Commercial Vehicle Group, Inc. - Quarter Report: 2007 March (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

COMMERCIAL VEHICLE GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		41-1990662 (I.R.S. Employer Identification No.)
6530 West Campus Oval New Albany, Ohio (Address of principal executive offices)		43054 (Zip Code)

(614) 289-5360
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes þ    No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o    Accelerated filer þ    Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o    No þ

The number of shares outstanding of the Registrant’s common stock, par value $.01 per share, at March 31, 2007 was 21,395,331 shares.

 

 

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q

PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS			1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)			1
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2007 (UNAUDITED) AND DECEMBER 31, 2006 (UNAUDITED)			2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)			3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)			4
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			20
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			24
ITEM 4 CONTROLS AND PROCEDURES			24
PART II OTHER INFORMATION			25
SIGNATURES			27
Certification of President and CEO
Certification of Chief Financial Officer
Section 906 Certification
Section 906 Certification

ITEM 1 — FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended
		March 31,
		2007				2006
		(Unaudited)				(Unaudited)
		(In thousands, except per
		share amounts)
REVENUES		$	198,801			$	229,345
COST OF REVENUES			172,532				190,611
Gross Profit			26,269				38,734
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			15,554				13,152
AMORTIZATION EXPENSE			103				105
Operating Income			10,612				25,477
OTHER EXPENSE			2,320				230
INTEREST EXPENSE			3,637				3,890
Income Before Provision for Income Taxes			4,655				21,357
PROVISION FOR INCOME TAXES			1,696				7,949
NET INCOME		$	2,959			$	13,408
EARNINGS PER COMMON SHARE:
Basic		$	0.14			$	0.64
Diluted		$	0.14			$	0.62
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic			21,389				21,021
Diluted			21,663				21,471

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31,				December 31,
		2007				2006
		(Unaudited)				(Unaudited)
		(In thousands except share and per
		share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	16,703			$	19,821
Accounts receivable, net of reserve for doubtful accounts of $4,474 and $5,536, respectively			117,461				123,471
Inventories, net			90,888				88,723
Prepaid expenses			17,904				24,272
Deferred income taxes			9,572				8,819
Total current assets			252,528				265,106
PROPERTY, PLANT AND EQUIPMENT, net			89,806				90,388
GOODWILL			134,874				134,766
INTANGIBLE ASSETS, net of accumulated amortization of $936 and $840, respectively			84,092				84,188
OTHER ASSETS, net			14,747				16,374
TOTAL ASSETS		$	576,047			$	590,822
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt		$	2,259			$	2,158
Accounts payable			77,026				86,610
Accrued liabilities			32,604				40,970
Total current liabilities			111,889				129,738
LONG-TERM DEBT, net of current maturities			158,871				159,956
DEFERRED TAX LIABILITIES			10,572				10,611
PENSION AND OTHER POST-RETIREMENT BENEFITS			22,481				22,188
OTHER LONG-TERM LIABILITIES			3,238				3,424
Total liabilities			307,051				325,917
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ INVESTMENT:
Common stock $.01 par value; 30,000,000 shares authorized; 21,389,495 and 21,368,831 shares issued and outstanding, respectively			214				214
Treasury stock purchased from employees; 5,836 shares			(115	)			(115	)
Additional paid-in capital			175,043				174,044
Retained earnings			95,028				92,007
Accumulated other comprehensive loss			(1,174	)			(1,245	)
Total stockholders’ investment			268,996				264,905
TOTAL LIABILITIES AND STOCKHOLDERS’ INVESTMENT		$	576,047			$	590,822

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended
		March 31,
		2007				2006
		(Unaudited)				(Unaudited)
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	2,959			$	13,408
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			3,729				3,501
Noncash amortization of debt financing costs			216				231
Stock-based compensation expense			846				608
Loss on sale of assets			61				2
Deferred income tax benefit			(792	)			(91	)
Noncash loss on forward exchange contracts			2,247				238
Change in other operating items			(8,423	)			(26,778	)
Net cash provided by (used in) operating activities			843				(8,881	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment			(3,098	)			(4,591	)
Proceeds from disposal/sale of property, plant and equipment			24				—
Other assets and liabilities			(29	)			(101	)
Net cash used in investing activities			(3,103	)			(4,692	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under equity incentive plans			114				599
Excess tax benefit from equity incentive plans			39				—
Repayment of revolving credit facility			(51,409	)			(2,192	)
Borrowings under revolving credit facility			50,918				2,747
Repayments of long-term debt			(467	)			(1,974	)
Borrowings of long-term debt			—				522
Payments on capital lease obligations			(32	)			(26	)
Debt issuance costs and other, net			—				(1	)
Net cash used in financing activities			(837	)			(325	)
EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			(21	)			(275	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(3,118	)			(14,173	)
CASH AND CASH EQUIVALENTS:
Beginning of period			19,821				40,641
End of period		$	16,703			$	26,468
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	6,486			$	6,551
Cash (refund) paid for income taxes, net		$	(5,288	)		$	1,170

