COOPER-STANDARD HOLDINGS INC.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
1. Overview
Cooper-Standard Holdings Inc. (together with its consolidated subsidiaries, the “Company” or “Cooper Standard”), through its wholly-owned subsidiary, Cooper-Standard Automotive Inc. (“CSA U.S.”), is a leading manufacturer of sealing, fuel and brake delivery, and fluid transfer and anti-vibration systems. The Company’s products are primarily for use in passenger vehicles and light trucks that are manufactured by global automotive original equipment manufacturers (“OEMs”) and replacement markets. The Company conducts substantially all of its activities through its subsidiaries.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162019 (the “2016“2019 Annual Report”), as filed with the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These financial statements include all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of the Company. The operating results for the interim period ended September 30, 2017March 31, 2020 are not necessarily indicative of results for the full year. In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
On an ongoing basis, the Company evaluates its business and objectives to ensure that it is properly configured and sized based on changing market conditions. Accordingly, the Company has implemented several restructuring initiatives, including closure or consolidation of facilities throughout the world and the reorganization of its operating structure.
The Company’s restructuring charges consist of severance, retention and outplacement services, and severance-related postemployment benefits (collectively, “employee separation costs”), other related exit costs and asset impairments related to restructuring activities.
Restructuring activity for the ninethree months ended September 30, 2017March 31, 2020 was as follows: |
| | | | | | | | | | | |
| Employee Separation Costs | | Other Exit Costs | | Total |
Balance as of December 31, 2019 | $ | 22,990 |
| | $ | 4,005 |
| | $ | 26,995 |
|
Expense | 4,415 |
| | 2,861 |
| | 7,276 |
|
Cash payments | (6,362 | ) | | (3,037 | ) | | (9,399 | ) |
Foreign exchange translation and other | (626 | ) | | (38 | ) | | (664 | ) |
Balance as of March 31, 2020 | $ | 20,417 |
| | $ | 3,791 |
| | $ | 24,208 |
|
|
| | | | | | | | | | | |
| Employee Separation Costs | | Other Exit Costs | | Total |
Balance as of December 31, 2016 | $ | 21,927 |
| | $ | 2,311 |
| | $ | 24,238 |
|
Expense | 14,991 |
| | 13,229 |
| | 28,220 |
|
Cash payments | (22,224 | ) | | (11,811 | ) | | (34,035 | ) |
Foreign exchange translation and other | 1,769 |
| | 450 |
| | 2,219 |
|
Balance as of September 30, 2017 | $ | 16,463 |
| | $ | 4,179 |
| | $ | 20,642 |
|
4.6. Inventories
Inventories consist of the following: |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Finished goods | $ | 54,135 |
| | $ | 57,070 |
|
Work in process | 36,741 |
| | 33,753 |
|
Raw materials and supplies | 77,160 |
| | 52,616 |
|
| $ | 168,036 |
| | $ | 143,439 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Finished goods | $ | 48,596 |
| | $ | 43,511 |
|
Work in process | 39,499 |
| | 32,839 |
|
Raw materials and supplies | 91,375 |
| | 70,099 |
|
| $ | 179,470 |
| | $ | 146,449 |
|
5.7. Leases
The Company primarily has operating and finance leases for certain manufacturing facilities, corporate offices and certain equipment. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities and long-term operating lease liabilities on the Company’s condensed consolidated balance sheet as of March 31, 2020. Finance leases are included in property, plant and equipment, net, debt payable within one year, and long-term debt on the Company’s condensed consolidated balance sheets.
The components of lease expense were as follows: |
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Operating lease expense | $ | 8,605 |
| | $ | 8,680 |
|
Short-term lease expense | 1,010 |
| | 679 |
|
Variable lease expense | 250 |
| | 215 |
|
Finance lease expense: | | | |
Amortization of right-of-use assets | 681 |
| | 443 |
|
Interest on lease liabilities | 385 |
| | 455 |
|
Total lease expense | $ | 10,931 |
| | $ | 10,472 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Other information related to leases was as follows: |
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Supplemental Cash Flows Information | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows for operating leases | $ | 7,933 |
| | $ | 8,656 |
|
Operating cash flows for finance leases | 410 |
| | 323 |
|
Financing cash flows for finance leases | 648 |
| | 267 |
|
Non-cash right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | 37,205 |
| | 164 |
|
Finance leases | 61 |
| | 9,452 |
|
| | | |
Weighted Average Remaining Lease Term (in years) | | | |
Operating leases | 8.2 |
| | 5.5 |
|
Finance leases | 11.1 |
| | 12.0 |
|
| | | |
Weighted Average Discount Rate | | | |
Operating leases | 5.3 | % | | 4.7 | % |
Finance leases | 6.1 | % | | 9.6 | % |
Future minimum lease payments under non-cancellable leases as of March 31, 2020 were as follows: |
| | | | | | | | |
Year | | Operating Leases | | Finance Leases |
Remainder of 2020 | | $ | 21,117 |
| | $ | 2,696 |
|
2021 | | 23,120 |
| | 3,543 |
|
2022 | | 18,019 |
| | 3,301 |
|
2023 | | 15,143 |
| | 3,047 |
|
2024 | | 12,385 |
| | 3,190 |
|
Thereafter | | 56,959 |
| | 23,988 |
|
Total future minimum lease payments | | 146,743 |
| | 39,765 |
|
Less imputed interest | | (31,164 | ) | | (11,059 | ) |
Total | | $ | 115,579 |
| | $ | 28,706 |
|
Amounts recognized on the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 were as follows:
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Operating Leases | | | |
Assets held for sale | $ | 2,782 |
| | $ | — |
|
Operating lease right-of-use assets, net | 113,090 |
| | 83,376 |
|
Current operating lease liabilities | 21,314 |
| | 24,094 |
|
Liabilities held for sale | 3,318 |
| | — |
|
Long-term operating lease liabilities | 90,947 |
| | 60,234 |
|
| | | |
Finance Leases | | | |
Debt payable within one year | 2,284 |
| | 2,343 |
|
Long-term debt | 26,422 |
| | 27,430 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
As of March 31, 2020 and December 31, 2019, assets recorded under finance leases, net of accumulated depreciation were $31,705 and $32,571, respectively. As of March 31, 2020, the Company had additional operating leases, primarily for real estate, that have not yet commenced with undiscounted lease payments of approximately $1,725. These operating leases will commence in 2020 with lease terms up to 10 years.
8. Property, Plant and Equipment
Property, plant and equipment consists of the following: |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Land and improvements | $ | 56,571 |
| | $ | 66,670 |
|
Buildings and improvements | 278,531 |
| | 310,797 |
|
Machinery and equipment | 1,163,390 |
| | 1,204,457 |
|
Construction in progress | 149,995 |
| | 161,951 |
|
| 1,648,487 |
| | 1,743,875 |
|
Accumulated depreciation | (738,976 | ) | | (755,598 | ) |
Property, plant and equipment, net | $ | 909,511 |
| | $ | 988,277 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Land and improvements | $ | 72,737 |
| | $ | 71,002 |
|
Buildings and improvements | 293,257 |
| | 265,824 |
|
Machinery and equipment | 998,643 |
| | 864,337 |
|
Construction in progress | 184,991 |
| | 153,924 |
|
| 1,549,628 |
| | 1,355,087 |
|
Accumulated depreciation | (633,132 | ) | | (522,818 | ) |
Property, plant and equipment, net | $ | 916,496 |
| | $ | 832,269 |
|
Impairment of Long-Lived Assets
Due to the Company’s decision to divest twodeterioration of its inactive European sites,financial results in a certain Asia Pacific location, the Company recorded an impairment chargescharge of $4,270 in$977 during the ninethree months ended September 30, 2017. FairMarch 31, 2020. The fair value was determined basedusing estimated orderly liquidation value, which was deemed the highest and best use of the assets. Based on current real estate market conditions.the Company’s interim impairment assessment, the Company has determined there were no additional indicators of impairment identified during the three months ended March 31, 2020. However, the Company continues to monitor the impacts of COVID-19 on its business and a lack of recovery of production volumes could result in an impairment charge in future periods.
6.9. Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill by reportablereporting unit for the three months ended March 31, 2020 were as follows: |
| | | | | | | | | | | |
| North America | | Industrial Specialty Group | | Total |
Balance as of December 31, 2019 | $ | 142,187 |
| | $ | — |
| | $ | 142,187 |
|
Reorganization | (14,036 | ) | | 14,036 |
| | — |
|
Foreign exchange translation | (317 | ) | | — |
| | (317 | ) |
Balance as of March 31, 2020 | $ | 127,834 |
| | $ | 14,036 |
| | $ | 141,870 |
|
The Company’s organizational structure changed on January 1, 2020. See Note 22. “Segment Reporting” for further detail on this reorganization of the Company’s business. Prior to this reorganization, the Company’s North America operating segment was the only reporting unit in which goodwill was recorded. As a result of the reorganization, a portion of the goodwill that was previously attributable to the North America reporting unit was reallocated to the Industrial Specialty Group reporting unit based on the relative fair value approach. The Industrial Specialty Group reporting unit is a component of the Advanced Technology Group operating segment, which is reflected in “Corporate, eliminations and other”.
The reorganization of the business represented a triggering event to test goodwill for impairment as of January 1, 2020. No impairment was identified as a result of completing the nine months ended September 30, 2017 were as follows:
|
| | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | Total |
Balance as of December 31, 2016 | $ | 121,996 |
| | $ | 10,753 |
| | $ | 34,692 |
| | $ | 167,441 |
|
Acquisition | — |
| | 236 |
| | — |
| | 236 |
|
Foreign exchange translation | 240 |
| | 1,259 |
| | 1,589 |
| | 3,088 |
|
Balance as of September 30, 2017 | $ | 122,236 |
| | $ | 12,248 |
| | $ | 36,281 |
| | $ | 170,765 |
|
goodwill impairment test.Goodwill is tested for impairment by reporting unit annually or more frequently if events or circumstances indicate that an impairment may exist. ThereOther than the reorganization event noted above, there were no other indicators of potential impairment during the ninethree months ended September 30, 2017.March 31, 2020. The Company continues to monitor the significant global economic uncertainty as a result of COVID-19 to assess the outlook for demand for products and the impact on the Company’s business and overall financial performance. A lack of recovery or further deterioration in market conditions and production volumes, among other factors, as a result of the COVID-19 pandemic could result in an impairment charge in future periods.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Intangible Assets
Intangible assets and accumulated amortization balances as of September 30, 2017March 31, 2020 and December 31, 20162019 were as follows:
|
| | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 154,345 |
| | $ | (116,066 | ) | | $ | 38,279 |
|
Other | 43,595 |
| | (7,568 | ) | | 36,027 |
|
Balance as of March 31, 2020 | $ | 197,940 |
| | $ | (123,634 | ) | | $ | 74,306 |
|
| | | | | |
Customer relationships | $ | 156,557 |
| | $ | (113,871 | ) | | $ | 42,686 |
|
Other | 49,556 |
| | (7,873 | ) | | 41,683 |
|
Balance as of December 31, 2019 | $ | 206,113 |
| | $ | (121,744 | ) | | $ | 84,369 |
|
|
| | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 135,680 |
| | $ | (83,044 | ) | | $ | 52,636 |
|
Developed technology | 9,144 |
| | (9,053 | ) | | 91 |
|
Other | 21,863 |
| | (2,530 | ) | | 19,333 |
|
Balance as of September 30, 2017 | $ | 166,687 |
| | $ | (94,627 | ) | | $ | 72,060 |
|
| | | | | |
Customer relationships | $ | 134,918 |
| | $ | (73,088 | ) | | $ | 61,830 |
|
Developed technology | 8,762 |
| | (8,386 | ) | | 376 |
|
Other | 20,965 |
| | (1,808 | ) | | 19,157 |
|
Balance as of December 31, 2016 | $ | 164,645 |
| | $ | (83,282 | ) | | $ | 81,363 |
|
7.10. Debt
A summary of outstanding debt as of September 30, 2017March 31, 2020 and December 31, 2016 was2019 is as follows: |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Senior Notes | $ | 395,293 |
| | $ | 395,114 |
|
Term Loan | 325,455 |
| | 326,061 |
|
ABL Facility | — |
| | — |
|
Finance leases | 28,706 |
| | 29,773 |
|
Other borrowings | 57,821 |
| | 56,680 |
|
Total debt | 807,275 |
| | 807,628 |
|
Less current portion | (62,530 | ) | | (61,449 | ) |
Total long-term debt | $ | 744,745 |
| | $ | 746,179 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Senior Notes | $ | 393,505 |
| | $ | 393,060 |
|
Term Loan | 331,382 |
| | 332,827 |
|
Other borrowings | 30,118 |
| | 37,032 |
|
Total debt | 755,005 |
| | 762,919 |
|
Less current portion | (32,448 | ) | | (33,439 | ) |
Total long-term debt | $ | 722,557 |
| | $ | 729,480 |
|
5.625% Senior Notes due 2026
In November 2016, the Company issued $400,000 aggregate principal amount of its 5.625% Senior Notes due 2026 (the “Senior Notes”). The Senior Notes mature on November 15, 2026.2026. Interest on the Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year, commencing on May 15, 2017.year.
Debt issuance costs related to the Senior Notes are amortized into interest expense over the term of the Senior Notes. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company has $6,495had $4,707 and $6,940$4,886 of unamortized debt issuance costs, respectively, related to the Senior Notes, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheets.
Term Loan Facility
Also in November 2016, the Company entered into Amendment No. 1 to its senior term loan facility (“Term Loan Facility”), which provides for loans in an aggregate principal amount of $340,000. Subject to certain conditions, the Term Loan Facility, without the consent of the then-existing lenders (but subject to the receipt of commitments), may be expanded (or a new term loan or revolving facility added) by an amount that will not cause the consolidated secured net debt ratio to exceed 2.25 to 1.00 plus $400,000 plus any voluntary prepayments, including the senior asset-based revolving credit facility (“ABL Facility”)Facility (as defined below) to the extent commitments are reduced, not funded from proceeds of long-term indebtedness. The Term Loan Facility matures on November 2, 2023, unless earlier terminated.
On May 2, 2017, the Company entered into Amendment No. 2 to the Term Loan Facility to modify the interest rate. Subsequently, on March 6, 2018, the Company entered into Amendment No. 3 to the Term Loan Facility to further modify the interest rate. In accordance with this amendment, borrowings under the Term Loan Facility bear interest, at the Company’s option, at either (1) with respect to Eurodollar rate loans, the greater of the applicable Eurodollar rate and 0.75%, plus 2.25%2.0% per annum, or (2) with respect to base rate loans, the base rate, (which is the highest of the then-currentthen current federal funds rate plus 0.5%, the prime rate most recently announced by the administrative agent under the term loan, and the one-month Eurodollar rate plus 1.0%), plus 1.25%1.0% per annum. As a result of the amendment, the Company recognized a loss on refinancing and extinguishment of
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
debt of $1,020 in the second quarter of 2017, which was due to the partial write off of new and unamortized debt issuance costs and unamortized original issue discount.
As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company had $3,689$2,125 and $4,352$2,273 of unamortized debt issuance costs, respectively, and $2,379$1,370 and $2,821$1,466 of unamortized original issue discount, respectively, related to the Term Loan Facility, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheets. Both the debt issuance costs and the original issue discount are amortized into interest expense over the term of the Term Loan Facility.
ABL Facility
In November 2016, the Company entered into a $210,000 Third Amended and Restated Loan Agreement of its senior asset-based revolving credit facility (“ABL Facility”).
The ABL Facility, provides forwhich provided an aggregate revolving loan availability of up to $210,000, subject to borrowing base availability. In March 2020, the Company entered into the First Amendment of the Third Amended and Restated Loan Agreement (“the Amendment”). As a result of the Amendment, the senior asset-based revolving credit facility (“ABL Facility”) maturity was extended to March 2025 and the aggregate revolving loan availability includingwas reduced to $180,000. The aggregate revolving loan availability includes a $100,000 letter of credit sub-facility and a $25,000 swing line sub-facility. The ABL Facility also provides for an uncommitted $100,000 incremental loan facility, for a potential total ABL Facility of $310,000,$280,000, if requested by the borrowers under the ABL Facility and the lenders agree to fund such increase. No consent of any lender is required to effect any such increase, except for those participating in the increase.
As of September 30, 2017,March 31, 2020, there were no borrowingsloans outstanding under the ABL Facility, and subject toFacility. The Company’s borrowing base availability,was $173,278. Net of the Company had $197,074 in availability, less10% of the borrowing base that cannot be borrowed without triggering the fixed charge coverage ratio maintenance covenant and $10,289 of outstanding letters of credit, of $8,542.the Company effectively had $145,661 available for borrowing under its ABL facility.
Any borrowings under ourthe ABL Facility will mature, and the commitments of the lenders under ourthe ABL Facility will terminate, on November 2, 2021.the earlier of March 24, 2025 or the date 91 days prior to the maturity date of the Term Loan Facility (or another fixed asset facility replacing the Term Loan Facility).
As a result of September 30, 2017the Amendment, the Company wrote off $177 in unamortized debt issuance costs, which are presented in interest expense, net of interest income in the condensed consolidated statements of operations. As of March 31, 2020 and December 31, 2016,2019, the Company had $1,440$1,352 and $1,706,$657, respectively, of unamortized debt issuance costs related to the ABL Facility, which are presented in other assets in the condensed consolidated balance sheets.
Debt Covenants
The Company was in compliance with all covenants of the Senior Notes, Term Loan Facility and ABL Facility as of September 30, 2017.March 31, 2020.
Other
Other borrowings as of March 31, 2020 and December 31, 2019 reflect borrowings under capital leases, local bank lines and accounts receivable factoring sold with recourse classified in debt payable within one year on the condensed consolidated balance sheets.sheet.
8.11. Fair Value Measurements and Financial Instruments
Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy is utilized, which prioritizes the inputs used in measuring fair value as follows:
|
| |
Level 1: | Observable inputs such as quoted prices in active markets; |
Level 2: | Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |
Level 3: | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Items Measured at Fair Value on a Recurring Basis
Estimates of the fair value of foreign currency and interest rate derivative instruments are determined using exchange traded prices and rates. The Company also considers the risk of non-performance in the estimation of fair value and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. In certain instances where market data is not available, the Company uses management judgment to develop assumptions that are used to determine fair value. Fair value measurements and the fair value hierarchy level for the Company’s assets and liabilities measured or disclosed at fair value on a recurring basis as of September 30, 2017March 31, 2020 and December 31, 2016 was2019 were as follows: |
| | | | | | | | | |
| March 31, 2020 | | December 31, 2019 | | Input |
Forward foreign exchange contracts - other current assets | $ | 203 |
| | $ | 467 |
| | Level 2 |
Forward foreign exchange contracts - accrued liabilities | (12,777 | ) | | (42 | ) | | Level 2 |
|
| | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | | Input |
Forward foreign exchange contracts - other current assets | $ | 888 |
| | $ | 764 |
| | Level 2 |
Forward foreign exchange contracts - accrued liabilities | (1,140 | ) | | (535 | ) | | Level 2 |
Interest rate swaps - accrued liabilities | (1,090 | ) | | (2,458 | ) | | Level 2 |
Interest rate swaps - other liabilities | — |
| | (661 | ) | | Level 2 |
Items Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, the Company measures certain assets and liabilities at fair value on a nonrecurring basis, which are not included in the table above. As these nonrecurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy. For further information on assets and liabilities measured at fair value on a nonrecurring basis see Note 2. “Acquisitions,” Note 3. “Restructuring”“Assets Held for Sale and Divestiture” and Note 5.8. “Property, Plant and Equipment.”
Items Not Carried Atat Fair Value
Fair values of the Company’s debt instrumentsSenior Notes and Term Loan Facility were as follows: |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Aggregate fair value | $ | 476,660 |
| | $ | 693,600 |
|
Aggregate carrying value (1) | 728,950 |
| | 729,800 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Aggregate fair value | $ | 746,746 |
| | $ | 735,850 |
|
Aggregate carrying value (1) | 737,450 |
| | 740,000 |
|
(1) Excludes unamortized debt issuance costs and unamortized original issue discount.
Fair values were based on quoted market prices and are classified within Level 1 of the fair value hierarchy.
Derivative Instruments and Hedging Activities
The Company is exposed to fluctuations in foreign currency exchange rates, interest rates and commodity prices. The Company enters into derivative instruments primarily to hedge portions of its forecasted foreign currency denominated cash flows and designates these derivative instruments as cash flow hedges in order to qualify for hedge accounting. Gains or losses on derivative instruments resulting from hedge ineffectiveness are reported in earnings.
The Company formally documents its hedge relationships, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the cash flow hedges. The Company also formally assesses whether a cash flow hedge is highly effective in offsetting changes in the cash flows of the hedged item. Derivatives are recorded at fair value in other current assets, other assets, accrued liabilities and other long-term liabilities. For a cash flow hedge, the effective portion of the change in fair value of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”) in the condensed consolidated balance sheet and reclassified into earnings when the underlying hedged transaction is realized. The realized gains and losses are recorded on the same line as the hedged transaction in the condensed consolidated statements of net income.operations.
The Company is exposed to credit risk in the event of nonperformance by its counterparties on its derivative financial instruments. The Company mitigates this credit risk exposure by entering into agreements directly with major financial institutions with high credit standards that are expected to fully satisfy their obligations under the contracts.
Cash Flow Hedges
Forward Foreign Exchange Contracts— - The Company uses forward contracts to mitigate the potential volatility to earnings and cash flow arising from changes in currency exchange rates that impact the Company’s foreign currency transactions. The principal currencies hedged by the Company include various European currencies, the Canadian Dollar, and the Mexican Peso,Peso. As of March 31, 2020 and December 31, 2019, the notional amount of these contracts was $101,856 and $92,150, respectively, and consisted of hedges of transactions up to December 2020.
Interest rate swaps - The Company has historically used interest rate swap contracts to manage cash flow variability associated with its variable rate Term Loan Facility. The interest rate swap contract, which fixes the interest payments of variable
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
the Brazilian Real. As of September 30, 2017, the notional amount of these contracts was $107,053 and consisted of hedges of transactions up to September 2018.
Interest rate swaps - The Company uses interest rate swap transactions to manage cash flow variability associated with its variable rate Term Loan Facility. The interest rate swap contracts, which fix the interest payments of variable rate debt instruments, areis used to manage exposure to fluctuations in interest rates. As of September 30, 2017, the notional amount of these contracts was $150,000, with maturities through September 2018. The fair market value of all outstandingMarch 31, 2020, there were no interest rate swap contracts is subject to change due to fluctuations in interest rates.outstanding.
Pretax amounts related to the Company’s cash flow hedges that were recognized in AOCIother comprehensive income (loss) (“OCI”) were as follows: |
| | | | | | | |
| Gain (Loss) Recognized in OCI |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Forward foreign exchange contracts | $ | (12,871 | ) | | $ | 1,943 |
|
|
| | | | | | | | | | | | | | | |
| Gain (Loss) Recognized in AOCI |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Forward foreign exchange contracts | $ | (763 | ) | | $ | 854 |
| | $ | 1,860 |
| | $ | (3,384 | ) |
Interest rate swaps | 22 |
| | 131 |
| | (27 | ) | | (2,123 | ) |
Total | $ | (741 | ) | | $ | 985 |
| | $ | 1,833 |
| | $ | (5,507 | ) |
Pretax amounts related to the Company’s cash flow hedges that were reclassified from AOCI were as follows: |
| | | | | | | | | |
| | | Gain (Loss) Reclassified from AOCI to Income |
| | | Three Months Ended March 31, |
| Classification | | 2020 | | 2019 |
Forward foreign exchange contracts | Cost of products sold | | $ | 115 |
| | $ | 325 |
|
|
| | | | | | | | | | | | | | | | | |
| | | Gain (Loss) Reclassified from AOCI to Income (Effective Portion) | | Gain (Loss) Reclassified from AOCI to Income (Ineffective Portion) |
| | | Three Months Ended September 30, |
| Classification | | 2017 | | 2016 | | 2017 | | 2016 |
Forward foreign exchange contracts | Cost of products sold | | $ | 915 |
| | $ | (769 | ) | | $ | — |
| | $ | — |
|
Interest rate swaps | Interest expense, net of interest income | | (570 | ) | | (803 | ) | | 107 |
| | — |
|
Total | | | $ | 345 |
| | $ | (1,572 | ) | | $ | 107 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | |
| | | Gain (Loss) Reclassified from AOCI to Income (Effective Portion) | | Gain (Loss) Reclassified from AOCI to Income (Ineffective Portion) |
| | | Nine Months Ended September 30, |
| Classification
| | 2017 | | 2016 | | 2017 | | 2016 |
Forward foreign exchange contracts | Cost of products sold | | $ | 2,371 |
| | $ | (2,380 | ) | | $ | — |
| | $ | — |
|
Interest rate swaps | Interest expense, net of interest income | | (2,048 | ) | | (2,393 | ) | | 284 |
| | — |
|
Total | | | $ | 323 |
| | $ | (4,773 | ) | | $ | 284 |
| | $ | — |
|
The amount of losses to be reclassified from AOCI into income in the next twelve months related to the interest rate swap is expected to be approximately $1,090.
9.12. Accounts Receivable Factoring
As a part of its working capital management, the Company sells certain receivables through third partya single third-party financial institutions with and without recourse.institution in a pan-European program (the “Factor”). The amount sold varies each month based on the amount of underlying receivables and cash flow needs of the Company. The Company continues to service the receivables. These are permitted transactions under the Company’s credit agreementagreements governing the ABL Facility theand Term Loan Facility and the indenture governing the Senior Notes. The European factoring facility, which was renewed in March 2020, allows the Company to factor up to €120 million of its Euro-denominated accounts receivable, accelerating access to cash and reducing credit risk. The factoring facility expires in December 2023.
Costs incurred on the sale of receivables are recorded in other expense, net and interest expense, net of interest income in the condensed consolidated statements of net income. Receivables sold with recourse areoperations. The sale of receivables under this contract is considered an off-balance sheet arrangement to the Company and is accounted for as secured borrowingsa true sale and are recorded in debt payable within one year, and receivables are pledged equal to the balance of the borrowings. Receivables sold without recourse are accounted for as true sales and areis excluded from accounts receivable in the condensed consolidated balance sheet. Amounts outstanding under receivable transfer agreements entered into by various locations as of the period end were as follows: |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Off-balance sheet arrangements | $ | 102,605 |
| | $ | 103,818 |
|
Accounts receivable factored and related costs throughout the period were as follows: |
| | | | | | | |
| Off-Balance Sheet Arrangements |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Accounts receivable factored | $ | 176,508 |
| | $ | 173,703 |
|
Costs | 309 |
| | 325 |
|
The Company continues to service sold receivables and acts as collection agent for the Factor. As of March 31, 2020 and December 31, 2019, cash collections on behalf of the Factor that have yet to be remitted were $17,377 and $21,485, respectively, and are reflected in cash and cash equivalents in the condensed consolidated balance sheet.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Amounts outstanding under receivable transfer agreements entered into by various locations were as follows:
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Without recourse | $ | 62,594 |
| | $ | 56,936 |
|
With recourse | 5,018 |
| | 5,258 |
|
Accounts receivable factored and related costs were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Without Recourse | | With Recourse |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Accounts receivable factored | $ | 98,244 |
| | $ | 120,220 |
| | $ | 390,354 |
| | $ | 381,190 |
| | $ | 6,326 |
| | $ | 7,550 |
| | $ | 20,432 |
| | $ | 18,078 |
|
Costs | 452 |
| | 391 |
| | 1,517 |
| | 1,286 |
| | 29 |
| | 55 |
| | 74 |
| | 185 |
|
Repurchase of accounts receivable
During the three months ended September 30, 2017, the Company repurchased $12,043 of its accounts receivable in Europe that were previously sold to certain third party financial institutions through receivable purchase agreements. In addition, the Company repurchased $19,378 of its receivables in Europe in October 2017. The repurchases were made as part of the Company’s transition to a pan-European program under a single third party financial institution, which is expected to be completed in the fourth quarter of 2017.
