,288 10.2 Amortization expense 390 0.2 404 0.2 775 0.2 813 0.2 Operating income 9,047 4.2 2,131 1.1 14,494 3.5 1,858 0.5 Interest and other expense 5,205 2.4 5,235 2.6 10,314 2.5 10,589 2.8 Income (loss) before provision (benefit) for income taxes 3,842 1.8 (3,104



) (1.5 ) 4,180 1.0 (8,731 ) (2.3 ) Provision (Benefit) for income taxes 1,103 0.5 (1,441 ) (0.7 ) 1,950 0.5 (2,452 ) (0.7 )

Net income (loss) 2,739 1.3 (1,663



) (0.8 ) 2,230 0.5 (6,279 ) (1.6 ) Less: Non-controlling interest in subsidiary's loss

- 0.0 (1 ) 0.0 (1 ) 0.0 (3 ) 0.0 Net income (loss) attributable to CVG stockholders $ 2,739 1.3 % $ (1,662 ) (0.8 )% $ 2,231 0.5 % $ (6,276 ) (1.6 )% 17



--------------------------------------------------------------------------------

Table of Contents

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

Revenues. Revenues increased approximately $17.1 million, or 8.6%, to $216.0 million in the three months ended June 30, 2014 from $198.9 million in the three months ended June 30, 2013 primarily as a result of the following:



a $8.5 million or 20% increase in global construction revenue due to an

increase in global construction production volumes; a $4.1 million or 4% increase in North American OEM heavy-duty truck revenues due to an increase in North American heavy-duty OEM truck production volumes; and



an aggregate of $4.5 million or 5% increase in our global automotive, bus,

aftermarket, agriculture and other industry revenues due to increased

production volumes.

Cost of Revenues. Cost of revenues consists primarily of raw materials and purchased components for our products, wages and benefits for our employees and other overhead expenses such as manufacturing supplies, rent and utilities costs related to our operations. Cost of revenues increased approximately $11.8 million, or 6.7%, to $187.8 million for the three months ended June 30, 2014 from $176.0 million for the three months ended June 30, 2013. This increase was primarily driven by an increase in raw material and purchased components costs of approximately $10.5 million, increase in wages and benefits costs of approximately $1.6 million offset by a slight decline in other overhead costs of approximately $0.3 million. Gross Profit. Gross profit was approximately $28.2 million for the three months ended June 30, 2014 compared to $22.9 million in the three months ended June 30, 2013, an increase of approximately $5.3 million. As a percentage of revenues, gross profit was 13.0% for the three months ended June 30, 2014 compared to 11.5% for the three months ended June 30, 2013. Conversion of revenue to gross profit increased primarily as a result of operating leverage from cost structure discipline in a rising market, including reductions in force. Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of wages and benefits and other overhead expenses such as marketing, travel, legal, audit, rent and utilities costs, which are not directly or indirectly associated with the manufacturing of our products. Selling, general and administrative costs decreased approximately $1.6 million, or 7.8%, to $18.7 million in the three months ended June 30, 2014 from $20.3 million in the three months ended June 30, 2013. In the second quarter of 2013, we incurred a cost of $2.5 million associated with executive changeover, and we did not incur similar charges in the second quarter of 2014. The net change was partially offset by additional spending incurred in the quarter ended June 30, 2014 to support value-accretive functions within the organization. These activities included enhancements in the manner to which we go to market, including the development of a product line management infrastructure; actions to institutionalize our operational excellence efforts; and the development of a centrally-led procurement organization. Amortization Expense. Amortization expense on our definite-lived intangible assets, including trademarks, tradenames and customer relationships from our acquisitions of Vijayjyot and Daltek, was approximately $0.4 million for the three months ended June 30, 2014 and 2013.



Interest and Other Expense. Interest associated with our long-term debt and other expense was approximately $5.2 million, for each of the three months ended June 30, 2014 and 2013.

(Benefit) Provision for Income Taxes. An income tax provision of $1.1 million was recorded for the three months ended June 30, 2014 compared to a tax benefit of $1.4 million for the three months ended June 30, 2013. The quarterly tax provision was primarily driven by the mix of income between our U.S. and non-U.S. locations. Additional items impacting the tax provision included international locations subject to valuation allowances in the U.K., China, India and Czech Republic, and favorable U.S. tax laws, including the research and development tax credit, that have not been extended. Net Income (Loss). Net income was $2.7 million in the three months ended June 30, 2014, compared to net loss of $1.7 million in the three months ended June 30, 2013. The increase in net income was primarily a result of the increased revenues and gross profit for the three months ended June 30, 2014 as discussed above.