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Description of Business and Basis of Presentation

Commercial Vehicle Group, Inc. and its subsidiaries (“CVG” or the “Company”) design and manufacture suspension seat systems, interior trim systems (including instrument and door panels, headliners, cabinetry, molded products and floor systems), cab structures and components, mirrors, wiper systems, electronic wiring harness assemblies and controls and switches for the global commercial vehicle market, including the heavy-duty truck market, the construction and agriculture market and the specialty and military transportation markets. The Company has operations located in the United States in Arizona, Indiana, Illinois, Iowa, North Carolina, Ohio, Oregon, Tennessee, Texas, Virginia, Washington and outside of the United States in Australia, Belgium, China, Czech Republic, Mexico and the United Kingdom.

The Company has prepared the condensed consolidated financial statements included herein, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations and statements of financial position for the interim periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading when read in conjunction with its fiscal 2006 consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K as filed with the SEC. Unless otherwise indicated, all amounts are in thousands except per share amounts.

Revenues and operating results for the three months ended March 31, 2007 are not necessarily indicative of the results to be expected in future operating quarters.

2. Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition requirements for uncertain tax positions. The Company adopted the provisions of FIN 48 on January 1, 2007. As a result, the Company recognized approximately $62 thousand decrease in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings.

As of January 1, 2007, the Company has provided a liability for $3.9 million of unrecognized tax benefits related to various federal and state income tax positions. Of this amount, the amount that would impact the Company’s effective tax rate, if recognized, is $1.3 million. The remaining $2.6 million of unrecognized tax benefits consists of items that are offset by deferred tax assets subject to valuation allowances, and thus could further impact the effective tax rate.

The Company accrues penalties and interest related to unrecognized tax benefits through income tax expense which is consistent with the recognition of these items in prior reporting periods. The Company had approximately $1.1 million accrued for the payment of interest and penalties at January 1, 2007. The liability for the payment of interest and penalties did not materially change as of March 31, 2007.

The Company anticipates events could occur within the next twelve months that would have an impact on the amount of unrecognized tax benefits that would be required. Approximately $1.9 million of unrecognized tax benefits relate to items that are affected by expiring statutes of limitation within the next 12 months.

The Company or one of its subsidiaries files federal income tax returns in the United States and income tax returns in various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to income tax

examinations by any of the taxing authorities for years before 2003. There is currently no income tax examinations in process related to any of the taxing jurisdictions.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements. SFAS No. 157 establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157 on its consolidated financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159, which amends SFAS No. 115, allows certain financial assets and liabilities to be recognized, at the Company’s election, at fair market value, with any gains or losses for the period recorded in the statement of income. SFAS No. 159 included available-for-sales securities in the assets eligible for this treatment. Currently, the Company records the gains or losses for the period in the statement of comprehensive income and in the equity section of the balance sheet. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and interim periods in those fiscal years. The Company has not determined the impact, if any, of the adoption of SFAS No. 159.

3. Share-Based Compensation

Stock Option Grants and Restricted Stock Awards

In 1998, the Company granted options to purchase 57,902 shares of common stock at $9.43 per share, which are exercisable through December 2008. The options were granted at exercise prices determined to be at or above fair value on the date of grant.

In May 2004, the Company granted options to purchase 910,869 shares of common stock at $5.54 per share. These options have a ten-year term and the original terms provided for 50% of the options becoming exercisable ratably on June 30, 2005 and June 30, 2006. During June 2004, the Company modified the terms of these options such that they became 100% vested immediately.

In October 2004, the Company granted options to purchase 598,950 shares of common stock at $15.84 per share. These options have a ten-year term and vest ratably in three equal annual installments commencing on October 20, 2005. As of March 31, 2007, there was approximately $0.4 million of unearned compensation related to nonvested share-based compensation arrangements granted under this plan. This expense is subject to future adjustments for vesting and forfeitures and will be recognized on a straight-line basis over the remaining period of seven months.

In November 2005, 168,700 shares of restricted stock and in November 2006, 207,700 shares of restricted stock were awarded by our compensation committee under our Amended and Restated Equity Incentive Plan. Restricted stock is a grant of shares of common stock that may not be sold, encumbered or disposed of, and that may be forfeited in the event of certain terminations of employment prior to the end of a restricted period set by the compensation committee. The shares of restricted stock granted in November 2005 vest ratably in three equal annual installments commencing on October 20, 2006. The shares of restricted stock granted in November 2006 vest ratably in three equal annual installments commencing on October 20, 2007. A participant granted restricted stock generally has all of the rights of a stockholder, unless the compensation committee determines otherwise.

In February 2007, 10,000 shares of restricted stock and in March 2007, 10,000 shares of restricted stock were awarded by our compensation committee under our Amended and Restated Equity Incentive Plan. The shares of restricted stock granted in February 2007 and March 2007 vest ratably in three equal annual installments commencing on October 20, 2007.

