Commercial Vehicle Group, Inc.

Previous wording

You should read the following discussion and analysis in conjunction with the information set forth in our consolidated financial statements and the notes thereto included in Item 8 in this Annual Report on Form 10-K. Discussion of 2022 results compared to 2021 results to the extent not included in this report can be found in Item 7 of our 2022 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 6, 2023. The statements in this discussion regarding industry outlook, our long-term strategy, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. See “Forward-Looking Information” on page ii of this Annual Report on Form 10-K. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Item 1A - Risk Factors.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Current wording

You should read the following discussion and analysis in conjunction with the information set forth in our consolidated financial statements and the notes thereto included in Item 8 in this Annual Report on Form 10-K. The statements in this discussion regarding industry outlook, our long-term strategy, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. See “Forward-Looking Information” on page ii of this Annual Report on Form 10-K. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Item 1A - Risk Factors.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Previous wording

CVG is a global provider of systems, assemblies and components to the global commercial vehicle market, the electric vehicle market, and the industrial automation markets. We deliver real solutions to complex design, engineering and manufacturing problems while creating positive change for our customers, industries, and communities we serve.

Current wording

CVG is a global provider of systems, assemblies and components to the global commercial vehicle market, and the electric vehicle markets. We deliver real solutions to complex design, engineering and manufacturing problems while creating positive change for our customers, industries, and communities we serve.

Previous wording

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.

Current wording

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 and agriculture vehicle OEMs, parts and service dealers and distributors.

Previous wording

North American heavy-duty truck production was 340,140 units in 2023. According to a February 2024 report by ACT Research, a publisher of industry market research, North American Class 8 production levels are expected to decrease to 285,000 units in 2024. ACT Research estimated that the average age of active North American Class 8 trucks was 5.7 years in 2023. As vehicles age, maintenance costs typically increase. ACT Research forecasts that the vehicle age will decline as aging fleets are replaced.

Current wording

North American heavy-duty truck production was 332,382 units in 2024. According to a February 2025 report by ACT Research, a publisher of industry market research, North American Class 8 production levels are expected to decrease to 316,000 units in 2025. ACT Research estimated that the average age of active North American Class 8 trucks was 5.8 years in 2024. As vehicles age, maintenance costs typically increase. ACT Research forecasts that the vehicle age will decline as aging fleets are replaced.

Previous wording

North American medium-duty (or "Class 5-7") truck production was 266,784 units in 2023. According to a February 2024 report by ACT Research, North American Class 5-7 truck production is expected to decrease to 237,000 units in 2024. We primarily participate in the class 6 and 7 portion of the medium-duty truck market.

Current wording

North American medium-duty (or "Class 5-7") truck production was 274,135 units in 2024. According to a February 2025 report by ACT Research, North American Class 5-7 truck production is expected to decrease to 226,000 units in 2025. We primarily participate in the class 6 and 7 portion of the medium-duty truck market.

Previous wording

Demand for our Electrical Systems products, such as wire harnesses, is primarily driven by construction equipment vehicle production. Demand for new vehicles in the global construction 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 weighing over 12 metric tons). Demand in the medium- and heavy-duty construction equipment market is typically related to the level of large scale infrastructure development projects, such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and commodities industries.

Current wording

Demand for our Electrical Systems products, such as wire harnesses, is primarily driven by constructionand agriculture equipment vehicle production. Demand for new vehicles in the global constructionand agriculture equipment market generally follows certain economic conditions around the world. Our products are primarily used in the medium- and heavy-duty constructionand agriculture equipment market (vehicles weighing over 12 metric tons). Demand in the medium- and heavy- duty constructionand agriculture equipment market is typically related to the level of large scale infrastructure development projects, such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and commodities industries.

Previous wording

The Company's long-term strategy is to increase our sales, profits and shareholder value by growing our Electrical Systems segment to be our largest business while financially optimizing its core legacy businesses, organically growing in targeted areas, strengthening our product portfolio, increasing our margins and adding to our businesses through a focused M&A program. The Company expects to diversify its revenue and profits by product, customer, platform, and end market with a goal of becoming less cyclical and less customer concentrated while strengthening / enhancing current positions, entering new markets, developing relationships with new customers, and enhancing service to our customers, leading to increased return to our stockholders. Our products include electrical wire harnesses, seating systems, plastic components, cab structures, industrial automation subsystems, mirrors, wipers and other accessories.

