Document
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-34365
 
 
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.)
7800 Walton Parkway
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  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
 
Accelerated filer
x
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The number of shares outstanding of the Registrant’s common stock, par value $.01 per share, at November 3, 2016 was 30,349,107 shares.
 


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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
 
 
 
PART I FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 


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ITEM 1 – FINANCIAL STATEMENTS
COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
September 30, 2016
 
(As Adjusted)
December 31, 2015
 
(Unaudited)
 
(Unaudited)
 
(In thousands, except share and per 
share amounts)
Assets
Current Assets:
 
 
 
Cash
$
137,064

 
$
92,194

Accounts receivable, net of allowances of $4,287 and $4,539, respectively
104,914

 
130,240

Inventories
67,943

 
75,658

Other current assets
8,817

 
10,185

Total current assets
318,738

 
308,277

Property, plant and equipment, net of accumulated depreciation of $137,748 and $134,598, respectively
65,361

 
70,961

Goodwill
7,802

 
7,834

Intangible assets, net of accumulated amortization of $6,772 and $6,858, respectively
15,973

 
16,946

Deferred income taxes
28,496

 
25,253

Other assets, net
2,003

 
4,771

Total assets
$
438,373

 
$
434,042

Liabilities and Stockholders’ Equity
Current Liabilities:
 
 
 
Accounts payable
$
59,049

 
$
66,657

Accrued liabilities
51,187

 
48,196

Total current liabilities
110,236

 
114,853

Long-term debt
232,956

 
232,363

Pension and other post-retirement benefits
16,544

 
17,233

Other long-term liabilities
3,620

 
3,663

Total liabilities
363,356

 
368,112

Stockholders’ Equity:
 
 
 
Preferred stock: $0.01 par value (5,000,000 shares authorized; no shares issued and outstanding)

 

Common stock: $0.01 par value (60,000,000 shares authorized; 29,448,779 shares issued and outstanding)
294

 
294

Treasury stock purchased from employees; 879,404 shares
(7,039
)
 
(7,039
)
Additional paid-in capital
236,622

 
234,760

Retained loss
(113,722
)
 
(122,431
)
Accumulated other comprehensive loss
(41,138
)
 
(39,654
)
Total stockholders’ equity
75,017

 
65,930

Total liabilities and stockholders’ equity
$
438,373

 
$
434,042

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

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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
Three Months Ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(Unaudited)
(In thousands, except per 
share amounts)
 
(Unaudited)
(In thousands, except per 
share amounts)
Revenues
$
153,604

 
$
202,729

 
$
512,147

 
$
640,649

Cost of Revenues
134,685

 
174,839

 
443,192

 
554,178

Gross Profit
18,919

 
27,890

 
68,955

 
86,471

Selling, General and Administrative Expenses
14,126

 
17,614

 
46,502

 
52,739

Amortization Expense
327

 
330

 
978

 
999

Operating Income
4,466

 
9,946

 
21,475

 
32,733

Interest and Other Expense
4,799

 
5,152

 
14,583

 
15,305

(Loss) Income Before Provision for Income Taxes
(333
)
 
4,794

 
6,892

 
17,428

(Benefit) Provision for Income Taxes
(1,480
)
 
2,240

 
461

 
8,076

Net Income
1,147

 
2,554

 
6,431

 
9,352

Less: Non-controlling interest in subsidiary’s income

 

 

 
1

Net Income Attributable to CVG Stockholders
$
1,147

 
$
2,554

 
$
6,431

 
$
9,351

Earnings per Common Share:
 
 
 
 
 
 
 
Basic and Diluted
$
0.04

 
$
0.09

 
$
0.22

 
$
0.32

Weighted Average Shares Outstanding:
 
 
 
 
 
 
 
Basic
29,449

 
29,149

 
29,449

 
29,149

Diluted
30,101

 
29,384

 
29,783

 
29,309

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


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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(In thousands)
 
(In thousands)
Net income
$
1,147

 
$
2,554

 
$
6,431

 
$
9,352

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Foreign currency exchange translation adjustments
621

 
(2,191
)
 
215

 
(5,036
)
Minimum pension liability, net of tax
(665
)
 
126

 
(1,699
)
 
312

Other comprehensive (loss) income
(44
)
 
(2,065
)
 
(1,484
)
 
(4,724
)
Comprehensive income
$
1,103

 
$
489

 
$
4,947

 
$
4,628

Less: Comprehensive income attributed to non-controlling interests

 

 

 
35

Comprehensive income attributable to CVG stockholders
$
1,103

 
$
489

 
$
4,947

 
$
4,593

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


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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
 
Common Stock
 
Treasury
Stock
 
Additional Paid In Capital
 
Retained Deficit
 
Accumulated 
Other Comp. Loss
 
Total CVG Stockholders’ 
Equity
 
Shares
 
Amount
 
 
(Unaudited)
(In thousands)
BALANCE - December 31, 2015
29,449

 
$
294

 
$
(7,039
)
 
$
234,760

 
$
(122,431
)
 
$
(39,654
)
 
$
65,930

Share-based compensation expense

 

 

 
1,862

 

 

 
1,862

Tax impact of share-based compensation (see footnote 2)

 

 

 

 
2,278

 

 
2,278

Total comprehensive (loss) income

 

 

 

 
6,431

 
(1,484
)
 
4,947

BALANCE - September 30, 2016
29,449

 
$
294

 
$
(7,039
)
 
$
236,622

 
$
(113,722
)
 
$
(41,138
)
 
$
75,017

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


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COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Nine months ended September,
 
2016
 
2015
 
(Unaudited)
 
(Unaudited)
 
(In thousands)
Cash Flows from Operating Activities:
 
 
 
Net Income
$
6,431

 
$
9,352

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
12,571

 
13,296

Impairment of equipment held for sale
616

 

Provision for doubtful accounts and bad debt
4,318

 
2,606

Noncash amortization of debt financing costs
630

 
668

Shared-based compensation expense
1,862

 
2,194

Loss on disposal of assets
17

 
191

Deferred income taxes
(563
)
 
7,379

Noncash loss on forward currency exchange contracts
208

 
560

Change in other operating items:
 
 
 
Accounts receivable
20,125

 
(7,321
)
Inventories
7,329

 
2,365

Accounts payable
(6,670
)
 
13,120

Other operating activities, net
3,335

 
7,986

Net cash provided by operating activities
50,209

 
52,396

Cash Flows from Investing Activities:
 
 
 
Purchases of property, plant and equipment
(7,546
)
 
(10,261
)
Proceeds from disposal/sale of property, plant and equipment
55

 
60

Premium payments for life insurance

 
132

Proceeds from settlement of corporate-owned insurance policies
2,489

 

Net cash used in investing activities
(5,002
)
 
(10,069
)
 
 
 
 
Effect of Foreign Currency Exchange Rate Changes on Cash
(337
)
 
(2,269
)
 
 
 
 
Net Increase in Cash
44,870

 
40,058

 
 
 
 
Cash:
 
 
 
Beginning of period
92,194

 
70,091

End of period
$
137,064

 
$
110,149

Supplemental Cash Flow Information:
 
 
 