As of March 31, 2007, there was approximately $5.9 million of unearned compensation related to nonvested share-based compensation arrangements granted under our Amended and Restated Equity Incentive Plan. This expense is subject to future adjustments for vesting and forfeitures and will be recognized on a straight-line basis over the remaining period of 19 months for the November 2005 awards and 31 months for the November 2006, February 2007 and March 2007 awards, respectively.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of equity-based grants with the following weighted-average assumptions:

		2004
		Stock
		Option
		Grants
Weighted-average fair value of option		$	3.34
Risk-free interest rate			4.50	%
Expected volatility			23.12	%
Expected life in months			36

The Company currently estimates the forfeiture rate for its stock option and restricted stock grants at 7.5%, respectively, for all participants of each plan.

A summary of the status of the Company’s stock options as of March 31, 2007 and changes during the three-month period ending March 31, 2007 is presented below:

										Weighted-
						Weighted-				Average
						Average				Remaining				Aggregate
		Options				Exercise				Contractual				Intrinsic
Stock Options		(000’s)				Price				Life (Years)				Value (000’s)
Outstanding at December 31, 2006			848			$	11.94				7.5			$	8,588
Granted			—				—				—				—
Exercised			(21	)			5.54				—				—
Forfeited			—				—				—				—
Oustanding at March 31, 2007			827			$	12.10				7.5			$	6,595
Exercisable at March 31, 2007			653			$	11.09				7.4			$	5,851
Nonvested, expected to vest at December 31, 2007			162			$	15.84				1.0			$	683

The following table summarizes information about the nonvested stock option and restricted stock grants as of March 31, 2007:

		Nonvested Stock Options								Nonvested Restricted Stock
						Weighted-								Weighted-
						Average								Average
		Options				Grant-Date				Shares				Grant-Date
		(000’s)				Fair Value				(000’s)				Fair Value
Nonvested at December 31, 2006			175			$	3.34				309			$	20.21
Granted			—				—				20				20.10
Vested			—				—				—				—
Forfeited			—				—				—				—
Nonvested at March 31, 2007			175			$	3.34				329			$	20.21

As of March 31, 2007, a total of 84,549 shares were available from the original 1.0 million shares authorized for issuance under the Company’s Amended and Restated Equity Incentive Plan, including cumulative forfeitures.

4. Accounts Receivable

Trade accounts receivable are stated at historical value less an allowance for doubtful accounts, which approximates fair value. This estimated allowance is based primarily on management’s evaluation of specific balances as the balances become past due, the financial condition of its customers and the Company’s historical experience of write-offs. If not reserved through specific identification procedures, the Company’s general policy for uncollectible accounts is to reserve at a certain percentage threshold, based upon the aging categories of accounts receivable. Past due status is based upon the due date of the original amounts outstanding. When items are ultimately deemed uncollectible, they are charged off against the reserve previously established in the allowance for doubtful accounts.

5. Inventories

Inventories are valued at the lower of first-in, first-out (“FIFO”) cost or market. Cost includes applicable material, labor and overhead. Inventories consisted of the following (in thousands):

		March 31,				December 31,
		2007				2006
Raw materials		$	62,347			$	61,617
Work in process			14,737				14,436
Finished goods			18,466				17,314
Less excess and obsolete			(4,662	)			(4,644	)
		$	90,888			$	88,723

Inventory quantities on-hand are regularly reviewed, and where necessary, provisions for excess and obsolete inventory are recorded based primarily on the Company’s estimated production requirements driven by current market volumes. Excess and obsolete provisions may vary by product depending upon future potential use of the product.

6. Stockholders’ Investment

Common Stock — The authorized capital stock of the Company consists of 30,000,000 shares of common stock with a par value of $0.01 per share. In August 2004, the Company reclassified all of its existing classes of common stock, which effectively resulted in a 38.991-to-one stock split. The stock split has been reflected as of the beginning of all periods presented.

Preferred Stock — The authorized capital stock of the Company consists of 5,000,000 shares of preferred stock with a par value of $0.01 per share, with no shares outstanding as of March 31, 2007.

Earnings Per Share — In accordance with SFAS No. 128, Earnings per Share, as amended, basic earnings per share is determined by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share, and all other diluted per share amounts presented, is determined by dividing net income by the weighted average number of common shares and potential common shares outstanding during the period as determined by the Treasury Stock Method, as amended, in SFAS No. 123(r), Share Based Payment. Potential common shares are included in the diluted earnings per share calculation when dilutive. Diluted earnings per share for the three months ended March 31, 2007 and 2006 includes the effects of potential common shares consisting of common stock issuable upon exercise of outstanding stock options and for March 31, 2007, the effect of nonvested restricted stock (in thousands, except per share amounts):

		Three Months Ended
		March 31,
		2007				2006
Net income applicable to common shareholders — basic and diluted		$	2,959			$	13,408
Weighted average number of common shares outstanding			21,389				21,021
Dilutive effect of outstanding stock options and restricted stock grants after application of the treasury stock method			274				450
Dilutive shares outstanding			21,663				21,471
Basic earnings per share		$	0.14			$	0.64
Diluted earning per share		$	0.14			$	0.62

Dividends — The Company has not declared or paid any cash dividends in the past. The terms of the Company’s credit agreement restricts the payment or distribution of the Company’s cash or other assets, including cash dividend payments.