Current wording

The Company's long-term strategy is to increase our sales, profits and shareholder value by growing our Electrical Systems segment to be our largest business while financially optimizing its core legacy businesses, organically growing in targeted areas, strengthening our product portfolio, increasing our margins and evaluating opportunities to add to our businesses through a focused M&A program. The Company expects to diversify its revenue and profits by product, customer, platform, and end market with a goal of becoming less cyclical and less customer concentrated while strengthening / enhancing current positions, entering new markets, developing relationships with new customers, and enhancing service to our customers, leading to increased return to our stockholders. Our products include electrical wire harnesses, seating systems, plastic components, mirrors, wipers and other accessories.

Previous wording

In 2021, as part of the Organization for Economic Co-operation and Development's ("OECD") Inclusive Framework, 140 member countries agreed to the implementation of the Pillar Two Global Minimum Tax ("Pillar Two") of 15%. The OECD continues to release additional guidance, including administrative guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two. These changes, when enacted by various countries in which we do business, may increase our taxes in these countries. Changes to these and other areas in relation to international tax reform, including future actions taken by foreign governments in response to Pillar Two, could increase uncertainty and may adversely affect our tax rate and cash flow in future years. We continue to evaluate the potential impact on future periods of Pillar Two, pending legislative adoption by individual countries.

Current wording

In 2021, as part of the Organization for Economic Co-operation and Development's ("OECD") Inclusive Framework, 140 member countries agreed to the implementation of the Pillar Two Global Minimum Tax ("Pillar Two") of 15%. The OECD continues to release additional guidance, including administrative guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two. These changes, when enacted by various countries in which we do business, may increase our taxes in these countries. Changes to these and other areas in relation to international tax reform, including future actions taken by foreign governments in response to Pillar Two, could increase uncertainty and may adversely affect our tax rate and cash flow in future years. We continue to evaluate the potential impacts of Pillar Two through current and pending legislative adoption by individual countries.

Previous wording

•a $55.4 million, or 7.3%, increase in sales to OEM and other revenues;

Current wording

•a $47.6 million, or 7.3%, increase in sales to OEM and other revenues; and

Previous wording

•a $6.6 million, or 4.9%, increase in aftermarket and OES sales; and

Current wording

•a $5.2 million, or 4.0%, increase in aftermarket and OES sales.

Previous wording

Twelve months ended December 31, 2023 revenues were favorably impacted by foreign currency exchange translation of $2.0 million, which is reflected in the change in revenues above. The increase in revenues was primarily driven by increased pricing and increased sales volume from the Electrical Systems business, offset by lower sales volume in the Industrial Automation and Vehicle Solutions segments.

Current wording

The increase in revenues was primarily driven by increased pricing and increased sales volume from the Electrical Systems business, offset by lower sales volume in the Vehicle Solutions segments.

Previous wording

Gross Profit. Included in gross profit is cost of revenues, which consists primarily of raw materials and purchased components for our products, wages and benefits for our employees and overhead expenses such as manufacturing supplies, facility rent and utilities costs related to our operations. The increase in gross profit is primarily attributable to price increases with customers and cost reduction initiatives. Cost of revenues decreased $34.1 million, or 3.8% as a result of a decrease in raw material and purchased component costs of $50.0 million, or 8.4%; an increase in wages and benefits of $4.6 million, or 5.9%; and an increase in overhead expenses of $11.3 million, or 5.0%. As a percentage of revenues, gross profit margin was 13.4% for the year ended December 31, 2023 compared to 8.8% for the year ended December 31, 2022.

