Commercial Vehicle Group, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This annual filing also reports fourth-quarter results. CVG supplies electrical wire harnesses, seating and other cab-related products to commercial truck, construction, agricultural, military and other vehicle markets.
Financial performance
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $897.7 million | $755.2 million |
| Gross profit / margin | $128.9 million / 14.4% | $91.7 million / 12.1% |
| Operating income / margin | $66.9 million / 7.4% | $30.9 million / 4.1% |
| Net income (loss) | $44.5 million | ($1.7 million) |
| Diluted EPS | $1.46 | ($0.06) |
| Cash from operations | $41.0 million | $2.3 million |
| Capital expenditures | $14.6 million | $13.6 million |
| Debt, net of financing costs and discount | $163.8 million | $166.9 million |
Revenue grew 18.9%, primarily from higher North American truck production and stronger construction equipment markets. Higher volume lifted gross profit; material inflation and tight labor markets remained cost pressures, partly offset by pricing and cost-recovery actions. Interest expense declined 23.4% to $14.7 million, reflecting lower debt and interest-swap mark-to-market effects. The 2018 tax provision was $9.0 million, versus $15.4 million in 2017; 2017 included $11.2 million of nonrecurring U.S. tax-reform expense, while 2018 included a $4.2 million benefit finalizing the prior-year repatriation-tax estimate.
Fourth-quarter 2018 revenue was $223.6 million, operating income $14.4 million and net income $8.9 million, compared with fourth-quarter 2017 revenue of $188.3 million, operating income of $8.0 million and a net loss of $7.2 million.
Segments and balance sheet
- Electrical Systems: Revenue of $512.8 million, up 18.0%; gross profit of $75.2 million and operating income of $59.0 million.
- Global Seating: Revenue of $397.5 million, up 20.6%; gross profit of $54.2 million and operating income of $31.2 million.
- In the fourth quarter, CVG reorganized reporting into these two product-based segments and recast prior-period segment information.
- Year-end cash was $70.9 million; revolving-credit availability was $63.3 million, for approximately $134 million of total liquidity. Working capital was $182.0 million.
- The $65 million asset-based revolver had no year-end borrowings. The term loan matures in April 2023; its year-end weighted-average interest rate was 8.09%. The company reported compliance with debt covenants.
- Year-end total assets were $418.1 million and stockholders’ equity was $115.0 million. Cash held by foreign subsidiaries was $48.7 million; CVG planned to repatriate approximately $16 million.
Changes, outlook and notable items
- Compared with 2017, North American OEM truck revenue increased $106.4 million (33%), construction equipment revenue increased $24.9 million (15%), and aftermarket revenue increased $17.2 million (14%). Foreign exchange translation added $8.1 million to reported revenue.
- North American Class 8 production rose to 324,000 units in 2018 from 256,000 in 2017. Management expected 2019 Class 8 demand of 330,000–350,000 units and Class 5–7 demand to be stable. These are forecasts, not guarantees.
- Management expected 2019 capital expenditures of $16–$19 million and stated that cash and revolver availability should fund working capital, planned capital spending and debt service for the next 12 months, subject to uncertainty.
- The segment reorganization is intended to focus operations by product and enable synergies, resource sharing and reduced duplication; benefits are prospective and not assured.
- Unusual tax item: CVG finalized its U.S. tax-reform accounting in 2018, recording a $4.2 million tax benefit against the prior-year provisional repatriation-tax charge. Management noted that IRS guidance could still affect tax positions.
- Key risks include the cyclicality of truck and construction markets; customer concentration (the ten largest customers represented about 76% of revenue); commodity and labor-cost inflation; customer pricing pressure; supply-chain disruptions; foreign exchange; tariffs and trade-policy uncertainty; Brexit; and the Mexican border-zone minimum-wage increase effective in 2019.
- Legal proceedings arise in the ordinary course; management did not expect their aggregate outcome to materially affect results, while noting outcomes are uncertain. KPMG issued unqualified opinions on the financial statements and internal control; management also reported effective controls.
Important facts for investors to verify
- Whether higher truck and construction volumes, and the forecast 2019 production levels, translate into sustained revenue and margin growth.
- How effectively pricing and productivity actions offset steel, aluminum, wire and other material inflation, labor costs and Mexico wage increases.
- Debt-service capacity and refinancing exposure, particularly the scheduled 2023 term-loan maturity and variable-rate borrowing costs.
- Execution and measurable results of the two-segment reorganization, including any realized synergies and restructuring costs.
- Customer concentration, order variability and the ability to recover development costs and customer-requested price reductions.
- Realization of deferred tax assets, the planned foreign-cash repatriation and any subsequent effects of tax-law or IRS guidance.