7. Debt

Debt consisted of the following (in thousands):

		March 31,				December 31,
		2007				2006
Revolving credit facilities bore interest at a weighted average of 7.7% as of March 31, 2007 and 7.1% as of December 31, 2006		$	984			$	1,469
Term loan, with principal and interest payable quarterly, bore interest at a weighted average rate of 7.2% as of March 31, 2007 and 6.8% as of December 31, 2006			9,828				10,295
8.0% senior notes due 2013			150,000				150,000
Other			318				350
			161,130				162,114
Less current maturities			2,259				2,158
		$	158,871			$	159,956

Credit Agreement — The Company accounts for its Revolving Credit Facility under the provisions of EITF Issue No. 98-14, Debtor’s Accounting for the Changes in Line-of-Credit or Revolving-Debt Arrangements (EITF 98-14), and its Term Loan and 8.0% Senior Notes under the provisions of EITF Issue No. 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments (EITF 96-19). Historically, the Company has periodically amended the terms of its revolving credit facility and term loan to increase or decrease the individual and collective borrowing base of the instruments on an as needed basis. The Company has not modified the terms of its 8.0% Senior Notes subsequent to the original offering date. In connection with an amendment of the Company’s revolving credit facility, bank fees incurred are deferred and amortized over the term of the new arrangement and if applicable, any outstanding deferred fees are expensed proportionately or in total, as appropriate per the guidance of EITF 98-14. In connection with an amendment of the Company’s term loan, under the terms of EITF 96-19, bank and any third-party fees are either expensed as an extinguishment of debt or deferred and amortized over the term of the agreement based upon whether or not the old and new debt instruments are substantially different.

In connection with our August 2004 initial public offering (IPO), the Company entered into a $105.0 million senior credit agreement, consisting of a $40.0 million revolving credit facility and a $65.0 million term loan. We used borrowings under the term loan, together with proceeds of the IPO to repay all amounts outstanding under our then-existing senior credit agreement and our then-existing subordinated indebtedness. In connection with this senior credit agreement, we recorded a loss on early extinguishment of debt of approximately $1.6 million, relating to outstanding deferred fees from our prior debt agreements.

In connection with the February 2005 acquisition of Mayflower, the Company amended its senior credit agreement to increase the revolving credit facility from approximately $40.0 million to $75.0 million and the term loan from approximately $65.0 million to $145.0 million. We used borrowings of approximately $106.4 million under our amended senior credit agreement to fund substantially all of the purchase price of the Mayflower acquisition. The revolving credit facility is available until January 31, 2010 and the term loan is due and payable on December 31, 2010. In connection with this change in its senior credit agreement, the Company incurred bank fees totaling approximately $1.7 million that were deferred and are being amortized over the term of the agreement (until 2010).

In connection with the June 2005 acquisition of Monona, the Company amended its senior credit agreement to increase the revolving credit facility from approximately $75.0 million to $100.0 million. We used borrowings of approximately $58.0 million under our amended senior credit agreement to fund substantially all of the purchase price of the Monona acquisition. The revolving credit facility is available until January 31, 2010 and the term loan is due and payable on December 31, 2010. This amendment increased certain baskets in the lien, investments and asset disposition covenants to reflect the Company’s increased size as a result of the Mayflower and Monona acquisitions. In connection with this change in its senior credit agreement, the Company incurred bank fees totaling approximately $0.4 million that were deferred and are being amortized over the term of the agreement (until 2010).

In connection with the July 2005 secondary public equity offering and private offering of $150.0 million aggregate principal amount of 8.0% senior notes due 2013, the Company entered into additional amendments to the senior credit agreement that provided for, among other things, the occurrence of these offerings. The net proceeds of approximately $190.8 million from these offerings were primarily used to repay indebtedness under the senior credit agreement. Concurrent with the repayment of the outstanding debt, the Company’s total borrowing base under the

amended senior credit agreement was reduced to approximately $140.0 million. Accordingly, the Company expensed $1.5 million of unamortized deferred financing fees as a loss on early extinguishment of debt. In connection with the July 2005 8.0% Senior Notes offering, the Company incurred third-party fees totaling approximately $4.3 million that were deferred and are being amortized over the term of the notes (until 2013).

In December 2005, the Company amended its senior credit agreement to increase its annual capital expenditure limit from approximately $25.0 million per annum to $40.0 million per annum in connection with the Company’s growth and development strategy.

On June 30, 2006, the Company repaid approximately $25.0 million of its U.S. dollar denominated term loan. The repayment of the term loan reduced the overall borrowing capacity on the existing senior credit agreement from approximately $140 to $115 million. In connection with this loan repayment, approximately $0.3 million of deferred fees, representing a proportionate amount of total deferred fees, were expensed as a loss on early extinguishment of debt.