Cash paid for interest
$
9,396

 
$
9,962

Cash paid for income taxes, net
$
918

 
$
934

Unpaid purchases of property and equipment included in accounts payable
$
157

 
$
777

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


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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. is a Delaware (USA) corporation. We were formed as a privately-held company in August 2000. We became a publicly held company in 2004. The company and its subsidiaries (the “Company” or “CVG”) is a leading supplier of a full range of cab related products and systems for the global commercial vehicle market, including the medium- and heavy-duty truck (“MD/HD Truck”) market, the medium- and heavy-duty construction vehicle market, and the bus, agriculture, military, specialty transportation, mining, industrial equipment and off-road recreational markets.
The Company has manufacturing operations in the United States, Mexico, United Kingdom, Czech Republic, Ukraine, China, India and Australia. Our products are primarily sold in North America, Europe, and the Asia-Pacific region.
Our products include seats and seating systems (“Seats”); trim systems and components (“Trim”); cab structures, sleeper boxes, body panels and structural components; mirrors, wipers and controls; and electronic wire harness and panel assemblies designed for applications primarily in commercial vehicles.
We are differentiated from automotive industry suppliers by our ability to manufacture low volume, differentiated products on a sequenced basis to meet the requirements of our customers. We believe our products are used by a majority of the North American MD/HD Truck and certain leading global construction and agriculture original equipment manufacturers (“OEMs”), which we believe creates an opportunity to cross-sell our products.
We have 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 (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with our fiscal 2015 consolidated financial statements and the notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K as filed with the SEC on March 11, 2016. Unless otherwise indicated, all amounts are in thousands, except share and per share amounts.
SEGMENTS
Operating segments are defined as components of an enterprise that are evaluated regularly by the Company’s chief operating decision maker (“CODM”). The Company’s CODM is its President and Chief Executive Officer. The Company has two reportable segments: the Global Truck and Bus Segment (“GTB Segment”) and the Global Construction and Agriculture Segment (“GCA Segment”). Each of these segments consists of a number of manufacturing facilities. Generally, the facilities in the GTB Segment manufacture and sell Seats, Trim, wipers, mirrors, structures and other products into the MD/HD Truck and bus markets. Generally, the facilities in the GCA Segment manufacture and sell wire harnesses, Seats and other products into the construction and agriculture markets. Both segments participate in the aftermarket. Certain of our facilities manufacture and sell products through both of our segments. Each manufacturing facility that sells products through both segments is reflected in the financial results of the segment that has the greatest amount of sales from that manufacturing facility. Our segments are more specifically described below.
The GTB Segment manufactures and sells the following products:
 
Seats, Trim, sleeper boxes, cab structures, structural components and body panels. These products are sold primarily to the MD/HD Truck markets in North America;
Seats to the truck and bus markets in Asia-Pacific and Europe;
Mirrors and wiper systems to the truck, bus, agriculture, construction, rail and military markets in North America;
Trim to the recreational and specialty vehicle markets in North America; and
Aftermarket seats and components in North America.

The GCA Segment manufactures and sells the following products:
 

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Electronic wire harness assemblies and Seats for construction, agricultural, industrial, automotive, mining and military industries in North America, Europe and Asia Pacific;
Seats to the truck and bus markets in Asia-Pacific and Europe;
Wiper systems to the construction and agriculture markets in Europe;
Office seating in Europe and Asia-Pacific; and
Aftermarket seats and components in Europe and Asia-Pacific.
Corporate expenses consist of certain overhead and shared costs that are not directly attributable to the operations of a segment. For purposes of business segment performance measurement, some of these costs that are for the benefit of the operations are allocated based on a combination of methodologies. The costs that are not allocated to a segment are considered stewardship costs and remain at corporate in our segment reporting.
2. Recently Issued Accounting Pronouncements
Revenue Recognition Guidance
In May 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-12, "Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients." ASU 2016-12 provides additional guidance established by the FASB-IASB Joint Transition Resource Group for Revenue Recognition ("TRG") regarding the implementation of certain aspects of the new revenue recognition guidance. More specifically, the amendment provides additional guidance regarding assessing the collectability criterion, the presentation of sales taxes and other similar taxes collected from customers, noncash consideration, contract modifications or completed contracts at transition of the new revenue recognition guidance and technical corrections.
In April 2016, the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing." ASU 2016-10 provides clarification established by the TRG regarding the implementation of the new revenue recognition guidance specific to identifying performance obligations and licensing activity.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606) - Principal Versus Agent Considerations (Reporting Revenue Gross versus Net)." ASU 2016-08 provides clarification established by the FASB-IASB Joint Transition Resources Group regarding the implementation of the new revenue recognition guidance specific to principal versus agent considerations.
The mandatory adoption date of each of the revenue recognition ASUs referenced above is January 1, 2018, with an early adoption date of January 1, 2017. With respect to each of the revenue recognition guidance above, the Company is in the process of evaluating the effect this guidance will have on our consolidated financial position and results of operations. The amended guidance permits the use of either the retrospective or cumulative effect transition method. We have not selected a transition method nor have we determined the effect of the amended guidance on our ongoing financial reporting. We will not early adopt the new guidance.
Lease Accounting Guidance
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." ASU 2016-02 is intended to increase transparency and comparability among companies by recognizing lease assets and liabilities and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019. The Company is assessing the impact of this pronouncement and anticipates it will impact the presentation of our lease assets and liabilities and associated disclosures by the recognition of lease assets and liabilities that were not included in the balance sheet under existing accounting guidance. The Company is currently determining the total population of lease arrangements and potential embedded lease arrangements that may be impacted by the revised accounting guidance.
Accounting Pronouncements Implemented in the Period
ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting" issued in March 2016, identifies areas for simplification involving several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim periods within. The Company elected to adopt this amended accounting guidance during the third quarter of 2016. The impact resulting from the adoption of this amended guidance is summarized below.

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Forfeitures. The amended accounting guidance allows companies to make a policy election to reflect estimated forfeitures, as consistent with current accounting guidance, or to report forfeitures as they occur. The Company has elected to account for forfeitures as they occur. The amended accounting guidance requires that this change be made through a modified retrospective approach with any change to prior year expense reflected in beginning retained earnings. No impact was recorded to prior period share-based payment expense as the expense already reflected actual forfeiture rates, which were higher than estimated forfeitures. Approximately $0.1 million in additional expense was recorded in the third quarter of 2016 that pertained to estimated forfeitures in the first and second quarters of 2016.
Income Tax Accounting. The amended accounting guidance requires all excess tax benefits and tax deficiencies to be recognized as an income tax benefit or expense on a prospective basis in the period of adoption. As shares vest in the fourth quarter of 2016, the Company will report the excess tax benefits or deficiencies prospectively in the Statement of Income. The Company recognized an adjustment to beginning retained earnings and a deferred tax asset of $2.3 million arising from prior year excess tax benefits not previously recognized.
Statement of Cash Flows Presentation. The amended accounting guidance requires excess tax benefits to be classified as an operating activity in the Statement of Cash Flows. Previously, excess tax benefits were presented as cash inflow from financing activities and cash outflow from operating activities.The Company elected to retrospectively adjust its presentation in the Statement of Cash Flows. The amended accounting guidance also requires cash paid by an employer when shares are directly withheld for tax withholding purposes be classified as a financing activity. The Company will present this retrospectively in the Statement of Cash Flows.
Pursuant to ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs," issued in April 2015, and ASU No. 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements," issued in August 2015, the Company now presents the carrying value of its long-term debt net of associated deferred financing charges, previously presented as a part of other long-term assets. This change in accounting principal was also applied to the 2015 presentation to consistently present debt and associated debt issuance costs in accordance with ASU 2015-03. In order to conform with ASU 2015-03, we reclassified deferred financing fees associated with our long-term debt totaling $2.6 million from other assets to net against long-term debt of $235.0 million at December 31, 2015.

3. Fair Value Measurement
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2 – Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3 – Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
The fair values of our derivative assets and liabilities are categorized as follows: 
 
September 30, 2016
 
December 31, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Derivative assets 1
$

 
$

 
$

 


 
$
36

 
$

 
$
36

 
$

Derivative liabilities 1
$
693

 
$

 
$
693

 
$

 
$
524

 
$

 
$
524

 
$

 1 Based on observable market transactions of spot and forward rates.
Our derivative assets and liabilities represent foreign exchange contracts that are measured at fair value using observable market inputs. Based on these inputs, the derivative assets and liabilities are classified as Level 2.
Our financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities and our revolving credit facility. The carrying value of these instruments approximates fair value as a result of the short duration of such instruments or due to the variability of interest cost associated with such instruments.