Non-controlling Interest in Subsidiary's Loss. Included in net loss is a loss in the non-controlling interest of our Indian joint venture.

18



--------------------------------------------------------------------------------

Table of Contents

Net Income (Loss) Attributable to CVG Stockholders. Net income attributable to CVG stockholders was $2.7 million in the three months ended June 30, 2014, compared to net loss of $1.7 million in the three months ended June 30, 2013. The increase was primarily a result of the increased revenues and gross profit for the three months ended June 30, 2014 discussed above.



Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Revenues. Revenues increased approximately $37.3 million, or 9.9%, to $414.1 million in the six months ended June 30, 2014 from $376.7 million in the six months ended June 30, 2013 primarily as a result of the following:



a $16.9 million or 22% increase in global construction revenue due to an

increase in global construction production volumes; a $13.4 million or 8% increase in North American OEM heavy-duty truck revenues due to an increase in North American heavy-duty OEM truck production volumes;



an aggregate of $7.0 million or 6% increase in our global automotive, bus,

agriculture and other industry revenues due to increased industry

production volumes.

Cost of Revenues. Cost of revenues consists primarily of raw materials and purchased components for our products, wages and benefits for our employees and other overhead expenses such as manufacturing supplies, rent and utilities costs related to our operations. Cost of revenues increased approximately $25.8 million, or 7.7%, to $361.6 million for the six months ended June 30, 2014 from $335.8 million for the six months ended June 30, 2013. This increase was primarily impacted by an increase in raw material and purchased components costs of approximately $20.7 million, an increase in wages and benefits costs of $2.7 million and an increase in other overhead costs of $2.4 million, which included $0.5 million in severance costs related to the pending closure of our Tigard, Oregon, facility and an impairment charge of $0.8 million recorded resulting from the sale of our Norwalk, Ohio, facility. Gross Profit. Gross profit was approximately $52.5 million for the six months ended June 30, 2014 compared to $41.0 million in the six months ended June 30, 2013, an increase of approximately $11.5 million. As a percentage of revenues, gross profit was 12.7% for the six months ended June 30, 2014 compared to 10.9% for the six months ended June 30, 2013. Conversion of revenue to gross profit increased primarily as a consequence of operating leverage from cost structure discipline in a rising market. Selling, General and Administrative Expenses. Selling, general and administrative expenses consists primarily of wages and benefits and other overhead expenses such as marketing, travel, legal, audit, rent and utilities costs which are not directly or indirectly associated with the manufacturing of our products. Selling, general and administrative costs decreased approximately $1.1 million, or 2.8%, to $37.2 million in the six months ended June 30, 2014 from $38.3 million in the six months ended June 30, 2013. In the second quarter of 2013, we incurred a cost of $2.5 million associated with executive changeover, and we did not incur similar charges in the second quarter of 2014. The net change in selling, general and administrative expenses was partially offset by additional spending incurred in the six months ended June 30, 2014 to support value-accretive functions within the organization. These activities included enhancements in the manner to which we go to market, including the development of a product line management infrastructure; actions to institutionalize our operational excellence efforts; and the development of a centrally-led procurement organization. Amortization Expense. Amortization expense on our definite-lived intangible assets, including trademarks, tradenames and customer relationships from our acquisitions of Vijayjyot and Daltek, was $0.8 million for the six months ended June 30, 2014 and 2013.



Interest and Other Expense. Interest associated with our long-term debt and other expense was approximately $10.3 million and $10.6 million in the six months ended June 30, 2014 and 2013, respectively.

Provision (Benefit) for Income Taxes. An income tax provision of $2.0 million was recorded for the six months ended June 30, 2014 compared to a tax benefit of approximately $2.5 million for the six months ended June 30, 2013. The tax provision was primarily driven by the mix of income between our U.S. and non-U.S. locations. Additional items impacting the tax provision included international locations subject to valuation allowances in the U.K., China, India and Czech Republic, and favorable U.S. tax laws, including the research and development tax credit, that have not been extended. 19



--------------------------------------------------------------------------------

Table of Contents

Net Income (Loss). Net income was $2.2 million in the six months ended June 30, 2014, compared to net loss of $6.3 million in the six months ended June 30, 2013. The increase in net income was primarily a result of the increased revenues for the six months ended June 30, 2014 discussed above.

Non-controlling Interest in Subsidiary's Loss. Included in net loss is a loss of approximately $1 thousand and $3 thousand for the six months ended June 30, 2014 and 2013, respectively, representing the non-controlling interest of our Indian joint venture. Net (Loss) Income Attributable to CVG Stockholders. Net income attributable to CVG stockholders was $2.2 million in the six months ended June 30, 2014, compared to net loss attributable to CVG stockholders of $6.3 million in the six months ended June 30, 2013. The increase in net income was primarily a result of the increased revenues for the six months ended June 30, 2014 discussed above.