Current wording

Gross Profit. Included in gross profit is cost of revenues, which consists primarily of raw materials and purchased components for our products, wages and benefits for our employees and overhead expenses such as manufacturing supplies, facility rent and utilities costs related to our operations. The increase in gross profit is primarily attributable to price increases with customers and cost reduction initiatives. Cost of revenues increased $16.8 million, or 2.4% as a result of an increase in overhead expenses of $16.5 million, or 8.5%; an increase in wages and benefits of $4.2 million, or 6.4%; and offset by a decrease in raw material and purchased component costs of $3.9 million, or 0.9%. As a percentage of revenues, gross profit margin was 14.5% for the year ended December 31, 2023 compared to 10.9% for the year ended December 31, 2022.

Previous wording

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses consist primarily of wages and benefits and other expenses such as marketing, travel, legal, audit, rent and utilities costs, which are not directly or indirectly associated with the manufacturing of our products. SG&A expenses increased $19.3 million in the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to increased employee salaries, incentive compensation, recruitment costs, travel spending and professional services. As a percentage of revenues, SG&A expense was 8.6% for the twelve months ended December 31, 2023 compared to 6.8% for the twelve months ended December 31, 2022.

Current wording

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses consist primarily of wages and benefits and other expenses such as marketing, travel, legal, audit, rent and utilities costs, which are not directly or indirectly associated with the manufacturing of our products. SG&A expenses increased $21.0 million in the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to increased employee salaries, incentive compensation, recruitment costs, travel spending and professional services. As a percentage of revenues, SG&A expense was 9.7% for the twelve months ended December 31, 2023 compared to 7.7% for the twelve months ended December 31, 2022.

Previous wording

Interest Expense. Interest associated with our debt was $10.7 million and $9.8 million for the years ended December 31, 2023 and 2022, respectively. The increase primarily related to higher interest rates on variable rate debt, offset by lower average debt balances during the respective comparative periods.

Current wording

Interest Expense. Interest associated with our debt was $10.2 million and $9.2 million for the years ended December 31, 2023 and 2022, respectively. The increase primarily related to higher interest rates on variable rate debt, offset by lower average debt balances during the respective comparative periods.

Previous wording

Provision (Benefit) for Income Taxes. Income tax benefit of $13.2 million and expense of $20.9 million were recorded for the years ended December 31, 2023 and 2022, respectively. The period over period change in income tax was primarily attributable to the reversal of $22.0 million valuation allowance on our U.S. deferred tax assets during 2023 versus the 2022 establishment of a full valuation allowance on our U.S. deferred tax assets of $24.5 million, offset by the reversal of a $9.9 million valuation allowance on our United Kingdom (U.K.) deferred tax asset.

Current wording

Provision (Benefit) for Income Taxes. Income tax benefit of $15.2 million and expense of $20.9 million were recorded for the years ended December 31, 2023 and 2022, respectively. The period over period change in income tax was primarily attributable to the reversal of $22.0 million valuation allowance on our U.S. deferred tax assets during 2023 versus the 2022 establishment of a full valuation allowance on our U.S. deferred tax assets of $24.5 million, offset by the reversal of a $9.9 million valuation allowance on our United Kingdom (U.K.) deferred tax asset.

Previous wording

Revenues. The increase in 2023 revenues of $7.4 million from 2022 primarily resulted from increased pricing which more than offset lower sales volume.

Current wording

Revenues. The decrease in Vehicle Solutions Segment revenues in 2024 of $65.8 million from 2023 primarily resulted from lower sales volume due to decreased customer demand and the wind-down of certain programs. The decrease in 2023 revenues of $0.4 million from 2022 primarily resulted from increased pricing which more than offset lower sales volume.

Previous wording

Gross Profit. The increase in 2023 gross profit of $22.2 million from 2022 was primarily due to price increases with customers, cost reduction initiatives, and a decrease in cost of revenues driven by a decrease in raw material and purchased component costs of $25.8 million, or 7.1%; offset by an increase in overhead expenses of $7.9 million, or 5.8%; and an increase in wages and benefits of $3.1 million, or 9.1%.

