The discussion and analysis below describe material changes in financial
condition and results of operations as reflected in our condensed consolidated
financial statements for the three months ended March 31, 2022 and 2021. 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 2021 Form 10-K.
Business Overview
At CVG, we deliver real solutions to complex design, engineering and
manufacturing problems across a range of global industries by innovating,
constantly adding value, and treating our customer's bottom line as if it were
our own.
We have manufacturing operations in the United States, Mexico, China, United
Kingdom, Belgium, Czech Republic, Ukraine, Thailand, India and Australia. Our
products are primarily sold in North America, Europe, and the Asia-Pacific
region.
We primarily manufacture customized products to meet the requirements of our
customer. We believe our products are used by a majority of the North American
Commercial Truck markets, many construction vehicle OEMs and top e-commerce
retailers.
Key Developments
In the first quarter of 2022, Russian military forces invaded Ukraine. We have
approximately 1,200 employees in the Ukraine located in our facility near L'viv.
While the facility was temporarily shut-down, we have resumed operations in
L'viv and also set up additional capacity in the Czech Republic. During both the
three months ended March 31, 2022 and the twelve months ended December 31, 2021,
our Ukraine facility represented approximately 1% of the Company's long-lived
assets.
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The invasion of Ukraine by Russia and the retaliatory measures taken by the
U.S., NATO and other countries have created global security concerns and
economic uncertainty that could have a lasting impact on regional and global
economies. We cannot be certain that international tensions will not affect our
facility in the Ukraine, including due to the Russian invasion, electrical
outages, cyber-attacks and periodic battles with separatists closer to our
facility. In addition, certain of our employees in Ukraine may be conscripted
into the military and/or sent to fight in the ongoing conflict. Furthermore,
most of our products manufactured in Ukraine are shipped across the border from
Ukraine to the Czech Republic for further delivery to our customers. If that
border crossing were to be closed or restricted for any reason, or if our
customers decide to stop ordering from us or shift orders to our competitors, we
would experience a loss of the use of our Ukrainian facility, which could have
an adverse effect on our results of operations and financial condition.
During the first quarter of 2022, we experienced shutdowns at our plant in
Shanghai, China due to the COVID-19 pandemic. The COVID-19 pandemic has caused
and continues to cause, significant volatility, uncertainty and economic
disruptions to our business. While we continue to operate our facilities, we may
experience production slowdowns and/or shutdowns at our manufacturing facilities
in North America, Europe and Asia Pacific as a result of government orders, our
inability to obtain component parts from suppliers and/or inconsistent customer
demand. In addition, many of our suppliers and customers may experience
production slowdowns and/or shutdowns, which may further impact our business,
sales and results of operation. The extent of the adverse effect of the COVID-19
pandemic on our business results depends on a number of factors beyond our
control.
While backlog continues to be strong in the truck markets, all markets we
operate in were impacted by supply chain constraints which caused volatility on
our customers' production schedules and had a negative impact on our results.
Overall, we continued to experience global supply chain disruptions and
significant inflation, including longer lead-times to procure parts from China
and due to port backups, labor inflation, chip shortages, steel and other raw
material inflation, and freight cost increases. The impact of the pandemic and
related economic recovery continue to be uneven from period to period and across
our global footprint based on local and regional outbreaks. We continue to
proactively monitor, assess and minimize to the extent reasonably possible
disruptions and delays in production due to labor shortages or customer
schedules, focus on cost control and recovery through pricing adjustments, and
take reasonable measures to protect our workforce.
On November 1, 2021, the Company's Board of Directors approved a restructuring
program to align the Company's cost structure to support margin expansion. The
program includes workforce reductions and footprint optimization across
segments. We incurred expenses totaling $1.0 million during the three months
ended March 31, 2022 related to this program and expect the cost to be between
$4.0 million to $6.0 million for the entire program.
On October 25, 2021, the Company provided notice to the Volvo Group ("Volvo") of
the Company's intention to terminate its agreement with Volvo, with such
termination to become effective twelve months from the date of notice, absent
the parties reaching mutually agreeable terms upon which to continue their
relationship. During the first quarter, we continued negotiations with Volvo.
The Company is focused on implementing customer price increases where margin on
product is not meeting profitability targets.
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