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The carrying amounts and fair values of our long-term debt obligations are as follows:
 
September 30, 2016
 
December 31, 2015 (as adjusted)
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Long-term debt, net
$
232,956

 
$
228,879

 
$
232,363

 
$
190,063

The fair value of long-term debt obligations is based on a fair value model utilizing observable inputs. Based on these inputs, our long-term debt is classified as Level 2.
There were no fair value measurements of our long-lived assets and definite-lived intangible assets measured on a non-recurring basis as of September 30, 2016, except for an impairment of $0.6 million recognized in the first quarter of 2016 for an asset held for sale based on the estimated selling price less selling costs of $0.8 million. The impairment was recorded in selling, general and administrative expense in the Statement of Income. The asset is classified as Level 2. There were no fair value measurements of our long-lived assets and definite-lived intangible assets measured on a non-recurring basis as of September 30, 2015.
4. Stockholders’ Equity
Common Stock — Our authorized capital stock consists of 60,000,000 shares of common stock with a par value of $0.01 per share; of which, 29,448,779 shares were issued and outstanding as of September 30, 2016 and December 31, 2015.
Preferred Stock — Our authorized capital stock consists of 5,000,000 shares of preferred stock with a par value of $0.01 per share; no preferred shares were outstanding as of September 30, 2016 and December 31, 2015.
Earnings Per Share — 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. Potential common shares are included in the diluted earnings per share calculation when dilutive. Diluted earnings per share for the three and nine months ended September 30, 2016 and 2015 includes the effects of potential common shares issuable upon the vesting of restricted stock, when dilutive. 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income attributable to common stockholders — basic
and diluted
$
1,147

 
$
2,554

 
6,431

 
$
9,351

Weighted average number of common shares outstanding
29,449

 
29,149

 
29,449

 
29,149

Dilutive effect of restricted stock grants after application
of the treasury stock method
652

 
235

 
334

 
160

Dilutive shares outstanding
30,101

 
29,384

 
29,783

 
29,309

Basic and diluted earnings per share attributable to
common stockholders
$
0.04

 
$
0.09

 
$
0.22

 
$
0.32

Diluted earnings per share does not include 422 thousand antidilutive outstanding restricted stock awards for the nine months ended September 30, 2016. No outstanding restricted stock awards were antidilutive for the three months ended September 30, 2016. Diluted earnings per share for the three and nine months ended September 30, 2015, respectively, did not include 35 thousand and 18 thousand antidilutive outstanding restricted stock awards.
Dividends — We have not declared or paid any cash dividends in the past. The terms of the Second ARLS Agreement (as described below in Note 11) restrict the payment or distribution of our cash or other assets, including cash dividend payments.
5. Share-Based Compensation
Restricted Stock Awards –- Restricted stock awards are 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 of the Board of Directors. A participant granted restricted stock generally has all of the rights of a stockholder, unless the Compensation Committee determines otherwise.

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The following table summarizes information about outstanding restricted stock grants as of September 30, 2016: 
Grant
 
Shares
 
Vesting Schedule
 
Unearned
Compensation
(in millions)
 
Remaining
Periods (in
months)
October 2013
 
470,997

 
3 equal annual installments commencing on October 20, 2014
 
$
0.1

 
1
October 2014
 
506,171

 
3 equal annual installments commencing on October 20, 2015
 
$
0.8

 
13
April 2015
 
27,174

 
3 equal annual installments commencing on October 20, 2015
 
$
0.1

 
13
October 2015
 
595,509

 
3 equal annual installments commencing on October 20, 2016
 
$
1.2

 
25
October 2015
 
138,888

 
fully vested as of October 20, 2016
 
$
0.04

 
1
January/March 2016
 
62,610

 
3 equal annual installments commencing on October 20, 2016
 
$
0.1

 
25
As of September 30, 2016, there was approximately $2.2 million of unearned compensation expense related to non-vested share-based compensation arrangements granted under our equity incentive plans. As noted in footnote 2, we have elected to report forfeitures as they occur as opposed to estimating future forfeitures in our share-based compensation expense. Additional expense was reported in the three months ended September 30, 2016 of $0.1 million for estimated forfeitures that pertained to expense reported in the first and second quarters of 2016. No adjustment was necessary to prior year share-based compensation expense as actual forfeitures exceeded estimated forfeitures in prior years.
The following table summarizes information about the non-vested restricted stock grants:  
 
Nine Months Ended September 30,
 
2016
 
2015
 
Shares
(000’s)
 
Weighted-
Average
Grant-Date
Fair Value
 
Shares
(000’s)
 
Weighted-
Average
Grant-Date
Fair Value
Nonvested at December 31
1,128

 
$
4.24

 
915

 
$
6.96

Granted
63

 
2.49

 
83

 
6.28

Forfeited
(153
)
 
4.29

 
(42
)
 
6.90

Nonvested at September 30
1,038

 
$
4.37

 
956

 
$
6.91

6. Performance Based Awards
Awards, defined as cash, shares or other awards, may be granted to employees under the Commercial Vehicle Group, Inc. 2014 Equity Incentive Plan (the “2014 EIP”). The award is earned and payable based upon the Company’s relative “Total Shareholder Return” in terms of ranking as compared to the “Peer Group” over a three-year period (the “Performance Period”). Total Shareholder Return is determined by the percentage change in value (positive or negative) over the applicable measurement period as measured by dividing (A) the sum of (I) the cumulative value of dividends and other distributions paid on the Common Stock for the applicable measurement period, and (II) the difference (positive or negative) between each such company’s “Starting Stock Price” and “Ending Stock Price,” by (B) the Starting Stock Price. The award is to be paid out at the end of the Performance Period in cash if the employee is employed through the end of the Performance Period. If the employee is not present during the entire Performance Period, the award will be forfeited. These grants are accounted for as cash settlement awards for which the fair value of the award fluctuates based on the change in Total Shareholder Return in relation to the “Peer Group”. Performance awards were granted under the 2014 EIP in November 2015 and 2014, and in November 2013 under the Fourth Amended and Restated Equity Incentive Plan. 
Grant Date
 
Vesting Schedule
 
Grant Amount
 
Forfeitures/ Adjustments
 
Payments
 
Grant Value at September 30, 2016
 
Remaining Periods (in Months) to Vesting
November 2013
 
October 2016
 
$
1,351

 
$
(1,033
)
 
$

 
$
318

 
0
November 2014
 
October 2017
 
2,087

 
(1,061
)
 

 
1,026

 
12
November 2015
 
October 2018
 
1,487

 
(160
)
 
$

 
1,327

 
24
 
 
 
 
$
4,925

 
$
(2,254
)
 
$

 
$
2,671

 
 

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Compensation expense of $0.2 million was recognized for each of the three months ended September 30, 2016 and 2015. Compensation expense of $0.4 million and $0.5 million was recognized for the nine months ended September 30, 2016 and 2015, respectively. Unrecognized compensation expense was $1.2 million and $1.5 million as of September 30, 2016 and 2015, respectively.
7. Accounts Receivable
Trade accounts receivable are stated at current 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 our customers and our historical experience with write-offs. If not reserved through specific identification procedures, our general policy for potentially uncollectible accounts is to reserve at a certain percentage, based upon the aging categories of accounts receivable and our historical experience with write-offs. 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.
8. 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: 
 
September 30, 2016
 
December 31, 2015
Raw materials
$
46,297

 
$
52,647

Work in process
8,222

 
8,776

Finished goods
13,424

 
14,235

 
$
67,943

 
$
75,658

Inventories on-hand are regularly reviewed and, where necessary, provisions for excess and obsolete inventory are recorded based primarily on our estimated production requirements which reflect expected market volumes. Excess and obsolete provisions may vary by product depending upon future potential use of the product.
9. Goodwill and Intangible Assets
Goodwill represents the excess of acquisition purchase price over the fair value of net assets acquired. We review goodwill for impairment annually, initially utilizing a qualitative assessment, in the second fiscal quarter and whenever events or changes in circumstances indicate the carrying value may not be recoverable. Our goodwill is attributable to the GTB Segment. In conducting the qualitative assessment, we consider relevant events and circumstances that may affect the fair value or carrying amount of the reporting unit. Such events and circumstances could include macroeconomic conditions, industry and market considerations, overall financial performance, specific entity and reporting unit events, cost factors and capital markets pricing. We consider the extent to which each of the adverse events and circumstances identified affect the comparison of the reporting unit’s fair value with its carrying amount. We place more weight on the events and circumstances that most affect the reporting unit’s fair value or the carrying amount of its net assets. We consider positive and negative events and circumstances that may affect our determination of whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. These factors are all considered by management in reaching its conclusion about whether to perform the first step of the impairment test. No impairment was recognized as a result of our second quarter 2016 testing.
If the reporting unit’s fair value is determined to be more likely than not impaired based on the one-step qualitative approach, we then perform a quantitative valuation to estimate the fair value of our reporting unit. Implied fair value of goodwill is determined by considering both the income and market approach. 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. We base our fair value estimates on assumptions we believe to be reasonable but that are inherently uncertain.
Our definite-lived intangible assets were comprised of the following: 

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September 30, 2016
 
December 31, 2015
 
Weighted-
Average
Amortization
Period (Years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Definite-lived intangible
assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks/Tradenames
23
 
$
8,440

 
$
(3,121
)
 
$
5,319

 
$
9,460

 
$
(3,914
)
 
$
5,546

Customer relationships
15
 
14,305

 
(3,651
)
 
10,654

 
14,344

 
(2,944
)
 
11,400

 
 
 
$
22,745

 
$
(6,772
)
 
$
15,973

 
$
23,804

 
$
(6,858
)
 
$
16,946

The aggregate intangible asset amortization expense was approximately $0.3 million for the three months ended September 30, 2016 and 2015, and $1.0 million for the nine months ended September 30, 2016 and 2015. The estimated intangible asset amortization expense for the fiscal year ending December 31, 2016 and for each of the five succeeding years is $1.3 million.
The changes in the carrying amounts of goodwill are as follows: 
 
September 30, 2016
 
December 31, 2015
Balance — Beginning
$
7,834

 
$
8,056

Currency translation adjustment
(32
)
 
(222
)
Balance — Ending
$
7,802

 
$
7,834

10. Commitments and Contingencies
Warranty — We are subject to warranty claims for products that fail to perform as expected due to design or manufacturing deficiencies. Customers generally require their outside suppliers to guarantee or warrant their products and bear the cost of repair or replacement of such products. Depending on the terms under which we supply products to our customers, a customer may hold us responsible for some or all of the repair or replacement costs of defective products when the product supplied did not perform as represented. Our policy is to reserve for estimated future customer warranty costs based on historical trends and current economic factors.
The following represents a summary of the warranty provision for the nine months ended September 30, 2016:
 
Balance — December 31, 2015
$
7,580

Provision for new warranty claims
1,390

Change in provision for preexisting warranty claims
362

Deduction for payments made
(3,221
)
Currency translation adjustment
(223
)
Balance — September 30, 2016
$
5,888

Leases — We lease office, warehouse and manufacturing space and certain equipment under non-cancelable operating lease agreements that generally require us to pay maintenance, insurance, taxes and other expenses in addition to annual rental fees. The anticipated future lease costs are based in part on certain assumptions and we monitor these costs to determine if the estimates need to be revised in the future. As of September 30, 2016, our equipment leases did not provide for any material guarantee of a specified portion of residual values.
Litigation — We are subject to various legal proceedings and claims arising in the ordinary course of business, including but not limited to workers' compensation claims, OSHA investigations, employment disputes, service provider disputes, intellectual property disputes, and those arising out of alleged defects, breach of contracts, product warranties and environmental matters.
Management believes that we maintain adequate insurance or we have established reserves for issues that are probable and estimable in amounts that 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 our business will not have a material adverse impact on the consolidated financial position,

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results of operations or cash flows; however, such matters are subject to many uncertainties and the outcomes of individual matters are not predictable with any degree of assurance.
11. Debt and Credit Facilities
Debt consisted of the following: 
 
September 30, 2016
 
December 31, 2015
(as adjusted)
7.875% senior secured notes due April 15, 2019
$
232,956

 
$
232,363


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. Accrued interest was $8.6 million as of September 30, 2016 and $9.1 million as of September 30, 2015.
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 and events of default (subject to certain customary grace periods). We were in compliance with these covenants and were not in default as of September 30, 2016. The Company is entitled at its option to redeem all or a portion of the 7.875% notes at the redemption prices, plus accrued and unpaid interest, if any, to the redemption date, plus a redemption premium if redeemed during the 12-month period commencing on April 15, 2016 at 101.969% and thereafter at 100%
On November 14, 2015, we redeemed $15.0 million of the $250.0 million outstanding 7.875% notes. The redemption price for the 7.875% notes was 103.938% of the principal amount of the 7.875% notes. Upon the partial redemption by the Company of the 7.875% notes, which occurred on November 14, 2015, $235 million of the 7.875% notes remain outstanding. The unamortized deferred financing fees of $2.0 million and $2.6 million are netted against the book value of the outstanding long term debt to arrive at a balance of $233.0 million and $232.4 million as of September 30, 2016 and December 31, 2015, respectively, and are being amortized over the remaining life of the agreement.
Terms, Covenants and Compliance Status
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; restrict 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 September 30, 2016.
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;
breach of covenants or other agreements in the 7.875% Notes Indenture;
defaults in payment of certain other indebtedness;

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certain events of bankruptcy or insolvency; and
certain defaults with respect to the security interests.
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 were not in default under the 7.875% Notes Indenture as of September 30, 2016.
Revolving Credit Facility
On November 15, 2013, the Company and certain of the Company’s subsidiaries, as borrowers (together with the Company, the “borrowers”) entered into a Second Amended and Restated Loan and Security Agreement (as so amended and restated, 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, by and among the Company, the borrowers and Bank of America, N.A., as agent and lender, as amended, governing the Company’s revolving credit facility.
Among other things, the Second ARLS Agreement extended the maturity of the revolving credit facility to November 15, 2018 and amended the applicable margin, as described below. The Second ARLS Agreement included amendments to certain covenants to provide additional flexibility, including amendments to (i) eliminate the aggregate cap on permitted distributions and instead condition such distributions on minimum availability, fixed charge coverage ratio and other requirements, (ii) eliminate the aggregate cap on permitted foreign investments and instead condition such foreign investments on minimum availability, fixed charge coverage ratio and other requirements, (iii) eliminate the aggregate cap on purchase consideration for permitted acquisitions and instead condition such acquisitions on minimum availability, fixed charge coverage ratio and other requirements and (iv) permitting certain sale-leaseback transactions. In addition, the covenant restricting payment of certain debt was amended to permit repurchases of the Company’s 7.875% senior secured notes due 2019 if certain conditions are met. The Second ARLS Agreement also amended the financial covenant to reduce the fixed charge coverage ratio maintenance requirement to 1.0:1.0 and reduced the availability threshold for triggering compliance with the fixed charge coverage ratio, as described below.
The size of the revolving credit facility was unchanged by the Second ARLS Agreement and remains at $40 million, but the borrowers may request an increase in revolver commitments from time to time in an aggregate amount of up to $35 million, as long as the requested increase does not breach any subordinated debt agreement of the borrowers or the indenture governing the Company’s 7.875% senior secured notes due 2019. Availability under the revolving credit facility is subject to borrowing base limitations and an availability block equal to the amount of debt and foreign cash management services Bank of America, N.A. or its affiliates makes available to the Company’s foreign subsidiaries. Up to an aggregate of $10 million is available to the borrowers for the issuance of letters of credit, which reduces availability under the revolving credit facility.
The applicable margin is based on average daily availability under the revolving credit facility as follows:
Level
 