Current wording

Gross Profit. The decrease in 2024 gross profit of $20.1 million from 2023 was primarily due to lower sales volume, restructuring activities and increased freight costs, and a decrease in cost of revenues driven by a decrease in raw material and purchased component costs of $29.0 million, or 11.2%; a decrease in overhead expenses of $12.8 million, or 10.4%; and a decrease in wages and benefits of $3.8 million, or 13.4%. The increase in 2023 gross profit of $16.3 million from 2022 was primarily due to price increases with customers and cost reduction initiatives including lower freight costs, lower startup costs, and improved manufacturing efficiencies..

Previous wording

As a percentage of revenues, gross profit for the years ended December 31, 2023 and 2022, was 11.6% and 7.9%, respectively. The increase in gross profit in 2023 from 2022 was primarily due to price increases with customers and cost reduction initiatives including lower freight costs, lower startup costs, and improved manufacturing efficiencies.

Current wording

As a percentage of revenues, gross profit for the years ended December 31, 2024 and 2023, was 9.7% and 12.6%, respectively. The decrease in gross profit in 2024 from 2023 was primarily due to lower sales volume, restructuring activities and increased freight costs. The twelve months ended December 31, 2024 results include charges of $4.5 million associated with the restructuring program. The increase in gross profit in 2023 from 2022 was primarily due to price increases with customers and cost reduction initiatives including lower freight costs, lower startup costs, and improved manufacturing efficiencies.

Previous wording

Selling, General and Administrative Expenses. The increase in 2023 SG&A expenses of $1.2 million from 2022 was primarily due to an increase in system implementation costs and employee benefit costs including salaries and incentive compensation expenses.

Current wording

Selling, General and Administrative Expenses. The decrease in 2024 SG&A expenses of $4.8 million from 2023 was primarily a result of the gain on the sale of a building of $3.5 million. The twelve months ended December 31, 2024 results include charges of $1.4 million associated with the restructuring program. The increase in 2023 SG&A expenses of $2.6 million from 2022 was primarily due to an increase in system implementation costs and employee benefit costs including salaries and incentive compensation expenses.

Previous wording

Revenues. The increase in 2023 revenues of $48.0 million from 2022 is primarily attributable to sales volume and increased pricing to offset material cost pass-through and other inflationary items.

Current wording

Revenues. The decrease in Electrical Systems segment revenues in 2024 of $38.8 million from 2023 is primarily attributable to lower sales volume driven by global softness in Construction & Agriculture end-markets. The increase in 2023 revenues of $48.0 million from 2022 is primarily attributable to sales volume and increased pricing to offset material cost pass-through and other inflationary items.

Previous wording

Gross Profit. The increase in 2023 gross profit of $11.4 million from 2022 was primarily attributable to volume leverage and increased pricing to offset material cost pass-through and other inflationary items. Cost of revenues increased in line with the sales increase of 26.6%, driven by an increase in raw material and purchased component costs of $19.1 million, or 21.8%; an increase in overhead expenses of $11.8 million, or 28.6%; and an increase in wages and benefits of $5.7 million, or 20.8%.

Current wording

Gross Profit. The decrease in 2024 gross profit of $24.7 million from 2023 was primarily attributable to lower sales volume, restructuring activities, labor inflation and unfavorable foreign exchange impacts. Cost of revenues decreased in line with the revenues, decrease of 17.0%, driven by a decrease in raw material and purchased component costs of $16.6 million, or 15.6%; a decrease in wages and benefits of $4.1 million, or 12.3%; offset by an increase in overhead expenses of $6.6 million, or 12.3%. The increase in 2023 gross profit of $11.4 million from 2022 was primarily attributable to volume leverage and increased pricing to offset material cost pass-through and other inflationary items.

Previous wording

As a percentage of revenues, gross profit for the years ended December 31, 2023 and 2022, was 15.5% and 13.3%, respectively. The increase in 2023 gross profit margin was primarily due to volume leverage and increased pricing, more than offsetting inflationary items.

Current wording

As a percentage of revenues, gross profit for the years ended December 31, 2024 and 2023, was 5.6% and 15.5%, respectively. The decrease in 2024 gross profit margin was primarily due to lower sales volume, restructuring activities, labor inflation, and unfavorable foreign exchange impacts. The twelve months ended December 31, 2024 results include charges of $3.7 million associated with the restructuring program. The increase in 2023 gross profit margin was primarily due to volume leverage and increased pricing, more than offsetting inflationary items.