As of March 31, 2007, approximately $4.6 million in deferred fees relating to previous amendments of the Company’s senior credit agreement and fees related to the 8.0% Senior Note offering were outstanding and are being amortized over the life of the agreements.

The senior credit agreement provides the Company with the ability to denominate a portion of its borrowings in foreign currencies. As of March 31, 2007, none of the revolving credit facility borrowings and none of the term loan were denominated in U.S. dollars, and approximately $1.0 million of the revolving credit facility borrowings and approximately $9.8 million of the term loan were denominated in British pounds sterling.

Terms, Covenants and Compliance Status - The Company’s senior credit agreement contains various restrictive covenants, including limiting indebtedness, rental obligations, investments and cash dividends, and also requires the maintenance of certain financial ratios, including fixed charge coverage and funded debt to EBITDA as defined by our senior credit agreement. The Company was in compliance with respect to these covenants as of March 31, 2007. Under this agreement, borrowings bear interest at various rates plus a margin based on certain financial ratios of the Company. Borrowings under the senior credit agreement are secured by specifically identified assets of the Company, comprising in total, substantially all assets of the Company. Additionally, as of March 31, 2007, the Company had outstanding letters of credit of approximately $1.8 million.

8. Goodwill and Intangible Assets

Goodwill represents the excess of acquisition purchase price over the fair value of net assets acquired. In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized, but reviewed annually or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives, but with no maximum life.

The Company reviews goodwill and indefinite-lived intangible assets for impairment annually in the second fiscal quarter and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with SFAS No. 142. The Company reviews definite-lived intangible assets in accordance with the provisions of SFAS No. 142 and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The provisions of SFAS No. 142 require that a two-step impairment test be performed on goodwill. In the first step, the Company compares the fair value of its reporting unit to its carrying value. The Company’s reporting unit is consistent with the reportable segment identified in Note 10 of the Notes to the Consolidated Financial Statements contained in the Company’s Form 10-K for the year ended December 31, 2006. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference. SFAS No. 142 also requires that the fair value of the purchased intangible assets with indefinite lives be estimated and compared to the carrying value. The Company estimates the fair value of these intangible assets using an income approach. The Company recognizes an impairment loss when the estimated fair value of the intangible

asset is less than the carrying value. In this regard, the Company’s management considers the following indicators in determining if events or changes in circumstances have occurred indicating that the recoverability of the carrying amount of indefinite-lived and amortizing intangible assets should be assessed: (1) a significant decrease in the market value of an asset; (2) a significant change in the extent or manner in which an asset is used or a significant physical change in an asset; (3) a significant adverse change in legal factors or in the business climate that could affect the value of an asset or an adverse action or assessment by a regulator; (4) an accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset; and (5) a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue. The Company’s annual goodwill and indefinite-lived (SFAS No. 142) and definite-life intangible asset (SFAS No. 144) impairment analysis, which is performed annually during the second quarter of each fiscal year, did not result in an impairment charge in fiscal 2006.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. The Company bases its fair value estimates on assumptions it believes to be reasonable but that are unpredictable and inherently uncertain. The valuation approaches the Company uses include the Income Approach (the Discounted Cash Flow Method) and the Market Approach (the Guideline Company and Transaction Methods) to estimate the fair value of the reporting unit; earnings are emphasized in the Discounted Cash Flow, Guideline Company, and the Transaction Methods. In addition, these methods utilize market data in the derivation of a value estimate and are forward-looking in nature. The Discounted Cash Flow Method utilizes a market-derived rate of return to discount anticipated performance, while the Guideline Company Method and the Transaction Method incorporate multiples that are based on the market’s assessment of future performance. Actual future results may differ materially from those estimates.

The Company’s intangible assets as of March 31, 2007 and December 31, 2006 were comprised of the following (in thousands):

		March 31, 2007
		Weighted-Average				Gross Carrying				Accumulated				Net Carrying
		Amortization Period				Amount				Amortization				Amount
Definite-lived intangible assets:
Tradenames/Trademarks		30 years				$	9,790			$	(670	)		$	9,120
Licenses		7 years					438				(266	)			172
						$	10,228			$	(936	)		$	9,292
Indefinite-lived intangible assets:
Goodwill						$	134,874			$	—			$	134,874
Customer relationships							74,800				—				74,800
						$	209,674			$	—			$	209,674
Total consolidated goodwill and intangible assets														$	218,966

		December 31, 2006
		Weighted-Average				Gross Carrying				Accumulated				Net Carrying
		Amortization Period				Amount				Amortization				Amount
Definite-lived intangible assets:
Tradenames/Trademarks		30 years				$	9,790			$	(589	)		$	9,201
Licenses		7 years					438				(251	)			187
						$	10,228			$	(840	)		$	9,388
Indefinite-lived intangible assets:
Goodwill						$	134,766			$	—			$	134,766
Customer relationships							74,800				—				74,800
						$	209,566			$	—			$	209,566
Total consolidated goodwill and intangible assets														$	218,954

The aggregate intangible asset amortization expense was approximately $0.1 million for the three months ended March 31, 2007 and 2006, respectively.