Liquidity and Capital Resources

Cash Flows

Our primary sources of liquidity during the six months ended June 30, 2014 were generated from the sale of our various products to our customers. We believe that cash from operations, existing cash reserves, and availability under our revolving credit facility will provide adequate funds for our working capital needs, planned capital expenditures and cash interest payments through the remainder of 2014. However, no assurance can be given that this will be the case. For the six months ended June 30, 2014, net cash provided by operations was approximately $3.3 million compared to $4.5 million for the six months ended June 30, 2013. The net cash provided by operations for the six months ended June 30, 2014 declined $1.2 million compared to the prior year period primarily as a result of an increase in working capital due to production volume increases. Net cash provided for the six months ended June 30, 2013 was a result of operating income and an increase in working capital requirements. For the six months ended June 30, 2014, we used $3.9 million of cash for investing activities compared to $7.8 million for the six months ended June 30, 2013. The amounts used for investing activities for the six months ended June 30, 2014 primarily reflect a reduction in capital expenditures as a result of the timing of planned capital outlay. The amounts used for investing activities for the six months ended June 30, 2013 primarily reflect capital expenditures and premium payments for life insurance held to fund the Company's deferred compensation program. For the six months ended June 30, 2014, net cash used for financing activities was approximately $1.6 million. There was no cash provided by financing activities for the six months ended June 30, 2013. The net cash used for financing activities for the three months ended June 30, 2014 resulted from proceeds from loans taken against our life insurance policies to fund deferred compensation payments, as well as the deferred pay out of $2.6 million in June 2014 relating to the Daltek acquisition that occurred in 2012. As of June 30, 2014, cash held by foreign subsidiaries was approximately $20.0 million. If we were to repatriate any portion of these funds back to the U.S., we would accrue and pay the appropriate withholding and income taxes on amounts repatriated. We do not intend to repatriate funds held by our foreign subsidiaries, but intend to use the cash to fund the growth of our foreign operations.



Debt and Credit Facilities

As of June 30, 2014, our outstanding indebtedness consisted of an aggregate of $250.0 million of 7.875% notes due 2019 (the "7.875% notes"). We did not have any borrowings under our loan and security agreement as of June 30, 2014, and we had outstanding letters of credit of approximately $2.9 million and borrowing availability of $37.1 million under the loan and security agreement, which is subject to an availability block under certain circumstances. 20



--------------------------------------------------------------------------------

Table of Contents

Revolving Credit Facility

On November 15, 2013, the Company and some of our subsidiaries, as borrowers (collectively, the "borrowers") entered into a Second Amended and Restated Loan and Security Agreement ( the "Second ARLS Agreement") with Bank of America, N.A. as agent and lender, which amended and restated the Amended and Restated Loan and Security Agreement, dated as of April 26, 2011.



The changes to material terms of the Second ARLS Agreement include the following:

A facility in the amount of $40.0 million with the ability to increase to

up to an additional $35.0 million under certain conditions;



Availability is subject to borrowing base limitations and an availability

block equal to the amount of debt Bank of America, N.A. or its affiliates

makes available to the Company's foreign subsidiaries; Availability of up to an aggregate amount of $10.0 million for the



issuance of letters of credit, which reduces the total amount available;

Extension of the maturity date to November 15, 2018;



Amendments to certain covenants to provide additional flexibility,

including (i) conditioning permitted distributions on minimum

availability, fixed charge coverage ratio and other requirements,

(ii) conditioning permitted foreign investments on minimum availability,

fixed charge coverage ratio and other requirements, (iii) conditioning

permitted acquisitions on minimum availability, fixed charge coverage

ratio and other requirements and (iv) permitting certain sale-leaseback

transactions;