Previous wording

Selling, General and Administrative Expenses. 2023 SG&A expenses increased $3.3 million from 2022, primarily driven by increased headcount and incentive adjustments based on performance.

Current wording

Selling, General and Administrative Expenses. 2024 SG&A expenses increased $1.1 million from 2023, primarily driven by increased salaries. The increase of $3.3 million in 2023 from 2022, was primarily a result of increased headcount and incentive adjustments based on performance.

Previous wording

Revenues. The increase in 2023 revenues of $6.6 million from 2022 resulted from increased pricing to offset material cost pass-through and other inflationary items.

Current wording

Revenues. The decrease in Aftermarket & Accessories segment revenues in 2024 of $7.5 million from 2023 was driven by lower sales volume due to a decreased customer demand and the reduction of backlog in the prior period. The increase in 2023 revenues of $5.2 million from 2022 resulted from increased pricing to offset material cost pass-through and other inflationary items.

Previous wording

As a percentage of revenues, gross profit for the years ended December 31, 2023 and 2022, was 19.4% and 14.1%, respectively. The increase in 2023 gross profit margin is primarily due to increased pricing offsetting moderating cost inflation and cost reduction initiatives including lower freight costs. The twelve months ended December 31, 2022 results include charges of $1.9 million associated with the restructuring program.

Current wording

As a percentage of revenues, gross profit for the years ended December 31, 2024 and 2023, was 18.0% and 19.3%, respectively. The decrease in 2024 gross profit margin is primarily due to lower sales volume and restructuring related expenses. The twelve months ended December 31, 2024 results include charges of $0.9 million associated with the restructuring program. The increase in 2023 gross profit margin is primarily due to increased pricing offsetting moderating cost inflation and cost reduction initiatives including lower freight costs.

Previous wording

Selling, General and Administrative Expenses. The increase in 2023 SG&A expenses of $1.2 million from 2022, is primarily driven by commissions expense increase and is consistent with the prior year on a percent of sales basis.

Current wording

Selling, General and Administrative Expenses. SG&A expenses increased by $0.2 million in 2024 compared to 2023. The increase in 2023 SG&A expenses of $1.2 million from 2022, is primarily driven by commissions expense increase and is consistent with the prior year on a percent of sales basis.

Previous wording

At December 31, 2023, the Company had no borrowings under its revolving credit facility. At December 31, 2023, the Company had liquidity of $197.9 million, including $37.8 million of cash and $160.1 million availability from its U.S. and China credit facilities.

Current wording

At December 31, 2024, the Company had $50.5 million borrowings under its revolving credit facility. At December 31, 2024, the Company had liquidity of $111.0 million, including $26.6 million of cash and $84.4 million availability from its U.S. and China credit facilities.

Previous wording

We intend to allocate resources consistent with the following priorities: (1) invest in growth; (2) invest in operational improvements; (3) manage working capital; (4) to reduce debt; and (5) other actions deemed appropriate by management to improve operational performance.

Current wording

We intend to allocate resources consistent with the following priorities: (1) invest in growth; (2) invest in operational improvements; (3) manage working capital; (4) reduce debt; and (5) other actions deemed appropriate by management to improve operational performance.

Previous wording

Our primary sources of liquidity during the year ended December 31, 2023 were operating income, cash and availability under our credit facility. We believe that these sources of liquidity will provide adequate funds for our working capital needs, capital expenditures and debt service throughout the next twelve months. However, no assurance can be given that this will be the case. We also rely on the timely collection of receivables as a source of liquidity. As of December 31, 2023, we had outstanding letters of credit of $1.2 million and borrowing availability of $160.1 million from our U.S. and China credit facilities.

Current wording

Our primary sources of liquidity during the year ended December 31, 2024 were proceeds from divestitures, cash and availability under our credit facility. We believe that these sources of liquidity will provide adequate funds for our working capital needs, capital expenditures and debt service throughout the next twelve months. However, no assurance can be given that this will be the case. We also rely on the timely collection of receivables as a source of liquidity. As of December 31, 2024, we had outstanding letters of credit of $1.1 million and borrowing availability of $84.4 million from our U.S. and China credit facilities.