The estimated intangible asset amortization expense for the fiscal year ending December 31, 2007, and for the five succeeding years is as follows (in thousands):

						Estimated
Fiscal Year Ended						Amortization
December 31,						Expense
	2007					$	389
	2008					$	389
	2009					$	389
	2010					$	326
	2011					$	326
	2012					$	326

The changes in the carrying amounts of goodwill for the three months ended March 31, 2007, were comprised of the following (in thousands):

Balance — December 31, 2006		$	134,766
Currency translation adjustment			108
Balance — March 31, 2007		$	134,874

9. Comprehensive Income

The Company follows the provisions of SFAS No. 130, Reporting Comprehensive Income, which established standards for reporting and display of comprehensive income and its components. Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. For the Company, comprehensive income represents net income adjusted for foreign currency translation adjustments and minimum pension liability. In accordance with SFAS No. 130, the Company has elected to disclose comprehensive income in stockholders’ investment. The components of accumulated other comprehensive income consisted of the following as of March 31, 2007 (in thousands):

Foreign currency translation adjustment		$	5,528
Pension liability			(6,702	)
		$	(1,174	)

Comprehensive income for the three months ended March 31 was as follows (in thousands):

		2007				2006
Net income		$	2,959			$	13,408
Other comprehensive income:
Foreign currency translation adjustment			71				71
Comprehensive income		$	3,030			$	13,479

Balance — December 31, 2006		$	5,197
Additional provisions recorded			709
Deduction for payments made			(834	)
Currency translation adjustment			3
Balance — March 31, 2007		$	5,075

Foreign Currency Forward Exchange Contracts — The Company uses forward exchange contracts to hedge certain of the foreign currency transaction exposures primarily related to its United Kingdom operations. The Company estimates its projected revenues and purchases in certain foreign currencies or locations, and will hedge a portion or all of the anticipated long or short position. The contracts typically run from three months up to three years. These contracts are marked-to-market and the fair value is included in assets (liabilities) in the consolidated balance sheet, with the offsetting noncash gain or loss included in the consolidated statements of operations. The Company does not hold or issue foreign exchange options or forward contracts for trading purposes.

The following table summarizes the notional amount of the Company’s open foreign exchange contracts at March 31, 2007 (in thousands):

		Local								U.S. $
		Currency				U.S. $				Equivalent
		Amount				Equivalent				Fair Value
Contracts to (buy) sell currencies:
U.S. dollar		$	(267	)		$	(267	)		$	(267	)
Eurodollar			38,192				53,338				52,015
Swedish kronor			8,490				1,244				1,221
Japanese yen			4,050,000				41,484				36,541
Australian dollar			3,250				2,564				2,624

The difference between the U.S. $ equivalent and U.S. $ equivalent fair value of approximately $6.2 million and $8.5 million is included in other assets in the condensed consolidated balance sheet at March 31, 2007 and December 31, 2006, respectively.

Litigation — The Company is subject to various legal actions and claims incidental to its business, including those arising out of alleged defects, product warranties, employment-related matters and environmental matters. Management believes that the Company maintains adequate insurance to cover these claims. The Company has established reserves for issues that are probable and estimatable in amounts management believes are adequate to cover reasonable adverse judgments not covered by insurance. Based upon the information available to management and discussions with legal counsel, it is the opinion of management that the ultimate outcome of the various legal actions and claims that are incidental to the Company’s business will not have a material adverse impact on the consolidated financial position, results of operations or cash flows of the Company; however, such matters are subject to many uncertainties, and the outcomes of individual matters are not predictable with assurance.

11. Pension and Other Post-Retirement Benefit Plans

The Company sponsors pension and other post-retirement benefit plans that cover certain hourly and salaried employees in the United States and United Kingdom. The Company’s policy is to make annual contributions to the plans to fund the normal cost as required by local regulations. In addition, the Company has a post-retirement benefit plan for certain U.S. operations, retirees and their dependents.

The components of net periodic benefit cost related to the pension and other post-retirement benefit plans for the three months ending March 31, is as follows (in thousands):

																		Other Post-Retirement
		U.S. Pension Plans								Non U.S. Pension Plans								Benefit Plans
		Three Months Ended								Three Months Ended								Three Months Ended
		March 31,								March 31,								March 31,
		2007				2006				2007				2006				2007				2006
Service cost		$	125			$	282			$	—			$	205			$	6			$	30
Interest cost			440				415				586				507				34				52
Expected return on plan assets			(381	)			(415	)			(557	)			(462	)			—				—
Amortization of prior service costs			—				—				—				5				—				—
Recognized actuarial loss			55				23				47				113				96				93
Curtailment gain			—				(1,449	)			—				—				—				—
Net periodic benefit cost		$	239			$	(1,144	)		$	76			$	368			$	136			$	175

The Company previously disclosed in its financial statements for the year ended December 31, 2006, that it expected to contribute approximately $2.7 million to its pension plans in 2007. As of March 31, 2007, approximately $0.2 million of contributions have been made to its pension plans. The Company anticipates contributing an additional $2.6 million to its pension plans in 2007 for total estimated contributions during 2007 of $2.8 million.

12. Related Party Transactions

On January 31, 2005, the Company entered into an advisory agreement with Hidden Creek Partners, LLC (“HCP”), pursuant to which HCP agreed to assist the Company in financing activities, strategic initiatives and acquisitions in exchange for an annual fee. In addition, the Company agreed to pay HCP a transaction fee for services rendered that relate to transactions the Company may enter into from time to time, in an amount that is negotiated between the Company’s Chief Executive Officer or Chief Financial Officer and approved by the Company’s Board of Directors. All of the principals of HCP are employees and managing directors of Thayer Capital. Scott Rued, the Company’s Chairman, is a managing partner of Thayer Capital and Richard Snell, a member of the Company’s Board of Directors and its Compensation Committee Chairman, is an operating partner of Thayer Capital. Thayer Capital, Scott Rued or Richard Snell are not a party to, and have no direct or indirect financial interest in the advisory agreement between the Company and HCP. For the three months ended March 31, 2007 and 2006, the Company made payments under these arrangements of approximately $0.2 million and $0.1 million, respectively.

13. Consolidating Guarantor and Non-Guarantor Financial Information

The following consolidating financial information presents balance sheets, statements of operations and cash flow information related to the Company’s business. Each Guarantor, as defined, is a direct or indirect wholly owned subsidiary of the Company and has fully and unconditionally guaranteed the Subordinated Notes issued by the Company, on a joint and several basis. Separate financial statements and other disclosures concerning the Guarantors have not been presented because management believes that such information is not material to investors.

The Parent Company includes all of the wholly owned subsidiaries accounted for under the equity method. The guarantor and non-guarantor companies include the consolidated financial results of their wholly owned subsidiaries accounted for under the equity method. All applicable corporate expenses have been allocated appropriately among the guarantor and non-guarantor subsidiaries.

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2007

		Parent				Guarantor				Non-Guarantor
		Company				Companies				Companies				Elimination				Consolidated
		(Unaudited)
		(In thousands)
REVENUES		$	—			$	158,399			$	41,880			$	(1,478	)		$	198,801
COST OF REVENUES			—				138,416				35,300				(1,184	)			172,532
Gross Profit			—				19,983				6,580				(294	)			26,269
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			—				11,963				3,876				(285	)			15,554
AMORTIZATION EXPENSE			—				103				—				—				103
Operating Income			—				7,917				2,704				(9	)			10,612
OTHER EXPENSE			—				69				2,251				—				2,320
INTEREST EXPENSE			—				3,356				281				—				3,637
Income Before Provision for Income Taxes			—				4,492				172				(9	)			4,655
PROVISION FOR INCOME TAXES			—				1,827				(131	)			—				1,696
NET INCOME		$	—			$	2,665			$	303			$	(9	)		$	2,959

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2007

		Parent				Guarantor				Non-Guarantor
		Company				Companies				Companies				Elimination				Consolidated
		(Unaudited)
		(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	—			$	14,907			$	1,796			$	—			$	16,703
Accounts receivable, net			—				147,857				32,190				(62,586	)			117,461
Inventories, net			—				67,298				23,823				(233	)			90,888
Prepaid expenses and other current assets			—				8,334				5,803				3,767				17,904
Deferred income taxes			—				13,383				(1,940	)			(1,871	)			9,572
Total current assets			—				251,779				61,672				(60,923	)			252,528
PROPERTY, PLANT AND EQUIPMENT, net			—				81,288				8,518				—				89,806
INVESTMENT IN SUBSIDIARIES			404,945				10,602				11,997				(427,544	)			—
GOODWILL			—				104,033				30,841				—				134,874
INTANGIBLE ASSETS, net			—				84,092				—				—				84,092
OTHER ASSETS, net			—				17,062				9,671				(11,986	)			14,747
TOTAL ASSETS		$	404,945			$	548,856			$	122,699			$	(500,453	)		$	576,047
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt		$	—			$	2,259			$	—			$	—			$	2,259
Accounts payable			—				117,813				21,799				(62,586	)			77,026
Accrued liabilities			—				27,819				2,889				1,896				32,604
Total current liabilities			—				147,891				24,688				(60,690	)			111,889
LONG-TERM DEBT, net of current maturities			—				148,025				10,846				—				158,871
DEFERRED TAX LIABILITIES			—				23,374				(816	)			(11,986	)			10,572
PENSION AND OTHER POST-RETIREMENT BENEFITS			—				12,383				10,098				—				22,481
OTHER LONG-TERM LIABILITIES			—				3,216				22				—				3,238
Total liabilities			—				334,889				44,838				(72,676	)			307,051
STOCKHOLDERS’ INVESTMENT			404,945				213,970				77,858				(427,777	)			268,996
TOTAL LIABILITIES AND STOCKHOLDERS’ INVESTMENT		$	404,945			$	548,859			$	122,696			$	(500,453	)		$	576,047