Permitting repurchase of the Company's 7.875% notes due 2019 under certain

circumstances; and



Reduction of the fixed charge coverage ratio maintenance requirement to

1.0:1.0 and reduction of the availability threshold for triggering compliance with the fixed charge coverage ratio, as described below. The applicable margin is based on average daily availability under the revolving credit facility as follows: Base LIBOR Average Daily Rate Revolver Level Availability Loans Loans III $20,000,000 0.50 % 1.50 % II > $10,000,000 but < $20,000,000 0.75 % 1.75 % I $10,000,000 1.00 % 2.00 % As of June 30, 2014, $4.3 million in deferred fees relating to the revolving credit facility and our 7.875% notes were being amortized over the remaining life of the agreements. The borrowers' obligations under the revolving credit facility are secured by a first-priority lien (subject to certain permitted liens) on substantially all of our tangible and intangible assets, as well as 100% of the capital stock of the direct domestic subsidiaries of each borrower and 65% of the capital stock of each foreign subsidiary directly owned by a borrower. The borrowers are jointly and severally liable for the obligations under the revolving credit facility and unconditionally guarantees the prompt payment and performance thereof. At June 30, 2014, the applicable margin level was Level III. The applicable margin will be subject to increase or decrease by the agent on the first day of the calendar month following each fiscal quarter end. If the agent is unable to calculate average daily availability for a fiscal quarter because of our failure to deliver a borrowing base certificate when required, the applicable margin will be set at Level I until the first day of the calendar month following receipt of a borrowing base certificate. We pay a commitment fee to the lenders, which is calculated at a rate per annum based on a percentage of the difference between committed amounts and amounts actually borrowed under the revolving credit facility multiplied by an applicable margin. The commitment fee is payable quarterly in arrears. The unused commitment fee is 0.25% per annum at all times. 21



--------------------------------------------------------------------------------

Table of Contents

Terms, Covenants and Compliance Status

The Second ARLS Agreement requires the maintenance of a minimum fixed charge coverage ratio calculated based upon consolidated EBITDA (as defined in the Second ARLS Agreement) as of the last day of each of the Company's fiscal quarters. The borrowers are not required to comply with the fixed charge coverage ratio requirement for as long as the borrowers maintain at least $7.5 million of borrowing availability under the revolving credit facility. If borrowing availability is less than $7.5 million at any time, we would be required to comply with a fixed charge coverage ratio of 1.0:1.0 as of the end of any fiscal quarter, and would be required to continue to comply with these requirements until we have borrowing availability of $7.5 million or greater for 60 consecutive days. If required, we would be in compliance with this covenant as of June 30, 2014.



The Second ARLS Agreement contains other customary restrictive covenants, customary events of default, customary reporting and other affirmative covenants, as described in our 2013 Form 10-K. See also Note 11 to our consolidated financial statements in this Form 10-Q for information on the covenants. The Company was in compliance with these covenants as of June 30, 2014.

Certain of the defaults are subject to exceptions, materiality qualifiers, grace periods and baskets customary for credit facilities of this type.

Voluntary prepayments of amounts outstanding under the revolving credit facility are permitted at any time, without premium or penalty.

The Second ARLS Agreement requires the borrowers to make mandatory prepayments with the proceeds of certain asset dispositions and upon the receipt of insurance or condemnation proceeds to the extent the borrowers do not use the proceeds for the purchase of assets useful in the borrowers' businesses.



7.875% Senior Secured Notes due 2019

The 7.875% notes were issued pursuant to an indenture, dated as of April 26, 2011 (the "7.875% Notes Indenture"), by and among CVG, certain of our subsidiaries party thereto, as guarantors (the "guarantors") and U.S. Bank National Association, as trustee. Interest is payable on the 7.875% notes on April 15 and October 15 of each year until their maturity date of April 15, 2019. The 7.875% notes are senior secured obligations of CVG. Our obligations under the 7.875% notes are guaranteed by the guarantors. The obligations of CVG and the guarantors under the 7.875% notes are secured by a second-priority lien (subject to certain permitted liens) on substantially all of the property and assets of CVG and the guarantors, and a pledge of 100% of the capital stock of CVG's domestic subsidiaries and 65% of the voting capital stock of each foreign subsidiary directly owned by CVG and the guarantors. The liens, the security interests and all of the obligations of CVG and the guarantors and all provisions regarding remedies in an event of default are subject to an intercreditor agreement among CVG, certain of its subsidiaries, the agent for the revolving credit facility and the collateral agent for the 7.875% notes. The 7.875% Notes Indenture contains restrictive covenants, including, without limitation, limitations on our ability and the ability of our restricted subsidiaries to: incur additional debt; pay dividends or other payments of subsidiaries; make investments; engage in transactions with affiliates; create liens on assets; engage in sale/leaseback transactions; and consolidate, merge or transfer all or substantially all of our assets and the assets of our restricted subsidiaries. In addition, subject to certain exceptions, the 7.875% Notes Indenture does not permit us to pay dividends on, redeem or repurchase our capital stock or make other restricted payments unless certain conditions are met, including (i) no default under the 7.875% Notes Indenture has occurred and is continuing, (ii) we and our subsidiaries maintain a consolidated coverage ratio of 2.0 to 1.0 on a pro forma basis and (iii) the aggregate amount of the dividends or payments made under this restriction would not exceed 50% of consolidated net income from October 1, 2010 to the end of the most recent fiscal quarter (or, if consolidated net income for such period is a deficit, minus 100% of such deficit), plus cash proceeds received from certain issuances of capital stock, plus certain other amounts. These covenants are subject to important qualifications and exceptions set forth in the 7.875% Notes Indenture. We were in compliance with these covenants as of June 30, 2014.