10.13. Pension and Postretirement Benefits Other Than Pensions
The components of net periodic benefit (income) cost for the three and nine months ended September 30, 2017 and 2016 for the Company’s defined benefit plans and other postretirement benefit plans were as follows: |
| | | | | | | | | | | | | | | |
| Pension Benefits |
| Three Months Ended March 31, |
| 2020 | | 2019 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Service cost | $ | 213 |
| | $ | 989 |
| | $ | 189 |
| | $ | 1,111 |
|
Interest cost | 2,033 |
| | 782 |
| | 2,952 |
| | 1,060 |
|
Expected return on plan assets | (3,421 | ) | | (577 | ) | | (4,155 | ) | | (595 | ) |
Amortization of prior service cost and actuarial loss | 485 |
| | 794 |
| | 781 |
| | 616 |
|
Net periodic benefit (income) cost | $ | (690 | ) | | $ | 1,988 |
| | $ | (233 | ) | | $ | 2,192 |
|
| | | Pension Benefits | Other Postretirement Benefits |
| Three Months Ended September 30, | Three Months Ended March 31, |
| 2017 | | 2016 | 2020 | | 2019 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Service cost | $ | 204 |
| | $ | 1,018 |
| | $ | 202 |
| | $ | 861 |
| $ | 26 |
| | $ | 96 |
| | $ | 41 |
| | $ | 117 |
|
Interest cost | 2,925 |
| | 1,140 |
| | 3,145 |
| | 1,267 |
| 170 |
| | 173 |
| | 259 |
| | 203 |
|
Expected return on plan assets | (4,003 | ) | | (694 | ) | | (3,959 | ) | | (788 | ) | |
Amortization of prior service cost and actuarial loss | 468 |
| | 760 |
| | 429 |
| | 555 |
| |
Settlement | — |
| | 5,717 |
| | — |
| | — |
| |
Amortization of prior service credit and actuarial gain | | (483 | ) | | 107 |
| | (742 | ) | | 38 |
|
Net periodic benefit (income) cost | $ | (406 | ) | | $ | 7,941 |
| | $ | (183 | ) | | $ | 1,895 |
| $ | (287 | ) | | $ | 376 |
| | $ | (442 | ) | | $ | 358 |
|
| | | | | | | | |
| Pension Benefits | |
| Nine Months Ended September 30, | |
| 2017 | | 2016 | |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | |
Service cost | $ | 612 |
| | $ | 2,926 |
| | $ | 606 |
| | $ | 2,575 |
| |
Interest cost | 8,775 |
| | 3,268 |
| | 9,435 |
| | 3,805 |
| |
Expected return on plan assets | (12,009 | ) | | (2,001 | ) | | (11,877 | ) | | (2,367 | ) | |
Amortization of prior service cost and actuarial loss | 1,404 |
| | 2,171 |
| | 1,287 |
| | 1,664 |
| |
Settlement | — |
| | 5,717 |
| | — |
| | — |
| |
Net periodic benefit (income) cost | $ | (1,218 | ) | | $ | 12,081 |
| | $ | (549 | ) | | $ | 5,677 |
| |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amountsThe service cost component of net periodic benefit (income) cost is included in thousands except per sharecost of products sold and share amounts)
|
| | | | | | | | | | | | | | | |
| Other Postretirement Benefits |
| Three Months Ended September 30, |
| 2017 | | 2016 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Service cost | $ | 79 |
| | $ | 110 |
| | $ | 90 |
| | $ | 94 |
|
Interest cost | 324 |
| | 179 |
| | 346 |
| | 172 |
|
Amortization of prior service credit and actuarial gain | (479 | ) | | (4 | ) | | (507 | ) | | (16 | ) |
Other | 1 |
| | — |
| | 1 |
| | — |
|
Net periodic benefit (income) cost | $ | (75 | ) | | $ | 285 |
| | $ | (70 | ) | | $ | 250 |
|
| | | | | | | |
| Other Postretirement Benefits |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Service cost | $ | 237 |
| | $ | 316 |
| | $ | 270 |
| | $ | 280 |
|
Interest cost | 972 |
| | 516 |
| | 1,038 |
| | 510 |
|
Amortization of prior service credit and actuarial gain | (1,437 | ) | | (12 | ) | | (1,521 | ) | | (47 | ) |
Other | 3 |
| | — |
| | 3 |
| | — |
|
Net periodic benefit (income) cost | $ | (225 | ) | | $ | 820 |
| | $ | (210 | ) | | $ | 743 |
|
U.K Pension Settlement
During 2016, the Company undertook an initiative to de-risk pension obligations in the U.K. by purchasing a bulk annuity policy designed to match the liabilities of the plan,selling, administrative and subsequently entered into a wind-up process. During the three months ended September 30, 2017, the Company completed the wind-up process, resulting in a non-cash settlement charge of $5,717 and administrative expenses of $185, both of which are recorded in selling, administration & engineering expenses in the condensed consolidated statements of operations. All other components of net income. As a resultperiodic benefit (income) cost are included in other expense, net in the condensed consolidated statements of operations for all periods presented.
In accordance with the settlement,Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Company’s overall projected benefit obligation asCompany will defer making minimum funding cash contributions of December 31, 2016 was reduced by $17,100.
Contributions
The Company made a discretionary contribution of $3,500approximately $3,600 to its U.S. pension plan in the three months ended September 30, 2017.plans until 2021.
11.14. Other Expense, Net
The components of other expense, net were as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Foreign currency losses | $ | (3,232 | ) | | $ | (284 | ) |
Components of net periodic benefit cost other than service cost | (63 | ) | | (417 | ) |
Losses on sales of receivables | (309 | ) | | (325 | ) |
Miscellaneous income | 164 |
| | 230 |
|
Other expense, net | $ | (3,440 | ) | | $ | (796 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Foreign currency losses | $ | (1,455 | ) | | $ | (331 | ) | | $ | (4,033 | ) | | $ | (2,035 | ) |
Secondary offering underwriting fees | — |
| | — |
| | — |
| | (5,900 | ) |
Losses on sales of receivables | (221 | ) | | (207 | ) | | (781 | ) | | (674 | ) |
Miscellaneous income | 1,225 |
| | 20 |
| | 1,539 |
| | 20 |
|
Other expense, net | $ | (451 | ) | | $ | (518 | ) | | $ | (3,275 | ) | | $ | (8,589 | ) |
12.15. Income Taxes
The Company determines its effective tax rate each quarter based upon its estimated annual effective tax rate. The Company records the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year where no tax benefit can be recognized are excluded from the estimated annual effective tax rate.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Income tax (benefit) expense, incomeloss before income taxes and the corresponding effective tax rate for the three and nine months ended September 30, 2017March 31, 2020 and 2016, was2019 were as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Income tax (benefit) expense | $ | (14,117 | ) | | $ | 2,034 |
|
Loss before income taxes | (126,556 | ) | | (3,329 | ) |
Effective tax rate | 11 | % | | (61 | )% |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Income tax expense | $ | 7,838 |
| | $ | 12,525 |
| | $ | 40,258 |
| | $ | 43,312 |
|
Income before income taxes | 33,296 |
| | 49,171 |
| | 149,870 |
| | 151,735 |
|
Effective tax rate | 24 | % | | 25 | % | | 27 | % | | 29 | % |
The effective tax rate for the three and nine months ended September 30, 2017March 31, 2020 compared to the three and nine months ended September 30, 2016March 31, 2019 was lowerhigher primarily due to nonrecurringthe geographic mix of pre-tax losses driven by the impairment charge on held for sale entities and the inability to record a tax benefit for pre-tax losses in certain foreign jurisdictions. Additionally, a discrete items, includingexpense of $13,309 for the impactinitial recognition of participatingvaluation allowances against net deferred tax assets in acertain foreign tax amnesty program,jurisdictions was recorded in the three and nine months ended September 30, 2017.March 31, 2020. In accordance with recent legislation, one of the business tax provisions of the CARES Act included allowing net operating losses (“NOL”) generated by the Company in tax years to be carried back up to five years at the tax rates in effect during those periods, rather than carried forward at current federal tax rates of 21%. The Company has included a benefit in the estimated annual effective tax rate for this CARES Act provision which was used to calculate the income tax benefit recorded in the three months ended March 31, 2020. The income tax rate for the three and nine months ended September 30, 2017March 31, 2020 and 2019 varies from statutory rates primarily due to the impact of income taxes on foreign earnings taxed at rates lower than the U.S. statutory rate primarily due to the inability to record a tax benefit for pre-tax losses in certain foreign jurisdictions to the extent not offset by other categories of income, tax credits, the impact of income tax incentives, excess tax benefits related to share-based compensationtaxes on foreign earnings taxed at rates varying from the U.S. statutory rate, and other permanent items. Further, the Company’s current and future provision for income taxes may beis impacted by the initial recognition of and changes in valuation allowances in certain countries. The Company intends to maintain these valuation allowances until it is more likely than not that the deferred tax assets will be realized.
13.16. Net Income (Loss) Per Share Attributable to Cooper-Standard Holdings Inc.
Basic net incomeloss per share attributable to Cooper-Standard Holdings Inc. was computed by dividing net incomeloss attributable to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding during the period. Diluted net incomeloss per share attributable to Cooper-Standard Holdings Inc. was computed using the treasury stock method by dividing diluted net incomeloss available to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding, including the dilutive effect of common stock equivalents, using the average share price during the period.
Information used to compute basic and diluted net incomeloss per share attributable to Cooper-Standard Holdings Inc. was as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Net loss available to Cooper-Standard Holdings Inc. common stockholders | $ | (110,588 | ) | | $ | (5,415 | ) |
| | | |
Basic weighted average shares of common stock outstanding | 16,883,717 |
| | 17,535,195 |
|
Dilutive effect of common stock equivalents | — |
| | — |
|
Diluted weighted average shares of common stock outstanding | 16,883,717 |
| | 17,535,195 |
|
| | | |
Basic net loss per share attributable to Cooper-Standard Holdings Inc. | $ | (6.55 | ) | | $ | (0.31 | ) |
| | | |
Diluted net loss per share attributable to Cooper-Standard Holdings Inc. | $ | (6.55 | ) | | $ | (0.31 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income attributable to Cooper-Standard Holdings Inc. | $ | 24,640 |
| | $ | 36,362 |
| | $ | 106,802 |
| | $ | 107,874 |
|
Increase in fair value of share-based awards | — |
| | 37 |
| | — |
| | 49 |
|
Diluted net income available to Cooper-Standard Holdings Inc. common stockholders | $ | 24,640 |
| | $ | 36,399 |
| | $ | 106,802 |
| | $ | 107,923 |
|
| | | | | | | |
Basic weighted average shares of common stock outstanding | 17,703,660 |
| | 17,469,156 |
| | 17,769,808 |
| | 17,388,541 |
|
Dilutive effect of common stock equivalents | 976,858 |
| | 1,291,507 |
| | 1,068,479 |
| | 1,315,037 |
|
Diluted weighted average shares of common stock outstanding | 18,680,518 |
| | 18,760,663 |
| | 18,838,287 |
| | 18,703,578 |
|
| | | | | | | |
Basic net income per share attributable to Cooper-Standard Holdings Inc. | $ | 1.39 |
| | $ | 2.08 |
| | $ | 6.01 |
| | $ | 6.20 |
|
| | | | | | | |
Diluted net income per share attributable to Cooper-Standard Holdings Inc. | $ | 1.32 |
| | $ | 1.94 |
| | $ | 5.67 |
| | $ | 5.77 |
|
Approximately 107,000 securities were excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2017, because the inclusion of such securities in the calculation would have been anti-dilutive.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
14.17. Accumulated Other Comprehensive Income (Loss)Loss
Changes in accumulated other comprehensive income (loss)loss by component, for the three and nine months ended September 30, 2017 and 2016, net of related tax, were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
| Cumulative currency translation adjustment | | Benefit plan liabilities | | Fair value change of derivatives | | Total |
Balance as of June 30, 2017 | $ | (119,405 | ) | | $ | (100,340 | ) | | $ | 113 |
| | $ | (219,632 | ) |
Other comprehensive income (loss) before reclassifications | 16,047 |
| (1) | (1,714 | ) | (2) | (619 | ) | (3) | 13,714 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | 5,677 |
| (4) | (347 | ) | (5) | 5,330 |
|
Balance as of September 30, 2017 | $ | (103,358 | ) | | $ | (96,377 | ) | | $ | (853 | ) | | $ | (200,588 | ) |
|
| | | | | | | | |
| Three Months Ended March 31, | |
| 2020 | | 2019 | |
Foreign currency translation adjustment | | | | |
Balance at beginning of period | $ | (153,933 | ) | | $ | (141,104 | ) | |
Other comprehensive income (loss) before reclassifications | (28,382 | ) | (1) | 1,599 |
| (1) |
Balance at end of period | $ | (182,315 | ) | | $ | (139,505 | ) | |
Benefit plan liabilities | | | | |
Balance at beginning of period | $ | (100,160 | ) | | $ | (104,375 | ) | |
Other comprehensive income before reclassifications | 2,024 |
| (2) | 877 |
| (2) |
Amounts reclassified from accumulated other comprehensive loss | 658 |
| (3) | 510 |
| (4) |
Balance at end of period | $ | (97,478 | ) | | $ | (102,988 | ) | |
Fair value change of derivatives | | | | |
Balance at beginning of period | $ | 352 |
| | $ | (458 | ) | |
Other comprehensive income (loss) before reclassifications | (9,984 | ) | (5) | 1,490 |
| (5) |
Amounts reclassified from accumulated other comprehensive loss | (92 | ) | (6) | (237 | ) | (6) |
Balance at end of period | $ | (9,724 | ) | | $ | 795 |
| |
Accumulated other comprehensive loss, ending balance | $ | (289,517 | ) | | $ | (241,698 | ) | |
| |
(1) | Includes $4,314 of other comprehensive income (loss) related to intra-entity foreign currency balances that are of a long-term investment nature. |
| |
(2) | Netnature of tax benefit of $130. |
| |
(3) | Net of tax benefit of $122. See Note 8. |
| |
(4) | Includes losses related to$(22,703) and $2,814 for the U.K. pension settlement of $6,288three months ended March 31, 2020 and actuarial losses of $901, offset by prior service credits of $84, net of tax of $1,428. See Note 10. |
| |
(5) | Net of tax expense of $105. See Note 8. |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| Cumulative currency translation adjustment | | Benefit plan liabilities | | Fair value change of derivatives | | Total |
Balance as of June 30, 2016 | $ | (120,780 | ) | | $ | (84,595 | ) | | $ | (4,766 | ) | | $ | (210,141 | ) |
Other comprehensive income (loss) before reclassifications | 2,681 |
| (1) | (497 | ) | (2) | 828 |
| (3) | 3,012 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | 348 |
| (4) | 1,053 |
| (5) | 1,401 |
|
Balance as of September 30, 2016 | $ | (118,099 | ) | | $ | (84,744 | ) | | $ | (2,885 | ) | | $ | (205,728 | ) |
| |
(1) | Includes $511 of other comprehensive income related to intra-entity foreign currency balances that are of a long-term investment nature.2019, respectively. |
| |
(2) | Net of tax expense of $46.$337 and $11 for the three months ended March 31, 2020 and 2019, respectively. |
| |
(3) | NetIncludes the effect of the amortization of actuarial losses of $872 and amortization of prior service cost of $21, net of tax expense of $157.$235. See Note 8.13. “Pension and Postretirement Benefits Other Than Pensions.” |
| |
(4) | Includes actuarial lossesthe effect of $555, offset bythe amortization of prior service credits of $79, offset by the amortization of actuarial losses of $773, net of tax of $128.$184. See Note 10.13. “Pension and Postretirement Benefits Other Than Pensions.” |
| |
(5) | Net of tax benefit(benefit) expense of $519.$(2,887) and $453 for the three months ended March 31, 2020 and 2019, respectively. See Note 8. |
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
| Cumulative currency translation adjustment | | Benefit plan liabilities | | Fair value change of derivatives | | Total |
Balance as of December 31, 2016 | $ | (143,481 | ) | | $ | (97,612 | ) | | $ | (1,470 | ) | | $ | (242,563 | ) |
Other comprehensive income (loss) before reclassifications | 40,123 |
| (1) | (5,428 | ) | (2) | 1,242 |
| (3) | 35,937 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | 6,663 |
| (4) | (625 | ) | (5) | 6,038 |
|
Balance as of September 30, 2017 | $ | (103,358 | ) | | $ | (96,377 | ) | | $ | (853 | ) | | $ | (200,588 | ) |
| |
(1) | Includes $10,484 of other comprehensive income related to intra-entity foreign currency balances that are of a long-term investment nature.11. “Fair Value Measurements and Financial Instruments.” |
| |
(2)(6) | Net of tax benefit of $189. |
| |
(3) | Net of tax expense of $591.$23 and $88 for the three months ended March 31, 2020 and 2019, respectively. See Note 8.11. “Fair Value Measurements and Financial Instruments.” |
| |
(4) | Includes losses related to the U.K. pension settlement of $6,288 and actuarial losses of $2,443, offset by prior service credits of $248, net of tax of $1,820. See Note 10. |
18. Common Stock
Share Repurchase Program
In June 2018, the Company’s Board of Directors approved a common stock repurchase program (the “2018 Program”) authorizing the Company to repurchase, in the aggregate, up to $150,000 of its outstanding common stock. Under the 2018 Program, repurchases may be made on the open market, through private transactions, accelerated share repurchases, round lot or block transactions on the New York Stock Exchange or otherwise, as determined by management and in accordance with prevailing market conditions and federal securities laws and regulations. The Company expects to fund any future repurchases from cash on hand and future cash flows from operations. The Company is not obligated to acquire a particular amount of securities, and the 2018 Program may be discontinued at any time at the Company’s discretion. The 2018 Program became effective in November 2018. As of March 31, 2020, the Company had approximately $98,720 of repurchase authorization remaining under the 2018 Program.
The Company did not make any repurchases during the three months ended March 31, 2020. During the three months ended March 31, 2019, the Company repurchased 85,000 shares at an average purchase price of $69.85 per share, excluding commissions, for a total cost of $5,937.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
| |
(5) | Net of tax benefit of $18. See Note 8. |
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Cumulative currency translation adjustment | | Benefit plan liabilities | | Fair value change of derivatives | | Total |
Balance as of December 31, 2015 | $ | (130,661 | ) | | $ | (84,124 | ) | | $ | (2,280 | ) | | $ | (217,065 | ) |
Other comprehensive income (loss) before reclassifications | 12,562 |
| (1) | (1,638 | ) | (2) | (3,803 | ) | (3) | 7,121 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | — |
|
| 1,018 |
| (4) | 3,198 |
| (5) | 4,216 |
|
Balance as of September 30, 2016 | $ | (118,099 | ) | | $ | (84,744 | ) | | $ | (2,885 | ) | | $ | (205,728 | ) |
| |
(1) | Includes $9,699 of other comprehensive income related to intra-entity foreign currency balances that are of a long-term investment nature. |
| |
(2) | Net of tax benefit of $122. |
| |
(3) | Net of tax benefit of $1,704. See Note 8. |
| |
(4) | Includes actuarial losses of $1,636 offset by prior service credits of $246, net of tax of $372. See Note 10. |
| |
(5) | Net of tax benefit of $1,575. See Note 8. |
15. Common Stock
Share Repurchase Program and Secondary Offering
In March 2016, the Company’s Board of Directors approved a securities repurchase program (the “Program”) authorizing the Company to repurchase, in the aggregate, up to $125,000 of its outstanding common stock or warrants to purchase common stock. Under the Program, repurchases may be made on the open market or through private transactions, as determined by the Company’s management and in accordance with prevailing market conditions and federal securities laws and regulations. During the nine months ended September 30, 2017, the Company repurchased 306,072 shares at an average purchase price of $102.76 per share, excluding commissions, for a total cost of $31,452, of which $30,680 was settled in cash as of September 30, 2017.
In March 2016, certain selling stockholders affiliated with Silver Point Capital, L.P., Oak Hill Advisors, L.P. and Capital World Investors (the “Selling Stockholders”) sold 2,278,031 shares, including overallotments, of the Company’s common stock at a public offering price of $68.00 per share, in a secondary public offering. Of the 2,278,031 shares sold in the offering, 350,000 shares were purchased by the Company for $23,800. The Company paid the underwriting discounts and commissions payable on the shares sold by the Selling Stockholders, excluding the shares the Company repurchased, resulting in $5,900 of fees incurred for the nine months ended September 30, 2016, which is included in other expense, net in the condensed consolidated statement of net income. The Company also incurred approximately $600 of other expenses related to legal and audit services for the nine months ended September 30, 2016, which is included in selling, administration & engineering expenses in the condensed consolidated statement of net income. The Company did not sell or receive any proceeds from the sales of shares by the Selling Stockholders.
As of September 30, 2017, the Company had approximately $69,700 of repurchase authorization remaining under the Program.
16.19. Share-Based Compensation
The Company’s long-term incentive plans allow for the grant of various types of share-based awards to key employees and directors of the Company and its affiliates. The Company generally awards grants on an annual basis.
In February 2017,2020, the Company granted Restricted Stock Units (“RSUs”), Performance Units (“PUs”) and stock options. The RSUs cliff vest after three years, the PUs cliff vest atratably over three years after the end of their three-yearinitial two-year performance period, and the stock options vest ratably over three years. The number of PUs that will vest depends on the Company’s achievement of target performance goals related to the Company’s return on invested capital (“ROIC”), and total shareholder return, which may range from 0% to 200% of the target award amount. The grant-date fair value of the RSUs and PUs was determined using the closing price of the Company’s common stock on the date of grant. The grant-date fair value of the stock options was determined using the Black-Scholes option pricing model.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Share-based compensation expense was as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
PUs | $ | 74 |
| | $ | 649 |
|
RSUs | 1,643 |
| | 1,722 |
|
Stock options | 657 |
| | 815 |
|
Total | $ | 2,374 |
| | $ | 3,186 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
PUs | $ | 4,327 |
| | $ | 4,635 |
| | $ | 9,171 |
| | $ | 9,953 |
|
RSUs | 2,052 |
| | 2,052 |
| | 6,896 |
| | 5,805 |
|
Stock options | 933 |
| | 953 |
| | 2,939 |
| | 2,775 |
|
Total | $ | 7,312 |
| | $ | 7,640 |
| | $ | 19,006 |
| | $ | 18,533 |
|
17.20. Related Party Transactions
A summary of the material related party transactions with affiliates accounted for under the equity method was as follows: |
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Sales(1) | $ | 6,075 |
| | $ | 7,434 |
|
Purchases(2) | 156 |
| | 325 |
|
Dividends received(3) | 5,245 |
| | 4,917 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Sales(1) | $ | 8,288 |
| | $ | 9,029 |
| | $ | 26,124 |
| | $ | 26,027 |
|
Purchases(1) | 186 |
| | 170 |
| | 580 |
| | 365 |
|
Dividends received(2) | — |
| | — |
| | 5,382 |
| | 3,022 |
|
(1)Relates to transactions with Nishikawa Cooper LLC (“NISCO”)
(2) Relates to transactions with NISCO and Polyrub Cooper Standard FTS Private Limited
(3) From NISCO and Nishikawa Tachaplalert Cooper Ltd. inclusive of any gross up of dividend related to withholding tax
Amounts receivable from NISCO and Sujan Cooper Standard AVS Private Limited as of September 30, 2017March 31, 2020 and December 31, 20162019 were $3,789$4,070 and $4,078,$4,297, respectively.
In March 2016, as part of the secondary offering, the Company paid $5,900 of fees incurred on behalf of the Selling Stockholders as defined in Note 15. “Common Stock.”
18.21. Commitments and Contingencies
The Company is periodically involved in claims, litigation and various legal matters that arise in the ordinary course of business. The Company accrues for litigation exposure when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified. As of September 30, 2017,March 31, 2020, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for claims, litigation and various legal matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company’s financial condition, results of operations or cash flows could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.
In addition, the Company conducts and monitors environmental investigations and remedial actions at certain locations. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the undiscounted reserve for environmental investigation and remediation was approximately $4,742$5,835 and $5,490,$6,104, respectively. The Company doesWhile the Company’s costs to defend and settle known claims arising under environmental laws have not believe thatbeen material in the environmental liabilities associated with its currentpast and former properties will have aare not currently estimated to be material, adverse impact on its financial condition, results of operations or cash flows; however, no assurances cansuch costs may be givenmaterial in this regard.the future.
The Company is participating in a voluntary foreign tax amnesty program, which allows for the settlement of certain tax matters at reduced amounts. During the three months ended September 30, 2017, the Company incurred charges of $3,121, of which $2,886 was a non-cash charge offset by the utilization of tax net operating loss carryforwards, resulting in a net $235 expense impact to net income. The Company does not expect to incur additional material losses under this program, however the settlement of these tax matters is outstanding and the outcome of the program is uncertain.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
19.22. Segment Reporting
The Company has determined that it operatesCompany’s organizational structure changed on January 1, 2020, creating a global automotive business (“Automotive”) and Advanced Technology Group (“ATG”). The Company’s business is now organized in fourthe following reportable segments,segments: North America, Europe, Asia Pacific and South America. ATG and all other business activities are reported in Corporate, eliminations and other. The Corporate, eliminations and other External Sales and Intersegment Sales amounts previously reported for the three months ended March 31, 2019 have been reclassified from North America and Europe from the table below. The adjusted EBITDA amounts previously reported for the three months ended March 31, 2019 and Segment Asset amounts previously reported as of December 31, 2019 have been reclassified from North America, Europe, Asia Pacific and South America from the tables below.
The Company’s principal products within each of these segments are sealing, fuel and brake delivery, and fluid transfer systems. During the first quarter of 2019 and in prior periods, the Company also operated an anti-vibration systems. systems product line. On April 1, 2019, the Company completed the divestiture of the AVS product line.
The Company evaluatesuses Segment adjusted EBITDA as the measure of earnings to assess the performance of each segment performance based on segment profit before tax.and determine the resources to be allocated to the segments. The results of each segment include certain allocations for general, administrative interest and other shared costs. Segment adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Certain financial information on the Company’s reportable segments was as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2020 | | 2019 |
Sales to external customers | | | | | | | | |
| | | External Sales | | Intersegment Sales | | Adjusted EBITDA | | External Sales | | Intersegment Sales | | Adjusted EBITDA |
North America | $ | 437,406 |
| | $ | 450,795 |
| | $ | 1,403,270 |
| | $ | 1,361,183 |
| | $ | 334,801 |
| | $ | 4,468 |
| | $ | 37,019 |
| | $ | 447,718 |
| | $ | 4,707 |
| | $ | 59,151 |
|
Europe | 254,399 |
| | 242,773 |
| | 776,346 |
| | 794,411 |
| | 185,242 |
| | 3,091 |
| | (4,623 | ) | | 242,400 |
| | 3,085 |
| | 9,275 |
|
Asia Pacific | 148,493 |
| | 137,174 |
| | 421,926 |
| | 380,483 |
| | 79,344 |
| | 457 |
| | (17,057 | ) | | 125,452 |
| | 741 |
| | (407 | ) |
South America | 28,718 |
| | 24,914 |
| | 78,670 |
| | 61,380 |
| | 20,471 |
| | 68 |
| | (4,577 | ) | | 23,237 |
| | 5 |
| | (1,033 | ) |
Total Automotive | | | 619,858 |
| | 8,084 |
| | 10,762 |
| | 838,807 |
| | 8,538 |
| | 66,986 |
|
Corporate, eliminations and other | | | 35,032 |
| | (8,084 | ) | | (2,483 | ) | | 39,188 |
| | (8,538 | ) | | (2,852 | ) |
Consolidated | $ | 869,016 |
| | $ | 855,656 |
| | $ | 2,680,212 |
| | $ | 2,597,457 |
| | $ | 654,890 |
| | $ | — |
| | $ | 8,279 |
| | $ | 877,995 |
| | $ | — |
| | $ | 64,134 |
|
| | | | | | | | |
Intersegment sales | | | | | | | | |
North America | $ | 3,285 |
| | $ | 3,409 |
| | $ | 10,108 |
| | $ | 9,908 |
| |
Europe | 3,861 |
| | 3,600 |
| | 11,188 |
| | 10,081 |
| |
Asia Pacific | 1,566 |
| | 1,426 |
| | 3,876 |
| | 3,925 |
| |
South America | 2 |
| | 1 |
| | 11 |
| | 5 |
| |
Eliminations | (8,714 | ) | | (8,436 | ) | | (25,183 | ) | | (23,919 | ) | |
Consolidated | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| | | | | | | | |
Segment profit (loss) | | | | | | | | |
North America | $ | 44,214 |
| | $ | 55,031 |
| | $ | 170,971 |
| | $ | 169,857 |
| |
Europe | (9,024 | ) | | (5,632 | ) | | (20,633 | ) | | (7,510 | ) | |
Asia Pacific | 3,050 |
| | 3,037 |
| | 11,036 |
| | 6,073 |
| |
South America | (4,944 | ) | | (3,265 | ) | | (11,504 | ) | | (16,685 | ) | |
Consolidated income before income taxes | $ | 33,296 |
| | $ | 49,171 |
| | $ | 149,870 |
| | $ | 151,735 |
| |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Segment assets | | | |
North America | $ | 1,030,321 |
| | $ | 985,809 |
|
Europe | 648,588 |
| | 582,385 |
|
Asia Pacific | 653,688 |
| | 611,849 |
|
South America | 57,794 |
| | 46,125 |
|
Eliminations and other | 245,205 |
| | 265,534 |
|
Consolidated | $ | 2,635,596 |
| | $ | 2,491,702 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 |
| 2019 |
Adjusted EBITDA | $ | 8,279 |
| | $ | 64,134 |
|
Impairment of assets held for sale | (74,079 | ) | | — |
|
Restructuring charges | (7,276 | ) | | (17,715 | ) |
Project costs | (2,425 | ) | | (1,263 | ) |
Other impairment charges | (684 | ) | | — |
|
Lease termination costs | (520 | ) | | — |
|
EBITDA | $ | (76,705 | ) | | $ | 45,156 |
|
Income tax benefit (expense) | 14,117 |
| | (2,034 | ) |
Interest expense, net of interest income | (10,237 | ) | | (11,932 | ) |
Depreciation and amortization | (37,763 | ) | | (36,605 | ) |
Net loss attributable to Cooper-Standard Holdings Inc. | $ | (110,588 | ) | | $ | (5,415 | ) |
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Segment assets: | | | |
North America | $ | 1,011,035 |
| | $ | 1,040,650 |
|
Europe | 455,656 |
| | 553,977 |
|
Asia Pacific | 536,618 |
| | 614,952 |
|
South America | 58,923 |
| | 65,438 |
|
Total Automotive | 2,062,232 |
| | 2,275,017 |
|
Corporate, eliminations and other | 422,031 |
| | 360,565 |
|
Consolidated | $ | 2,484,263 |
| | $ | 2,635,582 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Our historical results may not indicate, and should not be relied upon as an indication of, our future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. See “Forward-Looking Statements” below for a discussion of risks associated with reliance on forward-looking statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed below and in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162019 filed with the U.S. Securities and Exchange Commission (“20162019 Annual Report”) see Item 1A. “Risk Factors.” The following should be read in conjunction with our 20162019 Annual Report and the other information included herein. Our discussion of trends and conditions supplements and updates such discussion included in our 20162019 Annual Report. References in this quarterly report on Form 10-Q (the “Report”) to “we,” “our,” or the “Company” refer to Cooper-Standard Holdings Inc., together with its consolidated subsidiaries.
Executive Overview
Our Business
We design, manufacture and sell sealing, fuel and brake delivery, and fluid transfer and anti-vibration systems for use primarily in passenger vehicles and light trucks manufactured by global automotive original equipment manufacturers (“OEMs”) and replacement markets.. We are primarily a “Tier 1” supplier, with approximately 83% of our sales in 2019 made directly to major OEMs. We operate our business along fourthe following reportable segments: North America, Europe, Asia Pacific and South America. WeAll other business activities are primarily a “Tier 1” supplier, with approximately 84%reported in Corporate, eliminations and other.
During the first quarter of our sales2019 and in 2016 made directly to major OEMs.prior periods, we also operated an anti-vibration systems (“AVS”) business. On April 1, 2019, we completed the divestiture of the anti-vibration systems business.
Recent Trends and Conditions
General Economic Conditions and Outlook
The global automotive industry is susceptible to uncertain economic conditions that could adversely impact new vehicle demand.demand and production. Business conditions may vary significantly from period to period or region to region. The COVID-19 pandemic created an unusually high degree of economic disruption during the first quarter of 2020 and is continuing to drive uncertainty for the economic outlook and the automotive industry around the world. Economists at the International Monetary Fund (IMF) are now expecting the global economy to contract by approximately 3.0% in 2020.
InEconomic conditions and consumer confidence in North America have been negatively impacted by concerns over the COVID-19 pandemic and government imposed lock-downs to contain the spread of the disease. The United States government has taken historic measures to provide fiscal stimulus to the economy in an effort to sustain businesses, limit job losses and preempt deeper declines in consumer confidence. Despite these efforts, IMF economists now expect economic contraction of approximately 6.0% for the region in 2020. In addition, the IMF is projecting unemployment in North America will approach 10.4% for the year.
The duration of the government imposed lock-downs, while the U.S. economy has been relatively stable, market indicators show signsunknown at this time, will be a major determinant of softening consumer demand. The mix of vehicles produced continues to shift away from passenger cars into crossover utility vehicles and light trucks.
In Europe, the continuingwhen economic recovery is driving increased demandcan begin. Even after the lock-downs are lifted, concerns about a resurgence of COVID-19 cases and uncertainty related to the presidential election in the United States will likely weigh on consumer confidence for light vehicles. Certain countries withinan extended period of time.
In the European region, the IMF is projecting economic contraction of approximately 6.6% for 2020. Unemployment rates will vary by country, but are faced withgenerally expected to increase by 200 to 500 basis points versus 2019 levels. Geopolitical concerns and the implementation of new environmental regulations in the automotive industry will continue to weigh on the economies of the region but have been superseded by concerns over the current and potential future impacts of the COVID-19 pandemic. Certain European governments have mandated closures of broad segments of the economy, and the timing of when industries are allowed to resume operations will be a key to beginning a recovery.
In the Asia Pacific region, the IMF expects China’s economic growth rate to slow to just 1.0% in 2020 following two months of aggressive COVID-19 containment measures during the first quarter. While the containment measures have been lifted and industries are currently ramping up towards full production, significant challenges remain for the Chinese economy. Consumer confidence is likely to remain suppressed for a period of time, dampening both investment and consumption. In addition, potential new policies by the United States and other developed countries that would encourage the repatriation of
production of certain strategically sensitive products in the wake of the COVID-19 pandemic could reduce export demand and further pressure employment levels.
In South America, the IMF estimates that the Brazilian economy will contract by approximately 5.3% in 2020 as compared to 2019. Unemployment is projected to increase to nearly 15.0%. In response to the COVID-19 pandemic, the Brazilian government has approved an uncertainaggressive fiscal spending package to stimulate economic activity. While seen as urgently necessary, this spending will add to the country’s already high national debt level and potentially volatile geopolitical climate, which could impactlead to lower consumer confidence and foreign investment in the region going forward. We remain cautious for the mid to long-term outlook given the long history of political instability and economic growth.volatility in the region.
The Chinese government continuesRaw Materials
Our business is susceptible to manageinflationary pressures with respect to raw materials which may place operational and profitability burdens on the nation’s economy with a goal of sustaining growth. Overall economic growth, consumer preferencesentire supply chain. Costs related to raw materials, such as steel, aluminum, and an expanding middle class in Chinaoil and oil-derived commodities, continue to drive crossover utility vehicle demand higher, while demand for passenger cars is expectedbe volatile. In addition, we continue to decline slightly year over year.
Finally, dueexpect commodity cost volatility to continued volatility in Brazil,have an impact on future earnings and operating cash flows. As such, on an ongoing basis, we remain cautious about consumer confidencework with our customers and vehicle demand in this region.suppliers to mitigate both inflationary pressures and our material-related cost exposures.
Production Levels
Our business is directly affected by the automotive vehicle production rates in North America, Europe, Asia Pacific and South America. New vehicle demand is driven by macroeconomic and other factors, suchBeginning in early Q1 2020, as interest rates, manufacturer and dealer sales incentives, fuel prices, consumer confidence, employment levels, income growth trends and government and tax incentives. The industry could face uncertaintiesa result of COVID-19, we experienced the shutdown of effectively all of our facilities in Asia Pacific coinciding with the shutdown of our customer facilities in that may adversely impact consumer demandregion. Facility shutdowns then occurred in March 2020 for vehicles as well as the future production environment.
Ina majority of our facilities in North America, light vehicle inventoryEurope and South America.
Production resumed in the U.S. had risen significantly above normalized levels atAsia Pacific by the end of the second quarter of 2017. Production cuts by OEMsQ1 2020, albeit at a lower capacity. We anticipate that production will increase steadily throughout Q2 2020. We expect production to gradually resume in Q2 2020 for our North America, Europe and South America facilities, in conjunction with production resuming for our customers in the third quarter of 2017 were successfulregions. We are collaborating closely with our customers in bringing inventory closerpreparing our own restart plans, while also adding enhanced safety standards and measures to normalized levels and more aligned with consumer demand. Even in view of lower inventory levels, we expect overall light vehicle production in the fourth quarter of 2017 to be slightly lower than in the fourth quarter of 2016, driven largely by continued lower production of passenger cars. European light vehicle production has seen modest year-over-year growth through the first three quarters of 2017 and we expect this trend to continue through the fourth quarter of 2017. In Asia Pacific, we expect light vehicle production to continue to grow sequentially at modest levels through the remainder of 2017, driven mainly by China.
protect our employees.
Light vehicle production in certain regions for the three and nine months ended September 30, 2017March 31, 2020 and 2016 was:2019 was as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
(In millions of units) | 2017(1) | | 2016(1) | | % Change | | 2017(1) | | 2016(1) | | % Change | 2020(1) | | 2019(1) | | % Change |
North America | 4.0 |
| | 4.4 |
| | (9.7)% | | 13.0 |
| | 13.5 |
| | (3.7)% | 3.8 |
| | 4.2 |
| | (10.3)% |
Europe | 5.0 |
| | 4.7 |
| | 5.2% | | 16.6 |
| | 16.2 |
| | 2.4% | 4.6 |
| | 5.7 |
| | (18.9)% |
Asia Pacific(2) | 11.9 |
| | 11.5 |
| | 3.5% | | 36.0 |
| | 34.7 |
| | 3.6% | 8.2 |
| | 11.7 |
| | (30.1)% |
Greater China | | 3.2 |
| | 6.0 |
| | (46.1)% |
South America | 0.9 |
| | 0.7 |
| | 26.1% | | 2.4 |
| | 2.0 |
| | 20.9% | 0.7 |
| | 0.8 |
| | (16.9)% |
| |
(1) | Production data based on IHS Automotive, October 2017. |
| |
(2) | Includes Greater China units of 6.4 for both the three months ended September 30, 2017 and 2016, and 19.5 and 19.0 for the nine months ended September 30, 2017 and 2016, respectively.April 2020. |
Industry Overview
CompetitionTotal vehicle production has decreased substantially across the globe. The COVID-19 pandemic has emerged as the biggest risk factor facing the automotive industry. Plant shutdowns have greatly slowed production and been accompanied by decreased demand for vehicles, as new vehicle sales are highly dependent on strong consumer confidence and low unemployment. Until consumers regain confidence in the automotive supplier industry is intensemarkets and has increased in recent yearsunemployment returns to lower levels, new vehicle sales, particularly of light vehicles, will likely be significantly lower than historical and previously forecasted sales levels. We expect that as OEMs have demonstrated a preference for stronger relationships with fewer suppliers. Because of a growing emphasis on global vehicle platforms, automotive suppliers with a global manufacturing footprint capable of fully servicing customers around the worldrestart production, they will typically have a competitive advantage over smaller, regional competitors. This dynamic is likely to result in further consolidation of competing suppliers within our industry over time.
OEMs have shifted some research and development, design and testing responsibility to suppliers, while at the same time shortening new product cycle times. To remain competitive, suppliers must have state-of-the-art engineering and design capabilities and must be able to continuously improve their engineering, design and manufacturing processes to effectively service the customer. Suppliers are increasingly expected to collaborate on, or assume the product design and development of, key automotive components and to provide innovative solutions to meet evolving technologies aimed at improved emissions and fuel economy.
Increased competitiveness in the industry, as well as customer focus on costs, has resulted in pressure on suppliers for price reductions, reducing the overall profitability of the industry. Consolidationstheir most profitable platforms including light trucks, sport utility vehicles and market share shifts among vehicle manufacturers continue to put additional pressures on the supply chain. These pricing and market pressures will continue to drive our focus on reducing our overall cost structure through continuous improvement initiatives, capital redeployment, restructuring and other cost management processes.crossover vehicles.
In addition to the above, other factors will present opportunities for automotive suppliers who are positioned for the changing environment, including autonomous and connected vehicles, evolving government regulation, and consumer preference for environmentally friendly products and technology, including hybrid and electric vehicle architectures.
Results of Operations
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | 2020 | | 2019 | | Change |
| (dollar amounts in thousands) | (dollar amounts in thousands) |
Sales | $ | 869,016 |
| | $ | 855,656 |
| | $ | 13,360 |
| | $ | 2,680,212 |
| | $ | 2,597,457 |
| | $ | 82,755 |
| $ | 654,890 |
| | $ | 877,995 |
| | $ | (223,105 | ) |
Cost of products sold | 718,187 |
| | 690,984 |
| | 27,203 |
| | 2,187,058 |
| | 2,101,000 |
| | 86,058 |
| 611,747 |
| | 762,490 |
| | (150,743 | ) |
Gross profit | 150,829 |
| | 164,672 |
| | (13,843 | ) | | 493,154 |
| | 496,457 |
| | (3,303 | ) | 43,143 |
| | 115,505 |
| | (72,362 | ) |
Selling, administration & engineering expenses | 94,145 |
| | 92,368 |
| | 1,777 |
| | 267,883 |
| | 268,498 |
| | (615 | ) | 70,671 |
| | 86,974 |
| | (16,303 | ) |
Amortization of intangibles | 3,432 |
| | 3,457 |
| | (25 | ) | | 10,563 |
| | 9,974 |
| | 589 |
| 4,450 |
| | 3,775 |
| | 675 |
|
Impairment charges | — |
| | — |
| | — |
| | 4,270 |
| | — |
| | 4,270 |
| |
Restructuring charges | 9,909 |
| | 10,430 |
| | (521 | ) | | 28,220 |
| | 33,468 |
| | (5,248 | ) | 7,276 |
| | 17,715 |
| | (10,439 | ) |
Other operating loss | — |
| | — |
| | — |
| | — |
| | 155 |
| | (155 | ) | |
Operating profit | 43,343 |
| | 58,417 |
| | (15,074 | ) | | 182,218 |
| | 184,362 |
| | (2,144 | ) | |
Impairment of assets held for sale | | 74,079 |
| | — |
| | 74,079 |
|
Other impairment charges | | 977 |
| | — |
| | 977 |
|
Operating (loss) profit | | (114,310 | ) | | 7,041 |
| | (121,351 | ) |
Interest expense, net of interest income | (10,256 | ) | | (10,114 | ) | | (142 | ) | | (31,788 | ) | | (29,861 | ) | | (1,927 | ) | (10,237 | ) | | (11,932 | ) | | 1,695 |
|
Equity in earnings of affiliates | 660 |
| | 1,386 |
| | (726 | ) | | 3,735 |
| | 5,823 |
| | (2,088 | ) | 1,431 |
| | 2,358 |
| | (927 | ) |
Loss on refinancing and extinguishment of debt | — |
| | — |
| | — |
| | (1,020 | ) | | — |
| | (1,020 | ) | |
Other expense, net | (451 | ) | | (518 | ) | | 67 |
| | (3,275 | ) | | (8,589 | ) | | 5,314 |
| (3,440 | ) | | (796 | ) | | (2,644 | ) |
Income before income taxes | 33,296 |
| | 49,171 |
| | (15,875 | ) | | 149,870 |
| | 151,735 |
| | (1,865 | ) | |
Income tax expense | 7,838 |
| | 12,525 |
| | (4,687 | ) | | 40,258 |
| | 43,312 |
| | (3,054 | ) | |
Net income | 25,458 |
| | 36,646 |
| | (11,188 | ) | | 109,612 |
| | 108,423 |
| | 1,189 |
| |
Net income attributable to noncontrolling interests | (818 | ) | | (284 | ) | | (534 | ) | | (2,810 | ) | | (549 | ) | | (2,261 | ) | |
Net income attributable to Cooper-Standard Holdings Inc. | $ | 24,640 |
| | $ | 36,362 |
| | $ | (11,722 | ) | | $ | 106,802 |
| | $ | 107,874 |
| | $ | (1,072 | ) | |
Loss before income taxes | | (126,556 | ) | | (3,329 | ) | | (123,227 | ) |
Income tax (benefit) expense | | (14,117 | ) | | 2,034 |
| | (16,151 | ) |
Net loss | | (112,439 | ) | | (5,363 | ) | | (107,076 | ) |
Net loss (income) attributable to noncontrolling interests | | 1,851 |
| | (52 | ) | | 1,903 |
|
Net loss attributable to Cooper-Standard Holdings Inc. | | $ | (110,588 | ) | | $ | (5,415 | ) | | $ | (105,173 | ) |
Three Months Ended September 30, 2017March 31, 2020 Compared with Three Months Ended September 30, 2016March 31, 2019
Sales.Sales
Sales for the three months ended September 30, 2017 increased $13.4 million, or 1.6%March 31, 2020 decreased 25.4%, compared to the three months ended September 30, 2016, primarilyMarch 31, 2019. The decline was mainly driven by the acquisitiondecrease in vehicle production volume due to government imposed global lock-downs related to the COVID-19 pandemic, the sale of AMI Industries’ fuel and brake business, consolidation of a previously unconsolidated joint venture and favorable foreign exchange, partially offset byour AVS product line, customer price reductions.reductions and foreign exchange. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | Variance Due To: |
| 2020 | | 2019 | | Change | | | Volume / Mix* | | Foreign Exchange | | Acquisitions / Divestiture, Net |
| (dollar amounts in thousands) |
Total sales | $ | 654,890 |
| | $ | 877,995 |
| | $ | (223,105 | ) | | | $ | (131,819 | ) | | $ | (13,540 | ) | | $ | (77,746 | ) |
Cost* Net of Products Sold.customer price reductions
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | Variance Due To: |
| 2020 | | 2019 | | Change | | | Volume / Mix* | | Foreign Exchange | | Cost Increases / (Decreases)** |
| (dollar amounts in thousands) |
Cost of products sold | $ | 611,747 |
| | $ | 762,490 |
| | $ | (150,743 | ) | | | $ | (67,676 | ) | | $ | (11,055 | ) | | $ | (72,012 | ) |
Gross profit | 43,143 |
| | 115,505 |
| | (72,362 | ) | | | (64,143 | ) | | (2,485 | ) | | (5,734 | ) |
Gross profit percentage of sales | 6.6 | % | | 13.2 | % | | | | | | | | | |
* Net of customer price reductions
** Includes the net impact of acquisitions and divestiture
Cost of products sold is primarily comprised of material, labor, manufacturing overhead, freight, depreciation, and amortizationwarranty costs and other direct operating expenses. Cost of products sold for the three months ended September 30, 2017 increased $27.2 million, or 3.9%, compared to the three months ended September 30, 2016. CostThe Company’s material cost of products sold was impacted by commodity price pressures, transactional foreign exchange pressure, general inflationapproximately 47% and acquisitions. These items were partially offset by continuous improvement and material cost savings. Materials comprise the largest component52% of our cost of products sold and represented approximately 50% of the total cost of products sold for the three months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. The change in the cost of products sold was driven by government imposed global lock-downs related to the COVID-19 pandemic, the sale of our AVS product line, continuous improvement and lean manufacturing, material cost reductions, commodity price fluctuations, foreign exchanges, and wage inflation.
Gross Profit.Gross profit for the three months ended September 30, 2017March 31, 2020 decreased $13.8$72.4 million or 8.4%,62.6% compared to the three months ended September 30, 2016. As a percentage of sales, gross profit was 17.4% and 19.2% for the three months ended September 30, 2017 and 2016, respectively.March 31, 2019. The decrease in gross profit was driven primarily by the decline in vehicle production volume due to government imposed global lock-downs related to the COVID-19 pandemic, customer price reductions, commodity price inflation, foreign exchange pressures, and unfavorable vehicle production mix.wage inflation. These items were partially offset by continuous improvement,net favorable operational performance, restructuring savings, and material cost savings.reductions.
Selling, Administration and Engineering.Engineering Expense. Selling, administration and engineering expense includes administrative expenses as well as product engineering and design and development costs. Sales, administration and engineering expense for the three months ended September 30, 2017March 31, 2020 was $94.1 million, or 10.8% of sales compared to $92.4 million, or 10.8% of sales,9.9% for the three months ended September 30, 2016. Selling, administrationMarch 31, 2019. The increase in rate was driven by lower total sales while the decrease in amount was driven by savings generated from lower compensation-related expenses and engineering expense for the three months ended September 30, 2017 increased as a result of non-cash settlement charges relating to the wind-upsale of our U.K. pension plan of $5.7 million and investments to support growth and innovation,AVS product line, partially offset by lower compensation related costs.general inflation.
Restructuring.Restructuring charges for the three months ended September 30, 2017March 31, 2020 decreased $0.5$10.4 million compared to the three months ended September 30, 2016.March 31, 2019. The decrease was primarily driven by lower restructuring expenses related to our
Europeancharges in North America, Europe and Asia Pacific, as certain salaried employee initiatives of $3.4 million, partially offset by higher restructuring charges attributed toin North America and footprint rationalization initiatives in Europe and Asia Pacific were substantially completed.
Impairment Charges. Non-cash impairment charges of $2.9 million.$74.1 million for the three months ended March 31, 2020 related to reducing the carrying value of the held for sale facilities to fair value less costs to sell. Fair value was determined using a market approach, estimated based on expected proceeds. Other non-cash impairment charges of $1.0 million related to property, plant and equipment in the Asia Pacific region.
Interest Expense, Net. Net interest expense for the three months ended March 31, 2020 decreased $1.7 million compared to the three months ended March 31, 2019, primarily due to lower outstanding debt balances.
Other Expense, Net. Other expense for the three months ended September 30, 2017 decreased $0.1March 31, 2020 increased $2.6 million compared to the three months ended September 30, 2016,March 31, 2019 primarily due to other miscellaneous income, partially offset by increasedhigher foreign currency losses.
Income Tax Expense. Expense. Income tax expensebenefit for the three months ended September 30, 2017March 31, 2020 was $7.8$14.1 million on earningsa loss before income taxes of $33.3$126.6 million. This compares to an income tax expense of $12.5$2.0 million on earningsa loss before income taxes of $49.2$3.3 million for the same period of 2016.2019. The effective tax rate for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016 was lower primarily due to nonrecurring discrete items, including the impact of participating in a foreign tax amnesty program, recorded in the three months ended September 30, 2017. The income tax rate for the three months ended September 30, 2017 varied from statutory ratesMarch 31, 2019 differed primarily due to the impactgeographic mix of income taxespre-tax losses driven by the impairment change on foreign earnings taxed at rates lower than the U.S. statutory rate,held for sale entities and the inability to record a tax benefit for pre-tax losses in certain foreign jurisdictions to the extent not offset by other categoriesjurisdictions. Additionally, a discrete expense of income, tax credits, income tax incentives, excess tax benefits related to share-based compensation and other permanent items.
Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016
Sales. Sales for the nine months ended September 30, 2017 increased $82.8 million, or 3.2%, compared to the nine months ended September 30, 2016, primarily due to improved volume and mix in all regions, the acquisition of AMI Industries’ fuel and brake business and consolidation of a previously unconsolidated joint venture, partially offset by customer price reductions and unfavorable foreign exchange.
Cost of Products Sold. Cost of products sold for the nine months ended September 30, 2017 increased $86.1 million, or 4.1%, compared to the nine months ended September 30, 2016. Cost of products sold increased primarily due to inflation, commodity price pressures, higher production volumes and acquisitions. These items were partially offset by continuous improvement and material cost savings. Materials comprise the largest component of our cost of products sold and represented approximately 51% and 50% of the total cost of products sold for the nine months ended September 30, 2017 and 2016, respectively.
Gross Profit. Gross profit for the nine months ended September 30, 2017 decreased $3.3 million, or 0.7%, compared to the nine months ended September 30, 2016. The decrease in gross profit was driven primarily by inflation, commodity price pressures and unfavorable vehicle production mix. As a percentage of sales, gross profit was 18.4% and 19.1% for the nine months ended September 30, 2017 and 2016, respectively.
Selling, Administration and Engineering. Selling, administration and engineering expense for the nine months ended September 30, 2017 was $267.9 million or 10.0% of sales, compared to $268.5 million, or 10.3% of sales, for the nine months ended September 30, 2016. Selling, administration and engineering expense for the nine months ended September 30, 2017 was favorable as a result of lower compensation related costs, partially offset by non-cash settlement charges relating to the wind-up of our U.K. pension plan of $5.7 million, and investments to support growth and innovation.
Impairment charges. Impairment charges of $4.3$13.3 million for the nine months ended September 30, 2017 resulted from our decision to divest twoinitial recognition of our inactive European sites based on current real estate market conditions.
Restructuring. Restructuring charges for the nine months ended September 30, 2017 decreased $5.2 million compared to the nine months ended September 30, 2016. The decrease was primarily driven by lower expenses related to our European initiatives of $7.8 million, partially offset by higher restructuring charges attributed to North America and Asia Pacific of $2.6 million.
Interest Expense, Net. Net interest expense for the nine months ended September 30, 2017 increased $1.9 million compared to the nine months ended September 30, 2016, which resulted primarily from higher interest rates related to the new Senior Notes.
Loss on Refinancing and Extinguishment of Debt. Loss on refinancing and extinguishment of debt of $1.0 million for the nine months ended September 30, 2017 resulted from the partial write off of new and unamortized debt issuance costs and unamortized original issue discount related to the amendment of the Term Loan Facility.
Other Expense, Net. Other expense for the nine months ended September 30, 2017 decreased $5.3 million compared to the nine months ended September 30, 2016. The decrease was primarily due to the nonrecurrence of underwriting fees related to the secondary offering of $5.9 million recorded in the nine months ended September 30, 2016 and other miscellaneous income, partially offset by increased foreign currency losses.
Income Tax Expense. Incomevaluation allowances against net deferred tax expense for the nine months ended September 30, 2017 was $40.3 million on earnings before income taxes of $149.9 million. This compares to income tax expense of $43.3 million on earnings before income taxes of $151.7 million for the same period of 2016. The effective tax rate for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was lower primarily due to nonrecurring discrete items, including the impact of participating in a foreign tax amnesty program, recorded in the nine months ended September 30, 2017. The income tax rate for the nine months ended September 30, 2017 varied from statutory rates primarily due to the impact of income taxes on foreign earnings taxed at rates lower than the U.S. statutory rate, the inability to record a tax benefit for pre-tax lossesassets in certain foreign jurisdictions towas recorded in the extent not offset by other categories of income, tax credits, income tax incentives, excess tax benefits related to share-based compensation and other permanent items.three months ended March 31, 2020.
Segment Results of Operations
Our business is now organized in the following reportable segments: North America, Europe, Asia Pacific and South America. All other business activities are reported in Corporate, eliminations and other. The Company uses Segment adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. We have defined adjusted EBITDA as net income before interest, taxes, depreciation, amortization, restructuring expense, and special items.
The following table presentstables present sales and segment profit (loss)adjusted EBITDA for each of the reportable segments for the three and nine months ended September 30, 2017 and 2016:segments.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| (dollar amounts in thousands) |
Sales to external customers | | | | | | | | | | | |
North America | $ | 437,406 |
| | $ | 450,795 |
| | $ | (13,389 | ) | | $ | 1,403,270 |
| | $ | 1,361,183 |
| | $ | 42,087 |
|
Europe | 254,399 |
| | 242,773 |
| | 11,626 |
| | 776,346 |
| | 794,411 |
| | (18,065 | ) |
Asia Pacific | 148,493 |
| | 137,174 |
| | 11,319 |
| | 421,926 |
| | 380,483 |
| | 41,443 |
|
South America | 28,718 |
| | 24,914 |
| | 3,804 |
| | 78,670 |
| | 61,380 |
| | 17,290 |
|
Consolidated | $ | 869,016 |
| | $ | 855,656 |
| | $ | 13,360 |
| | $ | 2,680,212 |
| | $ | 2,597,457 |
| | $ | 82,755 |
|
| | | | | | | | | | | |
Segment profit (loss) | | | | | | | | | | | |
North America | $ | 44,214 |
| | $ | 55,031 |
| | $ | (10,817 | ) | | $ | 170,971 |
| | $ | 169,857 |
| | $ | 1,114 |
|
Europe | (9,024 | ) | | (5,632 | ) | | (3,392 | ) | | (20,633 | ) | | (7,510 | ) | | (13,123 | ) |
Asia Pacific | 3,050 |
| | 3,037 |
| | 13 |
| | 11,036 |
| | 6,073 |
| | 4,963 |
|
South America | (4,944 | ) | | (3,265 | ) | | (1,679 | ) | | (11,504 | ) | | (16,685 | ) | | 5,181 |
|
Consolidated income before income taxes | $ | 33,296 |
| | $ | 49,171 |
| | $ | (15,875 | ) | | $ | 149,870 |
| | $ | 151,735 |
| | $ | (1,865 | ) |
Three Months Ended September 30, 2017March 31, 2020 Compared with Three Months Ended September 30, 2016March 31, 2019
North America.Sales for the three months ended September 30, 2017 decreased $13.4 million, or 3.0%, compared to the three months ended September 30, 2016, primarily due to decreased volume
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | Variance Due To: |
| 2020 | | 2019 | | Change | | | Volume/ Mix* | | Foreign Exchange | | Acquisitions/ Divestiture, Net
|
| (dollar amounts in thousands) |
Sales to external customers | | | | | | | | | | | | |
North America | $ | 334,801 |
| | $ | 447,718 |
| | $ | (112,917 | ) | | | $ | (57,291 | ) | | $ | (795 | ) | | $ | (54,831 | ) |
Europe | 185,242 |
| | 242,400 |
| | (57,158 | ) | | | (29,880 | ) | | (5,816 | ) | | (21,462 | ) |
Asia Pacific | 79,344 |
| | 125,452 |
| | (46,108 | ) | | | (41,669 | ) | | (2,986 | ) | | (1,453 | ) |
South America | 20,471 |
| | 23,237 |
| | (2,766 | ) | | | 830 |
| | (3,596 | ) | | — |
|
Total Automotive | 619,858 |
| | 838,807 |
| | (218,949 | ) | | | (128,010 | ) | | (13,193 | ) | | (77,746 | ) |
Corporate, eliminations and other | 35,032 |
| | 39,188 |
| | (4,156 | ) | | | (3,809 | ) | | (347 | ) | | — |
|
Consolidated | $ | 654,890 |
| | $ | 877,995 |
| | $ | (223,105 | ) | | | $ | (131,819 | ) | | $ | (13,540 | ) | | $ | (77,746 | ) |
* Net of customer price reductions
Volume and unfavorable mix, andnet of customer price reductions partially offsetincludes the impact of the decline in vehicle production volume as driven by government imposed global lock-downs related to the acquisitionCOVID-19 pandemic.
The impact of AMI Industries’ fuelforeign currency exchange primarily relates to the Euro, Brazilian Real, and brake business. Chinese Renminbi.
Segment profit for the three months ended September 30, 2017 decreased by $10.8 million, primarily due to lower volume and unfavorable mix,adjusted EBITDA
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | Variance Due To: |
| 2020 | | 2019 | | Change | | | Volume/ Mix* | | Foreign Exchange | | Cost (Increases)/ Decreases | | Acquisitions/ Divestiture, Net |
| (dollar amounts in thousands) |
Segment adjusted EBITDA | | | | | | | | | | | | | | |
North America | $ | 37,019 |
| | $ | 59,151 |
| | $ | (22,132 | ) | | | $ | (26,827 | ) | | $ | 127 |
| | $ | 8,328 |
| | $ | (3,760 | ) |
Europe | (4,623 | ) | | 9,275 |
| | (13,898 | ) | | | (17,520 | ) | | 1,612 |
| | 4,766 |
| | (2,756 | ) |
Asia Pacific | (17,057 | ) | | (407 | ) | | (16,650 | ) | | | (17,348 | ) | | (1,509 | ) | | 2,558 |
| | (351 | ) |
South America | (4,577 | ) | | (1,033 | ) | | (3,544 | ) | | | (481 | ) | | (3,513 | ) | | 450 |
| | — |
|
Total Automotive | 10,762 |
| | 66,986 |
| | (56,224 | ) | | | (62,176 | ) | | (3,283 | ) | | 16,102 |
| | (6,867 | ) |
Corporate, eliminations and other | (2,483 | ) | | (2,852 | ) | | 369 |
| | | (1,967 | ) | | (1,052 | ) | | 3,388 |
| | — |
|
Consolidated adjusted EBITDA | $ | 8,279 |
| | $ | 64,134 |
| | $ | (55,855 | ) | | | $ | (64,143 | ) | | $ | (4,335 | ) | | $ | 19,490 |
| | $ | (6,867 | ) |
* Net of customer price reductions and continued investments to support innovation, partially offset by operational efficiencies and net material cost savings.
Europe. Sales for the three months ended September 30, 2017 increased $11.6 million, or 4.8%, compared to the three months ended September 30, 2016, primarily due to favorable foreign exchange and improved volume and mix. Segment loss for the three months ended September 30, 2017 increased by $3.4 million, primarily due to non-cash settlement charges relating to the wind-up of our U.K. pension plan of $5.7 million and commodity price pressures, partially offset by lower restructuring expense, improved volumeVolume and mix, and operational efficiencies, including restructuring savings.
Asia Pacific. Sales for the three months ended September 30, 2017 increased $11.3 million, or 8.3%, compared to the three months ended September 30, 2016, primarily due to improved volume and mix and the consolidationnet of a previously unconsolidated joint venture, partially offset by customer price reductions. Segment profit for the three months ended September 30, 2017 was flat compared to the three months ended September 20, 2016. Continuous improvement and material cost savings were offset by customer price reductions, wage inflation, and higher engineering costs to support growth in the region.
South America. Sales for the three months ended September 30, 2017 increased $3.8 million, or 15.3%, compared to the three months ended September 30, 2016, primarily due to improved volume and mix and favorable foreign exchange, partially
offset by customer price reductions. Segment loss for the three months ended September 30, 2017 increased by $1.7 million primarily due to a $3.1 million pre-tax charge for costs associated with a foreign tax amnesty program, of which $0.2 million was paid in cash, and customer price reductions, partially offset by continuous improvement, volume and mix.
Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016
North America. Sales for the nine months ended September 30, 2017 increased $42.1 million, or 3.1%, compared to the nine months ended September 30, 2016, primarily due to improved volume and mix and the acquisition of AMI Industries’ fuel and brake business, partially offset by customer price reductions. Segment profit for the nine months ended September 30, 2017 increased by $1.1 million, primarily due to continuous improvement, net material cost savings, favorable foreign exchange and acquisitions, partially offset by customer price reductions,includes the impact of the decline in vehicle production mix and continued investments to support innovation.
Europe. Sales for the nine months ended September 30, 2017 decreased $18.1 million, or 2.3%, comparedvolume as driven by government imposed global lock-downs related to the nine months ended September 30, 2016, primarily due to customer price reductions and unfavorable foreign exchange, partially offset by improvement in volume and mix. Segment loss for the nine months ended September 30, 2017 increased by $13.1 million, primarily due to non-cash settlement charges relating to the wind-up of our U.K. pension plan of $5.7 million, impairment charges recorded in the first quarter of 2017, customer price reductions, commodity price pressure, product mix and foreign exchange, partially offset by lower restructuring expense and operational efficiencies, including restructuring savings.COVID-19 pandemic.
Asia Pacific. Sales for the nine months ended September 30, 2017 increased $41.4 million, or 10.9% compared to the nine months ended September 30, 2016, primarily due to the consolidation of a previously unconsolidated joint venture and improved volume and mix, partially offset by unfavorable foreign exchange and customer price reductions. Segment profit for the nine months ended September 30, 2017 increased by $5.0 million primarily driven by continuous improvement and material cost savings, partially offset by customer price reductions, higher engineering costs to support growth in the region and wage inflation.
South America. Sales for the nine months ended September 30, 2017 increased $17.3 million, or 28.2%, compared to the nine months ended September 30, 2016, primarily due to improved volume and mix and favorable foreign exchange. Segment loss for the nine months ended September 30, 2017 improved by $5.2 million primarily due to continuous improvement and net material cost savings and improved volume and mix, partially offset by a $3.1 million pre-tax charge for costs associated with a foreign tax amnesty program, of which $0.2 million was paid in cash. | |
• | The impact of foreign currency exchange is primarily driven by the Brazilian Real, Chinese Renminbi, Euro, Polish Zloty, and Czech Koruna. |
| |
• | The Cost (Increases) / Decreases category above includes: |
| |
◦ | Reduction in compensation-related expenses, purchasing savings through lean initiatives, restructuring savings; |
| |
◦ | Increase in commodity costs and wage increases; |
| |
◦ | Net operational efficiencies of $16 million, weakened by the impact of COVID-19, primarily driven by our North America and European segments. |
Liquidity and Capital Resources
Short and Long-Term Liquidity Considerations and Risks
We intend to fund our ongoing working capital, capital expenditures, debt service and other funding requirements through a combination of cash flows from operations, cash on hand, borrowings under our senior asset-based revolving credit facility (“ABL Facility”) and receivables factoring. The Company utilizes intercompany loans and equity contributions to fund its worldwide operations. There may be country-specific regulations which may restrict or result in increased costs in the repatriation of these funds. See Note 7.10. “Debt” to the unaudited condensed consolidated financial statements included in Part 1,I, Item 1 of this Report for additional information.
Based on our current expectations and projections for OEM customer restart plans, whether formally announced or simply anticipated, levels of operations and due to the condition in our marketsaggressive actions we have taken to preserve cash and industry,enhance liquidity, we believe that our cash flows from operations, cash on hand, borrowings under our ABL Facility and receivables factoring will enable us to meet our ongoing working capital, capital expenditures, debt service and other funding requirements for the next twelve months. However,months, despite the challenges presented by the COVID-19 pandemic. We continuously monitor and forecast our liquidity situation, take the necessary actions to preserve our liquidity and evaluate other financial alternatives that may be available to us should the need arise. Our ability to fund our working capital needs, debt payments and other obligations, and to comply with the financial covenants, including borrowing base limitations, under our ABL Facility, depend on our future operating performance and cash flowflows and many factors outside of our control, including the costs of raw materials, the state of the overall automotive industry and financial and economic conditions, including the impact of COVID-19, and other factors.
Cash Flows
Operating Activities. Net cash provided byused in operations was $104.6$2.0 million for the ninethree months ended September 30, 2017,March 31, 2020, compared to $182.0net cash used in operations of $1.8 million for the ninethree months ended September 30, 2016.March 31, 2019. The changenet outflow was primarily driven by an increase in receivables due to customer payment timing and repurchase of receivables as part of the transition to a pan-European factoring program, increased inventory and higher payments related to incentive compensation,decreased cash earnings, partially offset by increased cash earnings and reduced cash paid for restructuring and taxes.working capital improvements.
Investing Activities. Net cash used in investing activities was $136.7$50.1 million for the ninethree months ended September 30, 2017,March 31, 2020, compared to $150.7 million for the nine months ended September 30, 2016. Cashnet cash used in investing activities consisted
primarily of capital spending of $137.4 million and $116.8$60.0 million for the ninethree months ended September 30, 2017 and 2016, respectively. We anticipate that we will spend approximately $165 million to $175 million onMarch 31, 2019. Significant decreases in capital expenditures are expected in 2017.the second quarter of 2020, as the capital expenditure cash outflow in the first three months ended March 31, 2020 partially relates to purchases that were made in months prior to the first quarter of 2020.
Financing Activities. Net cash used inprovided by financing activities totaled $52.1$0.4 million for the ninethree months ended September 30, 2017,March 31, 2020, compared to $41.3net cash provided by financing activities of $57.4 million for the ninethree months ended September 30, 2016.March 31, 2019. The increasechange was primarily due to increased repurchase activity underdrawing on our revolving credit facility and an increase in local borrowing lines during the three months ended March 31, 2019. There were no share repurchase program, certain paydowns of foreign bank loans in 2017 and decreased warrant exercises.repurchases during the three months ended March 31, 2020. Cash used for share repurchases was $6.6 million for the three months ended March 31, 2019.
Share Repurchase Program
In March 2016,June 2018, our Board of Directors approved a securitiesnew common stock repurchase program (the “Program”“2018 Program”) authorizing us to repurchase, in the aggregate, up to $125$150.0 million of our outstanding common stock or warrants to purchase common stock. Under the 2018 Program, repurchases may be made on the open market, or through private transactions, accelerated share repurchases, round lot or block transactions on the New York Stock Exchange or otherwise, as determined by our managementus and in accordance with prevailing market conditions and federal securities laws and regulations.
In March 2016, we purchased $23.8 million of our common stock (350,000 shares at $68.00 per share) from the Selling Stockholders (as described in Note 15. “Common Stock” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report). In 2017, we repurchased $31.5 million of our common stock (306,072 shares at an average purchase price of $102.76 per share, excluding commissions) in the open market, of which $30.7 million was settled in cash during the nine months ended September 30, 2017. We expect to fund any future repurchases from cash on hand and future cash flows from operations. The specific timing and amount of any future repurchase will vary based on market and business
conditions and other factors. We are not obligated to acquire a particular amount of securities, and the 2018 Program may be discontinued at any time at our discretion. As of September 30, 2017,March 31, 2020, we havehad approximately $69.7$98.7 million of repurchase authorization remaining under the 2018 Program.
We did not make any repurchases during the three months ended March 31, 2020. During the three months ended March 31, 2019, we repurchased 85,000 shares of common stock.
Non-GAAP Financial Measures
In evaluating our business, management considers EBITDA and Adjusted EBITDA to be key indicators of our operating performance. Our management also uses EBITDA and Adjusted EBITDA:
because similar measures are utilized in the calculation of the financial covenants and ratios contained in our financing arrangements;
in developing our internal budgets and forecasts;
as a significant factor in evaluating our management for compensation purposes;
in evaluating potential acquisitions;
in comparing our current operating results with corresponding historical periods and with the operational performance of other companies in our industry; and
in presentations to the members of our board of directors to enable our board of directors to have the same measurement basis of operating performance as is used by management in their assessments of performance and in forecasting and budgeting for our company.
In addition, we believe EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts and other interested parties in evaluating our performance. We define Adjusted EBITDA as net income (loss) plus income tax expense (benefit), interest expense, net of interest income, depreciation and amortization or EBITDA, as adjusted for items that management does not consider to be reflective of our core operating performance. These adjustments include, but are not limited to, restructuring costs, impairment charges, non-cash fair value adjustments and acquisition-related costs.
EBITDA and Adjusted EBITDA are not financial measurements recognized under U.S. GAAP, and when analyzing our operating performance, investors should use EBITDA and Adjusted EBITDA as a supplement to, and not as alternatives for, net income (loss), operating income, or any other performance measure derived in accordance with U.S. GAAP, nor as an alternative to cash flow from operating activities as a measure of our liquidity. EBITDA and Adjusted EBITDA have limitations as analytical tools, and they should not be considered in isolation or as substitutes for analysis of our results of operations as reported under U.S. GAAP. These limitations include:
they do not reflect our cash expenditures or future requirements for capital expenditure or contractual commitments;
they do not reflect changes in, or cash requirements for, our working capital needs;
they do not reflect interest expense or cash requirements necessary to service interest or principal payments under our ABL Facility, Term Loan Facility and Senior Notes;
they do not reflect certain tax payments that may represent a reduction in cash available to us;
although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and
other companies, including companies in our industry, may calculate these measures differently and, as the number of differences in the way companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases.
In addition, in evaluating Adjusted EBITDA, it should be noted that in the future, we may incur expenses similar to the adjustments in the below presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by special items.
The following table provides a reconciliation of EBITDA and Adjusted EBITDA from net income (loss), which is the most comparable financial measure in accordance with U.S. GAAP:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (dollar amounts in thousands) |
Net income attributable to Cooper-Standard Holdings Inc. | $ | 24,640 |
| | $ | 36,362 |
| | $ | 106,802 |
| | $ | 107,874 |
|
Income tax expense | 7,838 |
| | 12,525 |
| | 40,258 |
| | 43,312 |
|
Interest expense, net of interest income | 10,256 |
| | 10,114 |
| | 31,788 |
| | 29,861 |
|
Depreciation and amortization | 34,368 |
| | 31,325 |
| | 99,413 |
| | 91,699 |
|
EBITDA | $ | 77,102 |
| | $ | 90,326 |
| | $ | 278,261 |
| | $ | 272,746 |
|
Restructuring charges | 9,909 |
| | 10,430 |
| | 28,220 |
| | 33,468 |
|
Settlement charges (1) | 5,902 |
| | — |
| | 5,902 |
| | — |
|
Foreign tax amnesty program (2) | 3,121 |
| | — |
| | 3,121 |
| | — |
|
Impairment charges (3) | — |
| | — |
| | 4,270 |
| | — |
|
Loss on refinancing and extinguishment of debt (4) | — |
| | — |
| | 1,020 |
| | — |
|
Secondary offering underwriting fees and other expenses (5) | — |
| | — |
| | — |
| | 6,500 |
|
Other | — |
| | — |
| | — |
| | 155 |
|
Adjusted EBITDA | $ | 96,034 |
| | $ | 100,756 |
| | $ | 320,794 |
| | $ | 312,869 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 |
| 2019 |
| (dollar amounts in thousands) |
Net loss attributable to Cooper-Standard Holdings Inc. | $ | (110,588 | ) | | $ | (5,415 | ) |
Income tax (benefit) expense | (14,117 | ) | | 2,034 |
|
Interest expense, net of interest income | 10,237 |
| | 11,932 |
|
Depreciation and amortization | 37,763 |
| | 36,605 |
|
EBITDA | $ | (76,705 | ) | | $ | 45,156 |
|
Impairment of assets held for sale | 74,079 |
| | — |
|
Restructuring charges | 7,276 |
| | 17,715 |
|
Project costs (1) | 2,425 |
| | 1,263 |
|
Other impairment charges (2) | 684 |
| | — |
|
Lease termination costs (3) | 520 |
| | — |
|
Adjusted EBITDA | $ | 8,279 |
| | $ | 64,134 |
|
| |
(1) | Non-cash settlement charges of $5.7 millionProject costs recorded in selling, administration and administrative fees of $0.2 million relatingengineering expense related to the U.K. pension plan.assets held for sale in 2020 and acquisitions and divestiture costs in 2019. |
| |
(2) | RelatesNon-cash impairment charges of $684 related to indirect taxes recorded in costfixed assets, net of products sold.approximately $293 attributable to our noncontrolling interests. |
| |
(3) | ImpairmentLease termination costs no longer recorded as Restructuring charges related to fixed assets. |
| |
(4) | Loss on refinancing and extinguishment of debt related to the May 2017 amendment of the Term Loan Facility. |
| |
(5) | Fees and other expenses associatedin accordance with the March 2016 secondary offering.ASC 842. |
Contingencies and Environmental Matters
The information concerning contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters, contained in Note 18.21. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, is incorporated herein by references.reference.