Average Daily Availability
 
Base Rate
Loans
 
LIBOR
Revolver 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 September 30, 2016 and December 31, 2015, we had approximately $0.1 million in deferred fees associated with our revolving credit facility. The deferred fees were being amortized over the remaining life of the agreements.
As of September 30, 2016 and December 31, 2015, we did not have borrowings under the revolving credit facility. We had outstanding letters of credit of approximately $2.5 million and borrowing availability of $37.5 million under the revolving credit facility.
The borrowers’ obligations under the revolving credit facility are secured by a first-priority lien (subject to certain permitted liens) on substantially all of the tangible and intangible assets of the borrowers, 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. Each of CVG and each other borrower is jointly and severally liable for the obligations under the revolving credit facility and unconditionally guarantees the prompt payment and performance thereof.

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Table of Contents

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 due to borrower’s 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. As of September 30, 2016, the applicable margin was set at Level III.
The Company pays a commitment fee to the lenders equal to 0.25% per annum of the unused amounts under the revolving credit facility.
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 revolving credit facility) 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, the borrowers 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 the borrowers have borrowing availability of $7.5 million or greater for 60 consecutive days. Because the Company had borrowing availability in excess of $7.5 million from December 31, 2015 through September 30, 2016, the Company was not required to comply with the minimum fixed charge coverage ratio covenant during the quarter ended September 30, 2016.
The Second ARLS Agreement contains customary restrictive covenants, including, without limitation, limitations on the ability of the borrowers and their subsidiaries to incur additional debt and guarantees; grant liens on assets; pay dividends or make other distributions; make investments or acquisitions; dispose of assets; make payments on certain indebtedness; merge, combine with any other person or liquidate; amend organizational documents; file consolidated tax returns with entities other than other borrowers or their subsidiaries; make material changes in accounting treatment or reporting practices; enter into restrictive agreements; enter into hedging agreements; engage in transactions with affiliates; enter into certain employee benefit plans; amend subordinated debt or the indenture governing the 7.875% senior secured notes due 2019; and other matters customarily restricted in loan agreements. The Second ARLS Agreement also contains customary reporting and other affirmative covenants. The Company was in compliance with these covenants as of September 30, 2016.
The Second ARLS Agreement contains customary events of default, including, without limitation, nonpayment of obligations under the revolving credit facility when due; material inaccuracy of representations and warranties; violation of covenants in the Second ARLS Agreement and certain other documents executed in connection therewith; breach or default of agreements related to debt in excess of $5.0 million that could result in acceleration of that debt; revocation or attempted revocation of guarantees; denial of the validity or enforceability of the loan documents or failure of the loan documents to be in full force and effect; certain judgments in excess of $2.0 million; the inability of an obligor to conduct any material part of its business due to governmental intervention, loss of any material license, permit, lease or agreement necessary to the business; cessation of an obligor’s business for a material period of time; impairment of collateral through condemnation proceedings; certain events of bankruptcy or insolvency; certain Employee Retirement Income Securities Act events; and a change in control of the Company. 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.
As of September 30, 2016, we were in compliance with these covenants and were not in default under the Second ARLS Agreement.
12. Income Taxes
We file federal and state income tax returns in the U.S. and income tax returns in foreign jurisdictions. With a few exceptions, we are no longer subject to income tax examinations by any of the taxing jurisdictions for years before 2012. We currently have two foreign income tax examinations in process.
As of September 30, 2016, we had $0.7 million of unrecognized tax benefits related to federal, state and foreign jurisdictions, all of which impact our effective tax rate, if accrued. The unrecognized tax benefits are netted against their related noncurrent deferred tax assets that are carried forward as net operating losses and tax credits. When appropriate, we accrue penalties and interest related

15

Table of Contents

to unrecognized tax benefits through income tax expense. Included in the unrecognized tax benefits is $0.2 million interest and penalties as of September 30, 2016.
During the nine months ended September 30, 2016, we recognized $0.2 million of tax reserves related to international audits and released less than $0.1 million of tax reserves associated with items falling outside the statute of limitations and the closure of certain tax years for examination purposes. Events could occur within the next twelve months that would have an impact on the amount of unrecognized tax benefits that would require a reserve.
At September 30, 2016, due to cumulative losses and other factors, we continued to carry valuation allowances against the deferred assets primarily in the following foreign jurisdictions: United Kingdom, China, India and Luxembourg. Additionally, we continue to carry valuation allowances related to certain state deferred assets that we believe to be more likely than not to expire before they can be utilized. We evaluate the need for valuation allowances in each of our jurisdictions on a quarterly basis.

During the nine months ended September 30, 2016, the Company adopted ASU 2016-09 (see Footnote 2 - Recently Issued Accounting Pronouncements). The amended accounting guidance requires all excess tax benefits and tax deficiencies related to share-based compensation to be recognized as an income tax benefit or expense. The recognition of excess tax benefits or tax deficiencies in the Statement of Income will be applied prospectively. As shares vest in the fourth quarter, the Company will recognize the net excess tax benefit and tax deficiency in the tax provision of the Statement of Income. Also related to adoption of this accounting guidance, the Company recognized $2.3 million of deferred assets related to prior year excess tax benefits not previously recognized under previous accounting guidance. The standard requires a modified retrospective transition by means of a cumulative effect adjustment to beginning retained earnings. Therefore, $2.3 million credit adjustment was recorded to beginning retained earnings. Accordingly, there is zero current period tax provision impact from this early adoption.

13. Segment Reporting
The following tables present segment revenues, gross profit, depreciation and amortization expense, selling, general and administrative expenses, operating income, capital expenditures and other items for the three and nine months ended September 30, 2016 and 2015: 
 
Three months ended September 30, 2016
 
Global
Truck &
Bus
 
Global
Construction &
Agriculture
 
Corporate/
Other
 
Total
Revenues
 
 
 
 
 
 
 
External Revenues
$
95,728

 
$
57,876

 
$

 
$
153,604

Intersegment Revenues
308

 
1,499

 
(1,807
)
 

Total Revenues
$
96,036

 
$
59,375

 
$
(1,807
)
 
$
153,604

Gross Profit
$
10,765

 
$
8,525

 
$
(371
)
 
$
18,919

Depreciation and Amortization Expense
$
2,215

 
$
1,464

 
$
484

 
$
4,163

Selling, General & Administrative Expenses
$
5,329

 
$
4,588

 
$
4,209

 
$
14,126

Operating Income
$
5,144

 
$
3,901

 
$
(4,579
)
 
$
4,466

Capital and Other Items:
 
 
 
 
 
 
 
Capital Expenditures
$
1,592

 
$
664

 
$
290

 
$
2,546

Other Items 1
$
1,329

 
$
191

 
$

 
$
1,520

 1 Other items include costs associated with plant closures, including employee severance and retention costs, lease cancellation costs, building repairs and costs to transfer equipment.