Previous wording

As of December 31, 2023, cash of $37.8 million was held by foreign subsidiaries. The Company had a $0.5 million deferred tax liability as of December 31, 2023 for the expected future income tax implications of repatriating cash from the foreign subsidiaries for which indefinite reinvestment is not expected.

Current wording

As of December 31, 2024, cash of $26.6 million was held by foreign subsidiaries. The Company had a $0.1 million deferred tax liability as of December 31, 2024 for the expected future income tax implications of repatriating cash from the foreign subsidiaries for which indefinite reinvestment is not expected.

Previous wording

Operating activities. For the year ended December 31, 2023, net cash provided by operations was $38.3 million compared to $68.9 million for the year ended December 31, 2022. Net cash provided by operating activities is primarily attributable to an increase in working capital offset by the improved financial results during the year ended December 31, 2023 as compared to the prior year period.

Current wording

Operating activities. For the year ended December 31, 2024, net cash used in operations was $33.5 million compared to net cash provided by operations of $38.3 million for the year ended December 31, 2023. Net cash used in operating activities is primarily attributable to a lower net income from continuing and discontinued operations, including cash used to support restructuring programs for the twelve months ended December 31, 2024 as compared to higher net income offset by an increase in working capital for the twelve months ended December 31, 2023.

Previous wording

Investing activities. Net cash used in investing activities was $19.7 million for the year ended December 31, 2023 and 2022. In 2024, we expect capital expenditures to be in the range of $25 million to $30 million.

Current wording

Investing activities. Net cash provided by investing activities was $30.9 million for the year ended December 31, 2024 compared to net cash used in investing activities of $19.7 million for the twelve months ended December 31, 2023, primarily due to $45.0 million proceeds from sale of the Company's cab structures, Industrial Automation segment and FinishTEK businesses during the current period and $4.5 million proceeds from the sale of a building. In 2025, we expect capital expenditures to be in the range of $15 million to $20 million.

Previous wording

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis, particularly relating to accounts receivable reserves, inventory reserves, goodwill, intangible and long-lived assets, income taxes, warranty reserves, litigation reserves and pension and other post-retirement benefit plans. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ materially from these estimates and assumptions. See Item 1A -Risk Factors in this Annual Report on Form 10-K for additional information regarding risk factors that may impact our estimates.

Current wording

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis, particularly relating to accounts receivable reserves, inventory reserves, intangible and long-lived assets, income taxes, warranty reserves, litigation reserves and pension and other post-retirement benefit plans. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ materially from these estimates and assumptions. See Item 1A -Risk Factors in this Annual Report on Form 10-K for additional information regarding risk factors that may impact our estimates.

Previous wording

Income Taxes — We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax laws and rates expected to be in place when the deferred tax items are realized. We recognize tax positions initially in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. We provide a valuation allowance for deferred tax assets when it is more likely than not that a portion of such deferred tax assets will not be realized.

Current wording

Income Taxes — We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax laws and rates expected to be in place when the deferred tax items are realized. We recognize tax positions initially in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Judgment is required in estimating valuation allowances for deferred tax assets. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law. We provide a valuation allowance for deferred tax assets when it is more likely than not that a portion of such deferred tax assets will not be realized. In our assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, (1) the cumulative three-year income position, (2) the nature, frequency and severity of any current and cumulative losses; (3) forecasts of future profitability; (4) the duration of statutory carryforward periods; (5) our experience with operating loss and tax credit carryforwards not expiring unused, and (6) tax planning alternatives. As of December 31, 2024, the Company was in a cumulative three-year taxable loss position in the U.S. which was given the most weight in our analysis of all positive and negative evidence when determining whether to establish a valuation allowance. As of December 31, 2023, the Company was in a cumulative three-year taxable income position in the U.S. which was given the most weight in our analysis of all positive and negative evidence when determining whether to reverse the previously recognized valuation allowance.