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2007

		Parent				Guarantor				Non-Guarantor
		Company				Companies				Companies				Elimination				Consolidated
		(Unaudited)
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	—			$	2,665			$	303			$	(9	)		$	2,959
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			—				3,135				594				—				3,729
Noncash amortization of debt financing costs			—				208				8				—				216
Stock-based compensation expense			—				846				—				—				846
Loss (gain) on sale of assets			—				63				(2	)			—				61
Deferred income tax provision			—				(42	)			(750	)			—				(792	)
Noncash gain on forward exchange contracts			—				—				2,247				—				2,247
Change in other operating items			—				(7,874	)			(557	)			8				(8,423	)
Net cash (used in) provided by operating activities			—				(999	)			1,843				(1	)			843
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment			—				(2,456	)			(642	)			—				(3,098	)
Proceeds from disposal/sale of property, plant and equipment			—				—				24				—				24
Other asset and liabilities			—				(29	)			(1	)			1				(29	)
Net cash (used in) provided by investing activities			—				(2,485	)			(619	)			1				(3,103	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under equity incentive plans			—				114				—				—				114
Excess tax benefits from equity incentive plans			—				39				—				—				39
Repayment of revolving credit facility			—				(46,500	)			(4,909	)			—				(51,409	)
Borrowings under revolving credit facility			—				46,500				4,418				—				50,918
Repayments of long-term debt			—				—				(467	)			—				(467	)
Other, net			—				(30	)			(2	)			—				(32	)
Net cash provided by (used in) financing activities			—				123				(960	)			—				(837	)
EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			—				—				(21	)			—				(21	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			—				(3,361	)			243				—				(3,118	)
CASH AND CASH EQUIVALENTS:
Beginning of period			—				18,268				1,553				—				19,821
End of period		$	—			$	14,907			$	1,796			$	—			$	16,703

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2006

		Parent				Guarantor				Non-Guarantor
		Company				Companies				Companies				Elimination				Consolidated
		(Unaudited)
		(In thousands)
REVENUES		$	—			$	197,470			$	33,357			$	(1,482	)		$	229,345
COST OF SALES			—				164,249				27,734				(1,372	)			190,611
Gross Profit			—				33,221				5,623				(110	)			38,734
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			—				9,882				3,374				(104	)			13,152
AMORTIZATION EXPENSE			—				105				—				—				105
Operating Income			—				23,234				2,249				(6	)			25,477
OTHER INCOME			—				(8	)			238				—				230
INTEREST EXPENSE			—				3,617				273				—				3,890
Income Before Provision for Income Taxes			—				19,625				1,738				(6	)			21,357
PROVISION FOR INCOME TAXES			—				7,355				594				—				7,949
NET INCOME		$	—			$	12,270			$	1,144			$	(6	)		$	13,408

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2006

		Parent				Guarantor				Non-Guarantor
		Company				Companies				Companies				Elimination				Consolidated
		(Unaudited)
		(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	—			$	18,268			$	1,553			$	—			$	19,821
Accounts receivable, net			—				148,244				31,356				(56,129	)			123,471
Inventories, net			—				66,337				22,610				(224	)			88,723
Prepaid expenses			—				6,984				5,819				11,469				24,272
Deferred income taxes			—				11,570				(2,751	)			—				8,819
Total current assets			—				251,403				58,587				(44,884	)			265,106
PROPERTY, PLANT AND EQUIPMENT, net			—				81,930				8,458				—				90,388
INVESTMENT IN SUBSIDIARIES			400,817				10,602				11,987				(423,406	)			—
GOODWILL			—				104,033				30,733				—				134,766
INTANGIBLE ASSETS, net			—				84,188				—				—				84,188
OTHER ASSETS, net			—				7,761				8,613				—				16,374
DEFERRED INCOME TAXES			—				8,624				3,323				(11,947	)			—
TOTAL ASSETS		$	400,817			$	548,541			$	121,701			$	(480,237	)		$	590,822
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt		$	—			$	2,158			$	—			$	—			$	2,158
Accounts payable			—				123,398				19,341				(56,129	)			86,610
Accrued liabilities			—				25,661				3,840				11,469				40,970
Total current liabilities			—				151,217				23,181				(44,660	)			129,738
LONG-TERM DEBT, net			—				148,156				11,800				—				159,956
DEFERRED TAX LIABILITIES			—				23,374				(816	)			(11,947	)			10,611
OTHER LONG-TERM LIABILITIES			—				15,556				10,056				—				25,612
Total liabilities			—				338,303				44,221				(56,607	)			325,917
STOCKHOLDERS’ INVESTMENT			400,817				210,238				77,480				(423,630	)			264,905
TOTAL LIABILITIES AND STOCKHOLDERS’ INVESTMENT		$	400,817			$	548,541			$	121,701			$	(480,237	)		$	590,822