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Three months ended September 30, 2015
 
Global
Truck &
Bus
 
Global
Construction &
Agriculture
 
Corporate/
Other
 
Total
Revenues
 
 
 
 
 
 
 
External Revenues
$
142,614

 
$
60,115

 
$

 
$
202,729

Intersegment Revenues
274

 
2,397

 
(2,671
)
 

Total Revenues
$
142,888

 
$
62,512

 
$
(2,671
)
 
$
202,729

Gross Profit
$
23,780

 
$
5,968

 
$
(1,858
)
 
$
27,890

Depreciation and Amortization Expense
$
2,242

 
$
1,430

 
$
751

 
$
4,423

Selling, General & Administrative Expenses 
$
7,091

 
$
5,094

 
$
5,429

 
$
17,614

Operating Income
$
16,394

 
$
839

 
$
(7,287
)
 
$
9,946

Capital and Other Items:
 
 
 
 
 
 
 
Capital Expenditures
$
1,979

 
$
662

 
$
732

 
$
3,373

Other Items 1
$
344

 
$

 
$

 
$
344

 1 Other items include costs associated with plant closures, including employee severance and retention costs, lease cancellation costs, building repairs and costs to transfer equipment.
 
Nine months ended September 30, 2016
 
Global
Truck &
Bus
 
Global
Construction &
Agriculture
 
Corporate/
Other
 
Total
Revenues
 
 
 
 
 
 
 
External Revenues
$
323,895

 
$
188,252

 
$

 
$
512,147

Intersegment Revenues
771

 
5,417

 
(6,188
)
 

Total Revenues
$
324,666

 
$
193,669

 
$
(6,188
)
 
$
512,147

Gross Profit
$
43,019

 
$
27,100

 
$
(1,164
)
 
$
68,955

Depreciation and Amortization Expense
$
6,438

 
$
4,321

 
$
1,812

 
$
12,571

Selling, General & Administrative Expenses 
$
17,466

 
$
13,859

 
$
15,177

 
$
46,502

Operating Income
$
24,679

 
$
13,137

 
$
(16,341
)
 
$
21,475

Capital and Other Items:
 
 
 
 
 
 
 
Capital Expenditures
$
4,039

 
$
2,881

 
$
867

 
$
7,787

Other Items 1
$
1,704

 
$
512

 
$
688

 
$
2,904


1 Other items in the GTB and GCA Segments include costs associated with plant closures, including employee severance and retention costs, lease cancellation costs, building repairs and costs to transfer equipment; and in corporate a write down of an asset held for sale and severance costs.
 
Nine months ended September 30, 2015
 
Global
Truck &
Bus
 
Global
Construction &
Agriculture
 
Corporate/
Other
 
Total
Revenues
 
 
 
 
 
 
 
External Revenues
$
437,682

 
$
202,967

 
$

 
$
640,649

Intersegment Revenues
457

 
8,288

 
(8,745
)
 

Total Revenues
$
438,139

 
$
211,255

 
$
(8,745
)
 
$
640,649

Gross Profit
$
68,010

 
$
22,229

 
$
(3,768
)
 
$
86,471

Depreciation and Amortization Expense
$
6,680

 
$
4,435

 
$
2,181

 
$
13,296

Selling, General & Administrative Expenses 
$
21,528

 
$
14,825

 
$
16,386

 
$
52,739

Operating Income
$
45,589

 
$
7,298

 
$
(20,154
)
 
$
32,733

Capital and Other Items:
 
 
 
 
 
 
 
Capital Expenditures
$
5,119

 
$
3,036

 
$
2,883

 
$
11,038

Other Items 1
$
1,486

 
$

 
$

 
$
1,486

 1 Other items include costs associated with plant closures, including employee severance and retention costs, lease cancellation costs, building repairs and costs to transfer equipment.

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14. Foreign Currency Forward Exchange Contracts
We use forward exchange contracts to hedge certain of our foreign currency transaction exposures. We estimate our projected revenues and purchases in certain foreign currencies and locations and may hedge a portion of the anticipated long or short positions. As of September 30, 2016, we did not have any derivatives designated as hedging instruments; therefore, our forward foreign exchange contracts have been marked-to-market and the fair value of contracts recorded in the consolidated balance sheets with the offsetting non-cash gain or loss recorded in cost of revenue in our consolidated Statement of Income. We do not hold or issue foreign exchange options or forward contracts for trading purposes. Our forward foreign exchange contracts are subject to a master netting agreement. We record assets and liabilities relating to our forward foreign exchange contracts on a gross basis in our consolidated Balance Sheet.
The following table summarizes the notional amount of our open foreign exchange contracts: 
 
September 30, 2016
 
December 31, 2015
 
U.S. $
Equivalent
 
U.S.
Equivalent
Fair Value
 
U.S. $
Equivalent
 
U.S.
Equivalent
Fair Value
Commitments to buy or sell currencies
$
22,971

 
$
22,296

 
$
15,490

 
$
15,479

We consider the impact of our credit risk on the fair value of the contracts, as well as our ability to honor obligations under the contract.
The following table summarizes the fair value and presentation in the consolidated Balance Sheet for derivatives, none of which are designated as accounting hedges: 
 
Asset Derivatives
 
September 30, 2016
 
December 31, 2015
 
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Foreign exchange contracts
Other current assets
 
$

 
Other current assets
 
$
36

 
 
Liability Derivatives
 
September 30, 2016
 
December 31, 2015
 
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Foreign exchange contracts
Accrued liabilities
 
$
693

 
Accrued liabilities
 
$
524

The following table summarizes the effect of derivative instruments on the consolidated Statement of Income for derivatives not designated as hedging instruments: 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
 
2016
 
2015
 
2016
 
2015
 
Location of Gain (Loss)
Recognized in Income on
Derivatives
 
Amount of Gain (Loss)
Recognized in Income on
Derivatives
 
Amount of Gain (Loss)
Recognized in Income on
Derivatives
Foreign exchange contracts
Cost of Revenues
 
$
(869
)
 
$
(602
)
 
$
(205
)
 
$
(560
)

15. Other Comprehensive Income (Loss)
The after-tax changes in accumulated other comprehensive income (loss) are as follows: 

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Foreign
currency translation adjustment
 
Pension and
post-retirement
benefits plans
 
Accumulated other
comprehensive
loss
Ending balance, December 31, 2015
$
(21,079
)
 
$
(18,575
)
 
$
(39,654
)
Net current period change
215

 

 
215

Reclassification adjustments for losses reclassified into income

 
(1,699
)
 
(1,699
)
Ending balance, September 30, 2016
$
(20,864
)
 
$
(20,274
)
 
$
(41,138
)

 
Foreign
currency translation adjustment
 
Pension and
post-retirement
benefit plans
 
Accumulated other
comprehensive
loss
Ending balance, December 31, 2014
$
(16,507
)
 
$
(20,781
)
 
$
(37,288
)
Net current period change
(5,036
)
 

 
(5,036
)
Reclassification adjustments for losses reclassified into income

 
312

 
312

Ending balance, September 30, 2015
$
(21,543
)
 
$
(20,469
)
 
$
(42,012
)

The related tax effects allocated to each component of other comprehensive income (loss) are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2016
 
September 30, 2016
 
Before Tax
Amount
 
Tax Expense
 
After Tax Amount
 
Before
Tax
Amount
 
Tax
Expense
 
After Tax
Amount
Retirement benefits adjustment
(893
)
 
228

 
(665
)
 
(2,478
)
 
779

 
(1,699
)
Cumulative translation adjustment
$
621

 
$

 
621

 
215

 

 
215

Total other comprehensive income
$
(272
)
 
$
228

 
$
(44
)
 
$
(2,263
)
 
$
779

 
$
(1,484
)

 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2015
 
Before Tax
Amount
 
Tax Expense
 
After Tax 
Amount
 
Before
Tax
Amount
 
Tax
Expense
 
After Tax
Amount
Retirement benefits adjustment
159

 
(33
)
 
126

 
411

 
(99
)
 
312

Cumulative translation adjustment
(2,191
)
 

 
(2,191
)
 
(5,036
)
 

 
(5,036
)
Total other comprehensive loss
$
(2,032
)
 
$
(33
)
 
$
(2,065
)
 
$
(4,625
)
 
$
(99
)
 
$
(4,724
)
16. Pension and Other Post-Retirement Benefit Plans
We sponsor pension plans that cover certain hourly and salaried employees in the United States and United Kingdom. All of our pension plans are inactive or "frozen" to new employees. Our policy is to make annual contributions to the plans to fund the normal cost as required by local regulations. In addition, we have a post-retirement benefit plan for certain U.S. operations, retirees and their dependents.
The components of net periodic (benefit) cost related to pension and other post-retirement benefit plans is as follows:
 

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U.S. Pension Plans
 
Non-U.S. Pension Plans
 
Other Post-Retirement Benefit Plans
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
32

 
$
29

 
$

 
$

 
$

 
$

Interest cost
469

 
463

 
338

 
372

 
4

 
4

Expected return on plan assets
(678
)
 
(668
)
 
(375
)
 
(403
)
 

 

Amortization of prior service cost

 

 

 

 
2

 
2

Recognized actuarial loss (gain)
107

 
117

 
52

 
69

 
(26
)
 
(30
)
Net (benefit) cost
$
(70
)
 
$
(59
)
 
$
15

 
$
38

 
$
(20
)
 
$
(24
)
 
U.S. Pension Plans
 
Non-U.S. Pension Plans
 
Other Post-Retirement Benefit Plans
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
96

 
$
86

 
$

 
$

 
$

 
$

Interest cost
1,407

 
1,390

 
1,041

 
1,116

 
12

 
13

Expected return on plan assets
(2,034
)
 
(2,005
)
 
(1,156
)
 
(1,209
)
 

 

Amortization of prior service cost

 

 

 

 
6

 
5

Recognized actuarial loss (gain)
321

 
351

 
160

 
209

 
(78
)
 
(90
)
Net (benefit) cost
$
(210
)
 
$
(178
)
 
$
45

 
$
116

 
$
(60
)
 
$
(72
)
We expect to contribute approximately $3.0 million to our pension plans and our other post-retirement benefit plans in 2016. As of September 30, 2016, $2.2 million of contributions have been made to our pension and other post-retirement plans.
17.
Restructuring

Current Restructuring Activity

On November 19, 2015, the Board of Directors of the Company approved adjustments to the Company’s manufacturing footprint and capacity utilization, and reductions to selling, general and administrative costs. We expect the costs associated with restructuring activities to total $8.0 million to $11.0 million, and capital investments to total $2.0 million to $3.0 million. The restructuring and cost reduction actions began in the fourth quarter of 2015 and are expected to continue through 2017. As of September 30, 2016, restructuring costs incurred were $0.8 million in the fourth quarter of 2015 and $2.3 million during the nine months ended September 30, 2016. The following is a summary of some of our key actions:

Edgewood Facility
The closure of our Edgewood, Iowa facility and transfer of production to our Agua Prieta, Mexico facility was announced on December 3, 2015 and was substantially complete as of June 30, 2016.
Piedmont Facility
On May 2, 2016, the Company announced plans to consolidate its North American seat production into two North American facilities and cease seat production in its Piedmont, Alabama facility. The Company will continue to maintain a presence in Piedmont for our Aftermarket distribution channel. We anticipate completing the restructuring plan in the fourth quarter of 2016.
Monona Facility

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On July 19, 2016, the Company announced it will transfer all wire harness production from its manufacturing facility in Monona, Iowa to its facility in Agua Prieta, Mexico. We anticipate the transfer of production from the Monona facility to the Agua Prieta facility to be substantially complete by June 30, 2017.
Shadyside Facility
On July 21, 2016, the Company announced that it will close its Shadyside, Ohio facility that performs assembly and stamping activities. These activities will be transferred to alternative facilities or sourced to local suppliers. We anticipate the closure of the Shadyside facility to be substantially complete by June 30, 2017.
Ongoing Restructuring Expenditures
The table below summarizes the expenditures incurred to date and future expenditures associated with the restructuring activities approved on November 19, 2015:
 
 
Total Project Expense
 
 
 
Current
 
2016 Year
 
Expected
 
 
 
 
 
2015
 
Quarter
 
to Date
 
Future Expense
 
Income Statement
(in millions)
 
Low
High
 
Expense
 
Expense
 
Expense
 
Low
High
 
Classification
Edgewood Wire Harness
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Separation costs
 
$
0.3

$
0.3

 
$
0.1

 

 
$
0.2

 


 
 Cost of revenues
Facility and other costs
 
0.1

0.1

 

 

 
0.1

 


 
 Cost of revenues
Total
 
$
0.4

$
0.4

 
$
0.1

 
$

 
$
0.3

 


 
 
Piedmont Seating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Separation costs
 
$
0.6

$
0.7

 
$
0.1

 
$
0.2

 
$
0.4

 
0.1

$
0.2

 
 Cost of revenues
Facility and other costs
 
0.7

0.8

 

 
0.2

 
0.3

 
0.4

0.5

 
 Cost of revenues
Total
 
$
1.3

$
1.5

 
$
0.1

 
$
0.4

 
$
0.7

 
$
0.5

$
0.7

 
 
Monona Wire Harness
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Separation costs
 
$
0.7

$
0.9

 
$
0.2

 
$
0.2

 
$
0.2

 
$
0.3

$
0.5

 
 Cost of revenues
Facility and other costs
 
0.4

0.6

 

 

 

 
0.4

0.6

 
 Cost of revenues
Total
 
$
1.1

$
1.5

 
$
0.2

 
$
0.2

 
$
0.2

 
$
0.7

$
1.1

 
 
Shadyside Stamping
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Separation costs
 
$
2.2

$
2.4

 
$
0.2

 
$
0.8

 
$
0.8

 
$
1.2

$
1.4

 
 Cost of revenues
Facility and other costs
 
2.2

2.6

 

 
0.1

 
0.1

 
2.1

2.5

 
 Cost of revenues
Total
 
$
4.4

$
5.0

 
$
0.2

 
$
0.9

 
$
0.9

 
$
3.3

$
3.9

 
 
China
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Separation costs
 
$
0.2

$
0.2

 
$
0.2

 

 

 


 
 Cost of revenues
Total
 
$
0.2

$
0.2

 
$
0.2

 

 

 


 
 
Other Restructuring
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Separation costs
 
$
0.2

$
0.7

 

 

 
$
0.1

 
$
0.1

$
0.6

 
 Cost of revenues
Separation costs
 
0.1

0.1

 

 

 
0.1

 


 
 Selling, general and administrative
Facility and other costs
 
0.3

1.6

 

 

 

 
0.3

1.6

 
 Cost of revenues
Total
 
$
0.6

$
2.4

 
$

 
$

 
$
0.2

 
$
0.4

$
2.2

 
 
Total Restructuring
 
$
8.0

$
11.0

 
$
0.8

 
$
1.5

 
$
2.3

 
$
4.9

$
7.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior Years Restructuring Activity
In 2014, management announced the closure and transfer of production from our Tigard, Oregon facility and completed the closure in the third quarter of 2015. The costs associated with the Tigard closure and transfer of production to other facilities, building repairs and other related expenses totaled $1.5 million in the nine months ended September 30, 2015 and are reflected in cost of revenues.

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Restructuring Liability
A summary of the restructuring liability for the nine months ended September 30 is as follows:
 
2016
 
Employee Costs
 
Facility Exit and Other Costs
 
Total
Balance - December 31, 2015
$
542

 
$
43

 
$
585

Provisions
1,721

 
568

 
2,289

Utilizations
(496
)
 
(588
)
 
(1,084
)
Balance - September 30, 2016
$
1,767

 
$
23

 
$
1,790

 
 
 
 
 
 
 
2015
 
Employee Costs
 
Facility Exit and Other Costs
 
Total
Balance - December 31, 2014
$
531

 
$
72

 
$
603

Provisions
37

 
1,450

 
1,487

Utilizations
(568
)
 
(1,522
)
 
(2,090
)
Balance - September 30, 2015
$

 
$

 
$


18. Subsequent Events

On November 15, 2015, Bouchet & Co., a consulting firm, filed a lawsuit against the Company captioned Bouchet & Co. v. Commercial Vehicle Group, Inc., Case Number 1:15-CV-10333 in the United States District Court for the Northern District of Illinois, alleging two causes of actions. First, the plaintiff asserts a breach of contract claim, alleging that the Company breached an agreement signed on October 2, 2014 (the “Agreement”) and refused to pay plaintiff’s fees as set forth in the Agreement. In the breach of contract claim, the plaintiff seeks compensatory damages in the amount of $2.5 million. Second, the plaintiff asserts a promissory fraud cause of action. Under this claim, the plaintiff alleges that the Company committed fraud by promising to pay a fee to the plaintiff that the Company had no intention of paying. In the promissory fraud claim, the plaintiff seeks punitive damages, post judgment interest, and any other costs awarded by the Court. On October 24, 2016, the Court granted plaintiff’s motion for partial summary judgment on the breach of contract claim. Specifically, the Court held that the Company was liable for breach of contract, but reserved the issue of damages for the jury. The Court also denied the plaintiff’s motion for partial summary judgment on the promissory fraud claim, holding that liability on that claim would be a matter for the jury at trial. As of September 30, 2016, the Company has accrued $950 thousand related to this matter. The Company currently does not believe, however, that this proceeding will have a material adverse effect on the Company’s results of operations or financial condition.





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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below describes material changes in financial condition and results of operations for our condensed consolidated financial statements for the three and nine months ended September 30, 2016 and 2015. 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “2015 Form 10-K”).
Company Overview
Commercial Vehicle Group, Inc. (and its subsidiaries) is a leading supplier of a full range of cab related products and systems for the global commercial vehicle market, including the medium-and heavy-duty truck (“MD/HD Truck”) market, the medium-and heavy-construction vehicle market, and the military, bus, agriculture, specialty transportation, mining, industrial equipment and off-road recreational markets.
We have manufacturing operations in the United States, Mexico, United Kingdom, Czech Republic, Ukraine, China, India and Australia. Our products are primarily sold in North America, Europe, and the Asia-Pacific region.
Our products include seats and seating systems (“Seats”); trim systems and components (“Trim”); cab structures, sleeper boxes, body panels and structural components; mirrors, wipers and controls; and electronic wire harness and panel assemblies designed for applications in commercial and other vehicles.
We are differentiated from automotive industry suppliers by our ability to manufacture low volume, differentiated products on a sequenced basis to meet the requirements of our customers. We believe our products are used by a majority of the North American MD/HD Truck and certain leading global construction and agriculture original equipment manufacturers (“OEMs”), creating an opportunity, we believe, to cross-sell our products.
Business Overview
Demand for our heavy-duty (or "Class 8") truck products is generally dependent on the number of new heavy-duty trucks manufactured in North America, which in turn is a function of general economic conditions, interest rates, changes in government regulations, consumer spending, fuel costs, freight costs, fleet operators' financial health and access to capital, used truck prices and our customers’ inventory levels and production rates. New heavy-duty truck demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy, which generates a significant portion of the freight tonnage hauled by commercial vehicles. According to a September 2016 report by ACT Research, a publisher of industry market research, North American Class 8 production levels are expected to decline to 203,000 in 2017 before gradually increasing to 324,000 in 2020. We believe the demand for North American Class 8 vehicles in 2016 will be between 215,000 to 225,000. ACT Research estimates that the average age of active North American Class 8 trucks is 10.6 years in 2015 and 2016, which is consistent with the average age in 2014. As vehicles age, their maintenance costs typically increase. ACT Research forecasts that the vehicle age will decline as aging fleets are replaced.
The North American Class 5-7 truck production steadily increased from 201,000 in 2013 to 237,000 in 2015. According to a September 2016 report by ACT Research, North American Class 5-7 truck production have continued to trend upward in 2016 to 241,000 and is expected to gradually increase to 270,000 in 2020.
For the nine months ended September 30, 2016, approximately 42% of our revenue was generated from sales to North American MD/HD Truck OEMs. Our remaining revenue was primarily derived from sales to OEMs in the global construction equipment market, aftermarket, OE service organizations, military market and other specialty markets. Demand for our products is driven to a significant degree by preferences of the end-user of the vehicle, particularly with respect to heavy-duty trucks. Unlike the automotive industry, 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, brand and type of seats, type of seat fabric and color and specific interior styling. In addition, certain of our products are only utilized in the North American Class 8 market, such as our storage systems, sleeper boxes and privacy curtains. Accordingly, changes in demand for heavy-duty trucks in North America 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 and agricultural equipment products is dependent on the vehicle production and therefore demand for new vehicles in the global construction and agricultural equipment market generally follows certain economic conditions around the world. Our products are primarily used in the medium-and heavy-duty construction equipment markets vehicles

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(weighing over 12 metric tons). Demand in the medium-and heavy-duty 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. We believe there is a bias toward continued softness in global construction and agriculture markets in the fourth quarter of 2016 and into 2017. We anticipate 2017 overall to be relatively flat.
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 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.
Our Long-Term Strategy
Our long-term strategic plan is a roadmap by product, geographic region, and end market to guide resource allocation and other decision making to achieve our long-term goals. To that end, we evaluated our opportunity to grow organically by end market. We currently believe we have approximately 5% market share of the addressable global truck, bus, construction and agriculture end markets. Accordingly, we believe we have significant opportunity to grow organically in our end markets. We evaluated our product portfolio in the context of this organic market growth opportunity and our ability to win in the marketplace. Our core products are Seats, Trim and wire harnesses and our complementary products include structures, wipers, mirrors and office seats. We expect to realize some geographic diversification as we expand our end market. We also expect to realize some end market diversification more weighted toward the agriculture market, and to a lesser extent the construction market. We intend to allocate resources consistent with our strategic plan; and more specifically, consistent with our core and complementary product portfolio, geographic region and end market diversification objectives. We periodically evaluate our long-term strategic plan in response to significant changes in our business environment and other factors.
Although our long-term strategic plan is an organic growth plan, we will consider opportunistic acquisitions to supplement our product portfolio, and to enhance our ability to serve our customers in our geographic end markets.
Strategic Footprint
We review our manufacturing footprint in the normal course to, among other considerations, provide a competitive landed cost to our customers. In November 2015, the Company announced a restructuring and cost reduction plan, which is expected to lower operating costs by $8 million to $12 million annually when fully implemented at the end of 2017. At the time of the November 2015 announcement of facility restructuring actions, the Company estimated pre-tax costs, including capital expenditures, of $12 million to $19 million. This range has been lowered to $10 million to $14 million, including capital expenditures of $2 to $3 million.
Pre-tax expenditures associated with the facility restructuring actions announced in November 2015 were approximately $1 million in the year ended December 31, 2015, approximately $2 million in the nine months ended September 30, 2016 and are expected to be $4 million to $5 million for year ended December 31, 2016 and $3 million to $5 million in 2017. The majority of these costs are employee-related separation costs and other costs associated with the transfer of production and subsequent closure of facilities.

Consolidated Results of Operations

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015
Consolidated Results
 

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Three Months Ended September 30,
 
(in thousands)
 </