Recently Issued Accounting Pronouncements
See Note 1. “Overview”2. “New Accounting Pronouncements” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
Critical Accounting Estimates
There have been no significant changes in our critical accounting estimates during the ninethree months ended September 30, 2017.March 31, 2020.
Forward-Looking Statements
This quarterly report on Form 10-Q includes “forward-looking statements” within the meaning of U.S. federal securities laws, and we intend that such forward-looking statements be subject to the safe harbor created thereby. Our use of words “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “outlook”, “guidance”, “forecast,” or future or conditional verbs, such as “will,” “should,” “could,” “would,” or “may,” and variations of such words or similar expressions are intended to identify
forward-looking statements. All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you that these expectations, beliefs and projections will be achieved. Forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties and other factors that may cause actual results or achievements to be materially different from the future results or achievements expressed or implied by the forward-looking statements. Among other items, such factors may include: the impact, and expected continued impact, of the recent COVID-19 outbreak on our financial condition and results of operations; significant risks to our liquidity presented by the COVID-19 pandemic risk; prolonged or material contractions in automotive sales and production volumes; our inability to realize sales represented by awarded business; escalating pricing pressures; loss of large customers or significant platforms; our ability to successfully compete in the automotive parts industry; availability and increasing volatility in costs of manufactured components and raw materials; disruption in our supply base; competitive threats and commercial risks associated with our diversification strategy through Advanced Technology Group; possible variability of our working capital requirements; risks associated with our international operations;operations, including changes in laws, regulations, and policies governing the terms of foreign trade such as increased trade restrictions and tariffs; foreign currency exchange rate fluctuations; our ability to control the operations of our joint ventures for our sole benefit; our substantial amount of indebtedness; our ability to obtain adequate financing sources in the future; operating and financial restrictions imposed on us under our debt instruments; the underfunding of our pension plans; significant changes in discount rates and the actual return on pension assets; effectiveness of continuous improvement programs and other cost savings plans; manufacturing facility closings or consolidation; our ability to execute new program launches; our ability to meet customers'customers’ needs for new and improved products; the possibility that our acquisitions and divestitures may not be successful; product liability, warranty and recall claims brought against us; laws and regulations, including environmental, health and safety laws and regulations; legal proceedings, claims or investigations against us; work stoppages or other labor disruptions; the ability of our intellectual property to withstand legal challenges; cyber-attacks, ordata privacy concerns, other disruptions in, or the inability to implement upgrades to, our information technology systems; the possible volatility of our annual effective tax rate; changes in our assumptions as a result of IRS issuing guidance on the Tax Cuts and Jobs Act; the possibility of a failure to maintain effective controls and procedures; the possibility of future impairment charges to our goodwill and long-lived assets; and our dependence on our subsidiaries for cash to satisfy our obligations.
You should not place undue reliance on these forward-looking statements. WeOur forward-looking statements speak only as of the date of this quarterly report on Form 10-Q, and we undertake no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except where we are expressly required to do so by law.
This quarterly report on Form 10-Q also contains estimates and other information that is based on industry publications, surveys, and forecasts. This information involves a number of assumptions and limitations, and we have not independently verified the accuracy or completeness of the information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
ThereExcept for the broad effects of COVID-19 on the global economy and major financial markets, there have been no material changes to the quantitative and qualitative information about the Company’s market risk from those previously disclosed in the Company’s 20162019 Annual Report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has evaluated, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Based on that evaluation, the Company’s Chief Executive Officer along with the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this Report.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2017March 31, 2020 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1A.Risk Factors
The Company is supplementing the risk factors set out under “Item 1A. Risk Factors” in its Annual Report on Form 10-K the fiscal year ended December 31, 2019 with the additional risk factors set forth below. The risk factors below should be read in conjunction with the risk factors set out in the Company’s Form 10-K.
Our financial condition and results of operations have been, and are expected to continue to be, adversely affected by the recent COVID-19 outbreak.
We face risks related to public health issues, including epidemics and pandemics such as the global outbreak of COVID-19. To date, the COVID-19 outbreak, which has surfaced in nearly all regions around the world, and preventative measures taken to contain or mitigate the COVID-19 outbreak have caused, and are continuing to cause, business slowdowns or shutdowns and significant disruption in the financial markets both in the United States and globally. Our China manufacturing facilities experienced an extended shutdown in January and February 2020. These facilities began to re-open and ramp production, consistent with governmental guidelines and customer schedules, in late February and early March 2020.
In March 2020, our automotive customers elected to shut down their manufacturing operations in regions around the world outside of China. As a result, we correspondingly shut down our automotive manufacturing operations in all regions other than China. As of April 29, 2020, only our 12 China automotive plants and three non-automotive plants (two in the United States and one in Germany) are operating. Although our automotive operations will generally not realize revenue while our facilities are shut down, we continue to incur significant operating and non-operating expenses associated with these facilities.
We expect to restart our manufacturing operations only when our automotive customers restart their operations and start issuing orders. While, based on the information received from our automotive customers, we are currently considering a scenario for a phased restart of our manufacturing plants, supply network and other dependent functions (in addition to what is already underway in China) in mid-to-late May 2020 with enhanced safety standards in place to protect workers, we do not know when our automotive customers will actually resume their manufacturing operations. Furthermore, any decisions on resumptions will need to be in compliance with local government requirements and made in cooperation with our customers, local unions and other stakeholders, and, accordingly, any projected timetable for resumption is subject to change. Fully ramping up our operations may take several months and will depend, in part, on whether our customers and suppliers have resumed normal operations. In addition, government regulations and safety and social distancing procedures that we implement may increase our operating costs, and we may not be able to pass along these increased costs to our customers.
Our business relies on a number of third parties, including suppliers and distribution and logistics providers. One or more of these third parties may experience financial distress, staffing shortages or liquidity challenges, file for bankruptcy protection, go out of business, or suffer disruptions in their business due to the COVID-19 pandemic. These supply chain effects may have an adverse effect on our ability to restart our business and meet customer demand and may result in an increase in our costs of production and distribution, including increased freight and logistics costs and other expenses. A continued significant disruption to our production schedule will have an adverse effect on our financial condition, liquidity and results of operations.
If a significant percentage of our workforce, or the workforces of our suppliers and other third-party partners, is unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, our operations may be negatively impacted. We also depend on senior management and other key personnel and consultants, and the illness of certain personnel or consultants could result in the loss of expertise and negatively affect our operations.
The economic slowdown attributable to COVID-19 has led to a global decrease in vehicle sales in markets around the world. Based on current weak consumer confidence, rising unemployment levels, risks to small businesses and overall economic uncertainty, it is likely that global demand for light vehicles will be significantly lower than both historical and previously projected levels for an extended period, even as the COVID-19 pandemic begins to abate. As described in more detail under the risk factor entitled “We are highly dependent on the automotive industry. A prolonged or material contraction in automotive sales and production volumes could adversely affect our business, results of operations and financial condition.” in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, a sustained decline in vehicle sales would adversely affect our business, results of operations and financial condition.
The COVID-19 pandemic has also caused significant disruptions to global financial markets. Such disruptions, together with the impact of COVID-19 on the automotive industry, may have a negative impact on our ability to access capital in the future on favorable terms or at all.
The full impact of the COVID-19 pandemic on our financial condition and results of operations will depend on future developments, such as the ultimate duration and scope of the outbreak, its impact on our customers, suppliers and logistics partners, how quickly normal operations can resume and the duration and magnitude of the economic downturn caused by the pandemic in our key markets. Further, government-sponsored liquidity or stimulus programs in response to the COVID-19 pandemic may not be available to our customers, suppliers or us, and if available, may nevertheless be insufficient to address the impacts of COVID-19. While we expect the impacts of COVID-19 to have an adverse effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.
The COVID-19 pandemic may also exacerbate the other risks disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019.
The COVID-19 pandemic risk presents significant risks to our liquidity.
Our continued access to sources of liquidity depends on multiple factors, including global economic conditions, the effects of the COVID-19 pandemic on our customers and their production rates, the condition of global financial markets, the availability of sufficient amounts of financing, our operating performance and our credit ratings. While we currently have no outstanding borrowings under our ABL facility, our ability to borrow against the ABL facility is limited to our borrowing base, which consists primarily of our U.S. and Canadian accounts receivable and inventory. Such working capital account balances are expected to decrease over the next few months as a result of the production shutdown, and thus our ability to borrow under our ABL facility will decrease significantly.
In addition, if the Company has availability for borrowing under its ABL facility less than the greater of (i) $15,000,000 and (ii) 10% of the Borrowing Base (as defined in the ABL facility), it must be in compliance with a springing Fixed Charge Coverage Ratio maintenance covenant of 1.00:1.00. The Company currently would not be able to satisfy such covenant and does not expect to be able to for the foreseeable future due to the impact of the COVID-19 pandemic on its business. Accordingly, the Company intends to manage any borrowings under its ABL facility to avoid triggering this maintenance covenant, which would further constrain its ability to utilize the ABL facility. As of March 31, 2020, the Company’s Borrowing Base was $173 million. Net of the 10% of the Borrowing Base that cannot be borrowed without triggering the fixed charge coverage ratio maintenance covenant and $10 million of outstanding letters of credit, the Company effectively had $146 million available for borrowing under its ABL facility.
Furthermore, production shutdowns will result in working capital swings which are expected to result in increased outflows during 2020. As a result of the impacts of the COVID-19 pandemic, we may be required to raise additional capital, and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. Such capital may not be available on favorable terms or at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities By the Issuer and Affiliated Purchasers
The Company is authorized to purchase, in the aggregate, up to $150 million of our outstanding common stock under our common stock repurchase program, which was effective in November 2018. As of March 31, 2020, we had approximately $98.7 million of repurchase authorization remaining under our ongoing common stock share repurchase program as discussed in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Share Repurchase Program,” and Note 15.18. “Common Stock” to the unaudited condensed consolidated financial statements included in Part 1,I, Item 1 of this Report, we have approximately $69.7 million of repurchase authorization remaining under our ongoing common stock share repurchase program.Report.
A summary of our shares of common stock repurchased during the three months ended September 30, 2017March 31, 2020 is shown below:below:
|
| | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (in millions) |
July 1, 2017 through July 31, 2017 | | 71,671 |
| | $ | 103.63 |
| | 71,663 |
| | $ | 84.5 |
|
August 1, 2017 through August 31, 2017 | | 76,038 |
| | $ | 100.56 |
| | 76,000 |
| | $ | 76.8 |
|
September 1, 2017 through September 30, 2017 | | 66,003 |
| | $ | 107.02 |
| | 66,000 |
| | $ | 69.7 |
|
Total | | 213,712 |
| | $ | 103.58 |
| | 213,663 |
| | $ | 69.7 |
|
|
| | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (in millions) |
January 1, 2020 through January 31, 2020 | | — |
| | $ | — |
| | — |
| | $ | 98.7 |
|
February 1, 2020 through February 29, 2020 | | 19,086 |
| | 25.19 |
| | — |
| | 98.7 |
|
March 1, 2020 through March 31, 2020 | | 306 |
| | 12.44 |
| | — |
| | 98.7 |
|
Total | | 19,392 |
| | | | — |
| | |
| |
(1) | Includes 49 shares repurchased by the Company to satisfy employee tax withholding requirements due upon the vesting of restricted stock awards. |
Item 6. Exhibits
|
| | |
| | |
Exhibit No. | | Description of Exhibit |
10.1* | | |
| | |
10.2* | | |
| | |
10.3* | | |
| | |
10.4* | |
|
| | |
10.5* | | |
| | |
31.1* | | |
| |
31.2* | | |
| |
32** | | |
| |
101.INS*** | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| | |
101.SCH*** | | Inline XBRL Taxonomy Extension Schema Document |
| |
101.CAL*** | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| |
101.DEF*** | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| |
101.LAB*** | | Inline XBRL Taxonomy Label Linkbase Document |
| |
101.PRE*** | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
104*** | | Cover Page Interactive Data File, formatted in Inline XBRL |
|
| |
* | Filed with this Report. |
** | Furnished with this Report. |
*** | Submitted electronically with this Report in accordance with the provisions of Regulation S-T. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | | |
| | | | COOPER-STANDARD HOLDINGS INC. |
| | |
November 1, 2017May 11, 2020 | | | | /S/ JONATHAN P. BANAS |
Date | | | | Jonathan P. Banas Chief Financial Officer (Principal Financial Officer) |
INDEX TO EXHIBITS
|
| | |
Exhibit
No.
| | Description of Exhibit |
| | |
31.1* | | |
| |
31.2* | | |
| |
32** | | |
| |
101.INS*** | | XBRL Instance Document |
| |
101.SCH*** | | XBRL Taxonomy Extension Schema Document |
| |
101.CAL*** | | XBRL Taxonomy Extension Calculation Linkbase Document |
| |
101.DEF*** | | XBRL Taxonomy Extension Definition Linkbase Document |
| |
101.LAB*** | | XBRL Taxonomy Label Linkbase Document |
| |
101.PRE*** | | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| |
* | Filed with this Report. |
** | Furnished with this Report. |
*** | Submitted electronically with this Report in accordance with the provisions of Regulation S-T. |