The 7.875% Notes Indenture provides for events of default (subject in certain cases to customary grace and cure periods) which include, among others:

nonpayment of principal or interest when due; 22



--------------------------------------------------------------------------------

Table of Contents

breach of covenants or other agreements in the 7.875% Notes Indenture;

defaults in payment of certain other indebtedness; certain events of bankruptcy or insolvency; and certain defaults with respect to the security interest. Generally, if an event of default occurs, the trustee or the holders of at least 25% in principal amount of the then outstanding 7.875% notes may declare the principal of and accrued but unpaid interest on all of the 7.875% notes to be due and payable immediately. All provisions regarding remedies in an event of default are subject to the Intercreditor Agreement. We had the option but did not redeem any part of the 7.875% notes as of April 15, 2014 at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus the "make-whole" premium in the 7.875% Notes Indenture. We evaluated the "make-whole" premium under ASC 815-15 and determined that the premium is not required to be bifurcated from the 7.875% notes and accounted for as a separate derivative instrument. We may redeem the 7.875% notes, in whole or in part, at any time on or after April 15, 2014 at the optional redemption prices set forth in the 7.875% Notes Indenture, plus accrued and unpaid interest, if any, to the redemption date. If we experience certain change of control events, holders of the 7.875% notes may require us to repurchase all or part of their notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date. Covenants and Liquidity Our ability to comply with the covenants in the Second ARLS Agreement may be affected in the future by economic or business conditions beyond our control. Based on our current forecast, we believe that we would be able to maintain compliance with the fixed charge coverage ratio covenant through the remainder of the year, if applicable. We base our forecasts on historical experience, industry forecasts and various other assumptions that we believe are reasonable under the circumstances. If actual results are substantially different than our current forecast we could be required to comply with our financial covenants, and there is no assurance that we would be able to comply with such financial covenants. If we do not comply with the financial and other covenants in the Second ARLS Agreement, and we are unable to obtain necessary waivers or amendments from the lender, we would be precluded from borrowing under the Second ARLS Agreement, which could have a material adverse effect on our business, financial condition and liquidity. If we are unable to borrow under the Second ARLS Agreement, we may be unable to obtain alternate sources of liquidity under acceptable terms. In addition, if we do not comply with the financial and other covenants in the Second ARLS Agreement, the lender could declare an event of default under the Second ARLS Agreement, and our indebtedness thereunder could be declared immediately due and payable. A default under the Second ARLS Agreement would also result in an event of default under the 7.875% notes. Any of these events would likely have a material adverse effect on our business, financial condition and liquidity.



Forward-Looking Statements

All statements, other than statements of historical fact included in this Form 10-Q, including without limitation the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" are, or may be deemed to be, forward-looking statements which speak only as of the date the statements were made. When used in this Form 10-Q, the words "believes," "anticipates," "plans," "expects," "intend," "will," "should," "could," "would," "project," "continue," "likely," and similar expressions, as they relate to us, are intended to identify forward-looking statements. Such forward-looking statements may include management's current expectations for future periods with respect to 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, and are based on the beliefs of our management as well as on assumptions made by and information currently available to us at the time such statements were made. Investors are warned that actual results may differ from management's expectations. Various economic and competitive factors could cause actual results to differ materially from those discussed in such forward-looking statements, including factors which are outside of our control, such as risks relating to: (i) general economic or business conditions affecting the markets in which we serve; (ii) our ability to develop or successfully introduce new products; (iii) risks associated with conducting business in foreign countries and currencies; (iv) increased competition in the heavy-duty truck or construction market; (v) our failure to complete or successfully integrate additional strategic acquisitions; (vi) the impact of changes in governmental regulations on our customers or on our business; (vii) 23



--------------------------------------------------------------------------------

Table of Contents

the loss of business from a major customer or the discontinuation of particular commercial vehicle platforms; (viii) our ability to obtain future financing due to changes in the lending markets or our financial position; (ix) our ability to comply with the financial covenants in our revolving credit facility; and (x) various other risks as outlined under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by such cautionary statements. 24



--------------------------------------------------------------------------------

Table of Contents


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters