COOPER-STANDARD HOLDINGS INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM
10-Q
___________________________________
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2023
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from __________ to __________.
Commission File Number:
001-36127
______________________________
(Exact name of registrant as specified in its charter)
______________________________
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(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
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(Address of principal executive offices)
(Zip Code)
(
248
)
596-5900
(Registrant’s telephone number, including area code)
______________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ |
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| Non-accelerated filer | ☐ | Smaller reporting company |
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| Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
As of April 27, 2023, there were
17,138,518
shares of the registrant’s common stock, $0.001 par value, outstanding.
1
COOPER-STANDARD HOLDINGS INC.
Form 10-Q
For the period ended March 31, 2023
| Page | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollar amounts in thousands except per share amounts)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Sales | $ |
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$ |
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| Cost of products sold |
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| Gross profit |
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| Selling, administration & engineering expenses |
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| Amortization of intangibles |
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| Restructuring charges |
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| Impairment charges |
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| Operating loss |
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| Interest expense, net of interest income |
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| Equity in losses of affiliates |
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| Loss on refinancing and extinguishment of debt |
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| Other expense, net |
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| Loss before income taxes |
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| Income tax expense |
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| Net loss |
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| Net loss attributable to noncontrolling interests |
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| Net loss attributable to Cooper-Standard Holdings Inc. | $ |
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$ |
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| Loss per share: | |||||||||||
| Basic | $ |
(
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$ |
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| Diluted | $ |
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$ |
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The accompanying notes are an integral part of these financial statements.
3
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(Dollar amounts in thousands)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net loss | $ |
(
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$ |
(
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| Other comprehensive income (loss): | |||||||||||
| Currency translation adjustment |
(
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| Benefit plan liabilities adjustment, net of tax |
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| Fair value change of derivatives, net of tax |
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| Other comprehensive income, net of tax |
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| Comprehensive loss |
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(
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| Comprehensive loss attributable to noncontrolling interests |
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| Comprehensive loss attributable to Cooper-Standard Holdings Inc. | $ |
(
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$ |
(
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The accompanying notes are an integral part of these financial statements.
4
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except share amounts)
| March 31, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Accounts receivable, net |
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| Tooling receivable, net |
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| Inventories |
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| Prepaid expenses |
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| Income tax receivable and refundable credits |
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| Other current assets |
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| Total current assets |
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| Property, plant and equipment, net |
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| Operating lease right-of-use assets, net |
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| Goodwill |
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| Intangible assets, net |
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| Other assets |
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| Total assets | $ |
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$ |
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| Liabilities and Equity | |||||||||||
| Current liabilities: | |||||||||||
| Debt payable within one year | $ |
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$ |
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| Accounts payable |
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| Payroll liabilities |
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| Accrued liabilities |
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| Current operating lease liabilities |
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| Total current liabilities |
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| Long-term debt |
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| Pension benefits |
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| Postretirement benefits other than pensions |
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| Long-term operating lease liabilities |
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| Other liabilities |
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| Total liabilities |
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| Equity: | |||||||||||
| Common stock, $0.001 par value, 190,000,000 shares authorized; 19,204,327 shares issued and 17,138,518 shares outstanding as of March 31, 2023, and 19,173,838 shares issued and 17,108,029 outstanding as of December 31, 2022 |
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| Additional paid-in capital |
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| Retained deficit |
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| Accumulated other comprehensive loss |
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| Total Cooper-Standard Holdings Inc. equity |
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| Noncontrolling interests |
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| Total equity |
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| Total liabilities and equity | $ |
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$ |
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The accompanying notes are an integral part of these financial statements.
5
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(Dollar amounts in thousands except share amounts)
| Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings (Loss) | Accumulated Other Comprehensive Loss | Cooper-Standard Holdings Inc. Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
(
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$ |
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| Share-based compensation, net |
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— |
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— |
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— |
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| Net loss | — | — | — |
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— |
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| Other comprehensive income (loss) | — | — | — | — |
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(
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| Balance as of March 31, 2023 |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
(
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$ |
(
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$ |
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| Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Cooper-Standard Holdings Inc. Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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| Share-based compensation, net |
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— |
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— |
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— |
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| Deconsolidation of noncontrolling interest | — | — | — | — | — | — |
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| Net loss | — | — | — |
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— |
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(
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| Other comprehensive income (loss) | — | — | — | — |
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| Balance as of March 31, 2022 |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
(
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$ |
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The accompanying notes are an integral part of these financial statements.
6
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating Activities: | |||||||||||
| Net loss | $ |
(
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$ |
(
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| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation |
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| Amortization of intangibles |
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| Impairment charges |
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| Share-based compensation expense |
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| Equity in losses of affiliates, net of dividends related to earnings |
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| Loss on refinancing and extinguishment of debt |
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| Deferred income taxes |
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(
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| Other |
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| Changes in operating assets and liabilities |
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| Net cash provided by (used in) operating activities |
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| Investing activities: | |||||||||||
| Capital expenditures |
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(
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| Proceeds from deferred sale of fixed assets |
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| Other |
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| Net cash (used in) provided by investing activities |
(
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| Financing activities: | |||||||||||
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Proceeds from issuance of long-term debt, net of debt issuance costs
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| Repayment and refinancing of long-term debt |
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| Principal payments on long-term debt |
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(
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| Decrease in short-term debt, net |
(
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(
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| Debt issuance costs and other fees |
(
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| Taxes withheld and paid on employees' share-based payment awards |
(
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(
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| Other |
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| Net cash used in financing activities |
(
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(
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| Effects of exchange rate changes on cash, cash equivalents and restricted cash |
(
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| Changes in cash, cash equivalents and restricted cash |
(
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| Cash, cash equivalents and restricted cash at beginning of period |
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| Cash, cash equivalents and restricted cash at end of period | $ |
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$ |
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| Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet: | |||||||||||
| Balance as of | |||||||||||
| March 31, 2023 | December 31, 2022 | ||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Restricted cash included in other current assets |
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| Restricted cash included in other assets |
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| Total cash, cash equivalents and restricted cash | $ |
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$ |
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The accompanying notes are an integral part of these financial statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
1.
Overview
Basis of Presentation
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 and fluid handling (consisting of fuel and brake delivery and fluid transfer) 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, 2022 (the “2022 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 March 31, 2023 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.
Recently Adopted Accounting Pronouncements
The Company adopted the following Accounting Standard Updates (“ASU”) during the three months ended March 31, 2023, which did not have a material impact on its condensed consolidated financial statements.
| Standard | Description | Effective Date | ||||||
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ASU 2022-04,
Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations
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Requires enhanced disclosures about a buyer’s use of supplier finance programs. Supplier finance programs may also be referred to as reverse factoring, payables finance, or structured payables arrangements. | January 1, 2023 | ||||||
2.
Deconsolidation and Sale-Leaseback
2022 Joint Venture Deconsolidation
In the first quarter of 2022, a joint venture in the Asia Pacific region that was previously consolidated with a noncontrolling interest amended the governing document underlying the joint venture. The amendment to the agreement did not change the Company’s
51
% ownership. However, as a result of the amendment and effective as of January 1, 2022, the joint venture was deconsolidated and accounted for as an investment under the equity method. The Company remeasured the retained investment using the income approach method and performed a discounted cash flow analysis of the projected free cash flows of the joint venture. As a result of the deconsolidation, during the three months ended March 31, 2022, the Company recorded a loss of $
2,257
, included in other income (expense), net in the condensed consolidated statements of operations. The deconsolidation included the removal of property, plant and equipment with gross carrying value of $
29,590
and accumulated depreciation of $
11,625
, along with the removal of intangible assets (primarily land use rights) with a net carrying value of $5,258.
Sale-Leaseback
In the first quarter of 2022, the Company signed a sale-leaseback agreement on one of its European facilities. The Company closed the transaction and received cash proceeds in the amount of $
50,008
during the three months ended March 31, 2022. The sale-leaseback became effective on April 1, 2022, and the Company recorded a gain on the sale transaction of $
33,391
in the second quarter of 2022.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
3.
Revenue
Revenue is recognized for manufactured parts at a point in time, generally when products are shipped or delivered. The Company usually enters into agreements with customers to produce products at the beginning of a vehicle’s life. Blanket purchase orders received from customers and related documents generally establish the annual terms, including pricing, related to a vehicle model. Customers typically pay for parts based on customary business practices with payment terms generally between 30 and 90 days.
Revenue by customer group for the three months ended March 31, 2023 was as follows:
| North America | Europe | Asia Pacific | South America | Corporate, Eliminations and Other | Consolidated | ||||||||||||||||||||||||||||||
| Passenger and Light Duty | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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| Commercial |
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| Other |
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| Revenue | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Revenue by customer group for the three months ended March 31, 2022 was as follows:
| North America | Europe | Asia Pacific | South America | Corporate, Eliminations and Other | Consolidated | ||||||||||||||||||||||||||||||
| Passenger and Light Duty | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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| Commercial |
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| Other |
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| Revenue | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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The passenger and light duty customer group consists of sales to automotive OEMs and automotive suppliers, while the commercial customer group represents sales to OEMs of on- and off-highway commercial equipment and vehicles. The other customer group includes sales related to specialty and adjacent markets.
Substantially all of the Company’s revenues were generated from sealing and fluid handling (consisting of fuel and brake delivery and fluid transfer) systems for use in passenger vehicles and light trucks manufactured by global OEMs.
A summary of the Company’s products is as follows:
| Product Line | Description | |||||||
| Sealing Systems | Protect vehicle interiors from weather, dust and noise intrusion for improved driving experience; provide aesthetic and functional class-A exterior surface treatment | |||||||
| Fuel and Brake Delivery Systems | Sense, deliver and control fluids to fuel and brake systems | |||||||
| Fluid Transfer Systems | Sense, deliver and control fluids and vapors for optimal powertrain & HVAC operation | |||||||
Revenue by product line for the three months ended March 31, 2023 was as follows:
| North America | Europe | Asia Pacific | South America | Corporate, Eliminations and Other | Consolidated | ||||||||||||||||||||||||||||||
| Sealing systems | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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| Fluid handling: | |||||||||||||||||||||||||||||||||||
| Fuel and brake delivery systems |
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| Fluid transfer systems |
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| Total fluid handling |
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| Other |
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| Revenue | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Revenue by product line for the three months ended March 31, 2022 was as follows:
| North America | Europe | Asia Pacific | South America | Corporate, Eliminations and Other | Consolidated | ||||||||||||||||||||||||||||||
| Sealing systems | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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| Fluid handling: | |||||||||||||||||||||||||||||||||||
| Fuel and brake delivery systems |
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| Fluid transfer systems |
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| Total fluid handling |
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| Other |
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| Revenue | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Contract Estimates
The amount of revenue recognized is usually based on the purchase order price and adjusted for variable consideration, including pricing concessions. The Company accrues for pricing concessions by reducing revenue as products are shipped or delivered. The accruals are based on historical experience, anticipated performance and management’s best judgment. The Company also generally has ongoing adjustments to customer pricing arrangements based on the content and cost of its products. Such pricing accruals are adjusted as they are settled with customers. Customer returns, which are infrequent, are usually related to quality or shipment issues and are recorded as a reduction of revenue. The Company generally does not recognize significant return obligations due to their infrequent nature.
Contract Balances
The Company’s contract assets consist of unbilled amounts associated with variable pricing arrangements in the Asia Pacific region. Once pricing is finalized, contract assets are transferred to accounts receivable. As a result, the timing of revenue recognition and billings, as well as changes in foreign exchange rates, will impact contract assets on an ongoing basis. Contract assets were not materially impacted by any other factors during the three months ended March 31, 2023.
The Company’s contract liabilities consist of advance payments received and due from customers. Net contract assets (liabilities) consisted of the following:
| March 31, 2023 | December 31, 2022 | Change | ||||||||||||||||||
| Contract assets | $ |
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$ |
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$ |
(
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| Contract liabilities |
(
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(
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| Net contract assets (liabilities) | $ |
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$ |
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$ |
(
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||||||||||||||
Other
The Company, at times, enters into agreements that provide for lump sum payments to customers. These payment agreements are recorded as a reduction of revenue during the period the commitment is made, unless the payment is contractually recoverable. Amounts related to commitments of future payments to customers on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 were current liabilities of $
11,126
and $
9,325
, respectively, and long-term liabilities of $
5,560
and $
5,899
, respectively.
4.
Restructuring
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”), along with other related exit costs and asset impairments
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
related to restructuring activities (collectively, “other exit costs”). Employee separation costs are recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy.
Restructuring charges by segment for the three months ended March 31, 2023 and 2022 was as follows:
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| North America | $ |
|
$ |
(
|
|||||||
| Europe |
|
|
|||||||||
| Asia Pacific |
|
(
|
|||||||||
| South America |
|
|
|||||||||
| Total Automotive |
|
|
|||||||||
| Corporate and other |
|
(
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
Restructuring activity for the three months ended March 31, 2023 was as follows:
| Employee Separation Costs | Other Exit Costs | Total | |||||||||||||||
| Balance as of December 31, 2022 | $ |
|
$ |
|
$ |
|
|||||||||||
| Expense |
|
|
|
||||||||||||||
| Cash payments |
(
|
(
|
(
|
||||||||||||||
| Foreign exchange translation and other |
|
|
|
||||||||||||||
| Balance as of March 31, 2023 | $ |
|
$ |
|
$ |
|
|||||||||||
5.
Inventories
Inventories consist of the following:
| March 31, 2023 | December 31, 2022 | ||||||||||
| Finished goods | $ |
|
$ |
|
|||||||
| Work in process |
|
|
|||||||||
| Raw materials and supplies |
|
|
|||||||||
| $ |
|
$ |
|
||||||||
6.
Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill by reporting unit for the three months ended March 31, 2023 were as follows:
| North America | Industrial Specialty Group | Total | |||||||||||||||
| Balance as of December 31, 2022 | $ |
|
$ |
|
$ |
|
|||||||||||
| Foreign exchange translation |
|
|
|
||||||||||||||
| Balance as of March 31, 2023 | $ |
|
$ |
|
$ |
|
|||||||||||
Goodwill is tested for impairment by reporting unit annually or more frequently if events or circumstances indicate that an impairment may exist. There were no indicators of potential impairment during the three months ended March 31, 2023.
11
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 March 31, 2023 and December 31, 2022 were as follows:
|
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
|||||||||||||||
| Customer relationships | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Other |
|
(
|
|
||||||||||||||
| Balance as of March 31, 2023 | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Customer relationships | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Other |
|
(
|
|
||||||||||||||
| Balance as of December 31, 2022 | $ |
|
$ |
(
|
$ |
|
|||||||||||
7.
Debt and Other Financing
A summary of outstanding debt as of March 31, 2023 and December 31, 2022 is as follows:
| March 31, 2023 | December 31, 2022 | ||||||||||
| First Lien Notes | $ |
|
$ |
|
|||||||
| Third Lien Notes |
|
|
|||||||||
| 2026 Senior Notes |
|
|
|||||||||
| 2024 Senior Secured Notes |
|
|
|||||||||
| Term Loan |
|
|
|||||||||
| Finance leases |
|
|
|||||||||
| Other borrowings |
|
|
|||||||||
| Total debt |
|
|
|||||||||
| Less current portion |
(
|
(
|
|||||||||
| Total long-term debt | $ |
|
$ |
|
|||||||
Refinancing Transactions
On January 27, 2023 (the “Settlement Date”), the Company, Cooper-Standard Automotive Inc. (the “Issuer”), a wholly-owned subsidiary of the Company, and certain other of the Company’s direct and indirect subsidiaries completed certain refinancing transactions (the “Refinancing Transactions”) consisting of: (i) the exchange (the “Exchange Offer”) of $
357,446
aggregate principal amount of the Issuer’s then existing 5.625% Senior Notes due 2026 (the “2026 Senior Notes”) (representing 89.36% of the aggregate principal amount outstanding of the 2026 Senior Notes) for $
357,446
aggregate principal amount of the Issuer’s newly issued 5.625% Cash Pay / 10.625% PIK Toggle Senior Secured Third Lien Notes due 2027 (the “Third Lien Notes”), (ii) the issuance by the Issuer (the “Concurrent Notes Offering”) of $
580,000
aggregate principal amount of 13.50% Cash Pay / PIK Toggle Senior Secured First Lien Notes due 2027 (the “First Lien Notes” and, together with the Third Lien Notes, the “New Notes”) to holders of 2026 Senior Notes or their designees who participated in the Exchange Offer, including to certain backstop commitment parties who committed to purchase the First Lien Notes not otherwise subscribed for, (iii) the related consent solicitation (the “Consent Solicitation”) to remove substantially all of the covenants, certain events of default and certain other provisions contained in the 2026 Senior Notes and the indenture governing the 2026 Senior Notes and to release and discharge the guarantee of the 2026 Senior Notes by the Company, (iv) the effectiveness of the Third Amendment (as defined below) to the senior asset-based revolving credit facility (“ABL Facility”) and (v) the use of proceeds from the Concurrent Notes Offering, together with cash on hand, to prepay all amounts outstanding under the Term Loan Facility at par, plus any accrued and unpaid interest thereon, to redeem the Issuer’s existing 2024 Senior Secured Notes (as defined below), including the prepayment premium and any accrued and unpaid interest thereon, and to pay fees and expenses related to the Refinancing Transactions. As a result of the Refinancing Transactions, the Issuer extended the maturities of its indebtedness and reduced the amount of cash interest it is required to pay on such indebtedness for the next two years. The Company recognized a loss on the refinancing and extinguishment of debt of $
81,885
during the three months ended March 31, 2023. Additionally, the Company incurred total fees of $
90,740
associated with the Refinancing Transactions, of which $
83,961
were
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
paid during the three months ended March 31, 2023, $
4,237
were paid during 2022 and $
2,541
are recorded in accounts payable in the condensed consolidated balance sheets as of March 31, 2023 and will be paid in future periods. The fees paid during the three months ended March 31, 2023 are reflected as a financing outflow in the condensed consolidated statement of cash flows. Of the fees paid during the three months ended March 31, 2023, $
73,335
was included in the loss on the refinancing and extinguishment of debt referenced above, $
9,996
is presented as a direct deduction from the principal balance in the condensed consolidated balance sheet, and $
630
related to amending the ABL Facility is recorded in other long-term assets in the condensed consolidated balance sheet.
New Notes
On the Settlement Date, the Issuer issued $
580,000
aggregate principal amount of First Lien Notes pursuant to an indenture, dated as of the Settlement Date (the “First Lien Notes Indenture”), by and among the Issuer, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (the “First Lien Collateral Agent”).
The First Lien Notes are senior secured obligations of the Issuer and are guaranteed by CS Intermediate Holdco 1 LLC (“Holdings”), each of the Issuer’s wholly owned domestic subsidiaries that guarantee certain other indebtedness, subject to certain exceptions (the “Domestic Guarantors”), and certain of the Issuer’s wholly owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands and Romania (the “Foreign Guarantors”). The First Lien Notes are guaranteed by Holdings and the Domestic Guarantors on a senior secured basis and by the Foreign Guarantors on a senior unsecured basis. The guarantees of the subsidiaries organized in France are limited guarantees.
The First Lien Notes will mature on March 31, 2027. The First Lien Notes bear interest at the rate of 13.50% per annum, payable in cash; provided, however, that for the first four interest periods after the Settlement Date, the Issuer has the option, in its sole discretion, to pay up to 4.50% of such interest on the First Lien Notes, in such amount as specified by the Issuer, by increasing the principal amount of the outstanding First Lien Notes or, in limited circumstances as described in the First Lien Notes Indenture, by issuing additional First Lien Notes. As of March 31, 2023, the aggregate principal amount of the First Lien Notes recognized in the condensed consolidated balance sheet assumes the Company will elect to pay 4.50% of the first interest payment in payment-in-kind. Interest on the First Lien Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2023.
The Issuer may, at its option, redeem all or part of the First Lien Notes prior to maturity at the prices set forth in the First Lien Notes Indenture. Upon the occurrence of certain events constituting a Change of Control (as defined in the First Lien Notes Indenture), the Issuer will be required to make an offer to repurchase all of the First Lien Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
As of March 31, 2023, the Company had $
9,388
of unamortized debt issuance costs and $
415
of unamortized original issue discount related to the First Lien Notes, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheet. Both the debt issuance costs and the original issue discount are amortized into interest expense over the term of the First Lien Notes.
The First Lien Notes Indenture contains certain customary covenants that limit the Issuer’s and its restricted subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness or issue certain preferred stock; incur liens on assets; pay dividends or make other distributions in respect of, or repurchase or redeem, its capital stock or make other restricted payments; prepay, redeem or repurchase certain debt; make certain loans and investments; enter into agreements restricting certain subsidiaries’ ability to pay dividends; enter into transactions with affiliates; and sell certain assets or merge or consolidate with or into other companies. These covenants are subject to a number of important limitations and exceptions. The First Lien Notes Indenture also provides for customary events of default, which, if any occur, would permit or require the principal, premium, if any, interest and any other monetary obligations on all of the then outstanding First Lien Notes to be due and payable immediately.
On the Settlement Date, the Issuer issued $
357,446
aggregate principal amount of Third Lien Notes pursuant to an indenture, dated as of the Settlement Date (the “Third Lien Notes Indenture”), by and among the Issuer, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (the “Third Lien Collateral Agent”).
The Third Lien Notes are senior secured obligations of the Issuer and are guaranteed by Holdings, each of the Domestic Guarantors, and each of the Foreign Guarantors. The Third Lien Notes are guaranteed by Holdings and the Domestic Guarantors on a senior secured basis and by the Foreign Guarantors on a senior unsecured basis. The guarantees of the subsidiaries organized in France are limited guarantees.
The Third Lien Notes will mature on May 15, 2027. The Third Lien Notes bear interest at the rate of 5.625% per annum, payable in cash; provided, however, that for the first four interest periods after the Settlement Date, the Issuer has the option, in its sole discretion, to instead pay such interest at 10.625% per annum either by increasing the principal amount of the
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
outstanding Third Lien Notes or, in limited circumstances as described the Third Lien Notes Indenture, by issuing additional Third Lien Notes. As of March 31, 2023, the aggregate principal amount of the Third Lien Notes recognized in the condensed consolidated balance sheet assumes interest on the Third Lien Notes will be fully paid in payment-in-kind. Interest on the Third Lien Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2023.
The Issuer may, at its option, redeem all or part of the Third Lien Notes prior to maturity at the prices set forth in the Third Lien Notes Indenture. Upon the occurrence of certain events constituting a Change of Control (as defined in the Third Lien Notes Indenture), the Issuer will be required to make an offer to repurchase all of the Third Lien Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
Debt issuance costs related to the Third Lien Notes are amortized into interest expense over the term of the Third Lien Notes. As of March 31, 2023, the Company had $5,782 of unamortized debt issuance costs related to the Third Lien Notes, which are presented as a direct deduction from the principal balance in the condensed consolidated balance sheet.
The Third Lien Notes Indenture contains certain customary covenants that limit the Issuer’s and its restricted subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness or issue certain preferred stock; incur liens on assets; pay dividends or make other distributions in respect of, or repurchase or redeem, its capital stock or make other restricted payments; prepay, redeem or repurchase certain debt; make certain loans and investments; enter into agreements restricting certain subsidiaries’ ability to pay dividends; enter into transactions with affiliates; and sell certain assets or merge or consolidate with or into other companies. These covenants are subject to a number of important limitations and exceptions. The Third Lien Notes Indenture also provides for customary events of default, which, if any occur, would permit or require the principal, premium, if any, interest and any other monetary obligations on all of the then outstanding Third Lien Notes to be due and payable immediately.
In connection with the issuance of the New Notes, the First Lien Collateral Agent, the Third Lien Collateral Agent, the collateral agent under the ABL Facility, the Issuer, Holdings and the several other parties named therein entered into the First Lien and Third Lien Intercreditor Agreement, providing for the relative priorities of their respective security interests in the assets securing the First Lien Notes, the Third Lien Notes and the ABL Facility, and certain other matters relating to the administration of security interests.
2026 Senior Notes
On November 2, 2016, the Issuer issued $
400,000
aggregate principal amount of 2026 Senior Notes. On the Settlement Date, in connection with the Refinancing Transactions, the Issuer completed the Exchange Offer and delivered $
357,446
aggregate principal amount of the exchanged 2026 Senior Notes to the trustee for cancellation. Following the completion of the Exchange Offer, $
42,554
aggregate principal amount of the 2026 Senior Notes remain outstanding.
Following receipt of the requisite consents in the Consent Solicitation, on January 20, 2023, the Issuer, the guarantors named therein and U.S. Bank Trust Company, National Association (successor in interest to U.S. Bank National Association), as trustee, entered into a supplemental indenture to the indenture governing the 2026 Senior Notes, which became effective on the Settlement Date. The supplemental indenture provides for the elimination of substantially all of the covenants, certain events of default and certain other provisions contained in the 2026 Senior Notes and the indenture governing the 2026 Senior Notes and released and discharged the guarantee of the 2026 Senior Notes by the Company.
The 2026 Senior Notes are guaranteed by each of the Issuer’s wholly-owned existing or subsequently organized U.S. subsidiaries, subject to certain exceptions, to the extent such subsidiary guarantees the ABL Facility. The Issuer may, at its option, redeem all or part of the 2026 Senior Notes at various points in time prior to maturity, as described in the indenture governing the 2026 Senior Notes. The 2026 Senior Notes will mature on November 15, 2026. Interest on the 2026 Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year.
The Company paid approximately $
7,055
of debt issuance costs in connection with the issuance of the 2026 Senior Notes. The debt issuance costs are being amortized into interest expense over the term of the 2026 Senior Notes. As of March 31, 2023 and December 31, 2022, the Company had $
273
and $
2,741
of unamortized debt issuance costs related to the 2026 Senior Notes, which is presented as a direct deduction from the principal balance in the consolidated balance sheets.
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
2024 Senior Secured Notes
On May 29, 2020, the Issuer issued $
250,000
aggregate principal amount of its 13.000% Senior Secured Notes due 2024 (the “2024 Senior Secured Notes”), pursuant to an indenture, dated as of May 29, 2020, by and among the Issuer, the other guarantors party thereto and U.S. Bank National Association, as trustee. The 2024 Senior Secured Notes would have matured on June 1, 2024. Interest on the 2024 Senior Secured Notes was payable semi-annually in arrears in cash on June 1 and December 1 of each year. In the first quarter of 2023, in connection with the Refinancing Transactions, the Issuer redeemed all of the outstanding 2024 Senior Secured Notes on the Settlement Date at the redemption price of 106.500% of the principal amount thereof, plus accrued and unpaid interest thereon.
The Company paid approximately $
6,431
of debt issuance costs in connection with the issuance of the 2024 Senior Secured Notes. Additionally, the 2024 Senior Secured Notes were issued at a discount of $5,000. As of December 31, 2022, the Company had $
3,021
of unamortized debt issuance costs and $
2,508
of unamortized original issue discount related to the 2024 Senior Secured Notes, which were presented as direct deductions from the principal balance in the consolidated balance sheet. Both the debt issuance costs and the original issue discount were amortized into interest expense over the term of the 2024 Senior Secured Notes.
ABL Facility
On November 2, 2016, Holdings, Cooper-Standard Automotive Inc. (the “U.S. Borrower”), Cooper-Standard Automotive Canada Limited (the “Canadian Borrower”), Cooper-Standard Automotive International Holdings B.V. (the “Dutch Borrower”, and, together with the U.S. Borrower and the Canadian Borrower, the “Borrowers”) and certain subsidiaries of the U.S. Borrower, entered into a third amendment and restatement of the ABL Facility. In March 2020, the Borrowers entered into Amendment No. 1 to the Third Amended and Restated Loan Agreement (“the First Amendment”). As a result of the First Amendment, the ABL Facility maturity was extended to March 2025 and the aggregate revolving loan commitment was reduced to $
180.0
million. In May 2020, the Borrowers entered into Amendment No. 2 to the Third Amended and Restated Loan Agreement (the “Second Amendment”), which Second Amendment modified certain covenants under the ABL Facility. In December 2022, the Borrowers entered into Amendment No. 3 to the Third Amended and Restated Loan Agreement (the “Third Amendment”), which became effective on the Settlement Date. The Third Amendment provides for the ABL Facility to be amended to:
•
permit the U.S. Borrower to issue the New Notes in the Concurrent Notes Offering and Exchange Offer, including the granting of liens, subject to the restrictions set forth in the ABL Facility;
•
provide for certain of the U.S. Borrower’s wholly-owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands, Romania and certain other jurisdictions specified from time to time to become guarantors under the ABL Facility;
•
authorize the collateral agent under the ABL Facility to enter into an intercreditor agreement with the collateral trustees for the New Notes; and
•
remove the Dutch Borrower as a borrower under the ABL Facility.
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 $
280,000
(if requested by the Borrowers and the lenders agree to fund such increase). No consent of any lender (other than those participating in the increase) is required to effect any such increase. The Company’s borrowing base as of March 31, 2023 was $
172,483
. Net the greater of 10% of the borrowing base or $15,000 that cannot be borrowed without triggering the fixed charge coverage ratio maintenance covenant and $
6,203
of outstanding letters of credit, the Company effectively had $
149,031
available for borrowing under its ABL Facility.
As of March 31, 2023, there were no borrowings under the ABL Facility.
Maturity
. Any borrowings under our ABL Facility will mature, and the commitments of the lenders under our ABL Facility will terminate, on March 24, 2025.
Borrowing Base
. As of the Settlement Date, the loan and letter of credit availability under the ABL Facility is subject to a borrowing base, which at any time is limited to the lesser of: (A) the maximum facility amount (subject to certain adjustments) and (B) (i) up to 85% of eligible accounts receivable; plus (ii) the lesser of 70% of eligible inventory or 85% of the appraised net orderly liquidation value of eligible inventory; plus (iii) up to the lesser of $30,000 and 85% of eligible tooling accounts receivable; minus reserves established by the Agent. The accounts receivable portion of the borrowing base is subject to certain formulaic limitations (including concentration limits). The inventory portion of the borrowing base is limited to eligible inventory, as determined by the Agent. The borrowing base is also subject to certain reserves, which are established by the Agent (which may include changes to the advance rates indicated above). Loan availability under the ABL Facility is apportioned as follows: $
160,000
to the U.S. Borrower and $
20,000
to the Canadian Borrower.
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Guarantees; Security
. The obligations of the U.S. Borrower and the Canadian Borrower under the ABL Facility, as well as certain cash management arrangements and interest rate, foreign currency or commodity swaps entered into by the such Borrowers and their subsidiaries, and certain credit lines entered into by non-U.S. subsidiaries, in each case with the lenders and their affiliates (collectively, “Additional ABL Secured Obligations”) are guaranteed on a senior secured basis by Holdings and its U.S. subsidiaries (with certain exceptions) and certain wholly-owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands, Romania and certain other jurisdictions specified from time to time, and the obligations of the Canadian Borrower under the ABL Facility and Additional ABL Secured Obligations of the Canadian Borrower and its Canadian subsidiaries are, in addition, guaranteed on a senior secured basis by the Canadian subsidiaries of the Canadian Borrower. The obligations under the ABL Facility and related guarantees are secured by (1) a first priority lien on all of each Borrower’s and each U.S. and Canadian guarantor’s existing and future personal property consisting of certain accounts receivable, inventory, documents, instruments, chattel paper, deposit accounts and securities accounts and certain related assets and proceeds of the foregoing, with various enumerated exceptions, including that: (i) the collateral owned by Canadian Borrower or any of its Canadian subsidiaries that are Guarantors only secure the obligations of Canadian Borrower and such subsidiaries arising under the ABL Facility and Additional ABL Secured Obligations (ii) no liens have been granted on any assets or properties of any non-U.S. subsidiaries of the Company (other than the Canadian Borrower and Canadian Guarantors, as otherwise specified above) in connection with the ABL Facility, (2) a second priority lien on all the capital stock in restricted subsidiaries directly held by the U.S. Borrower and each of the U.S. guarantors, and equipment of the U.S. Borrower and the U.S.-domiciled guarantors and all other material personal property of the U.S. Borrower and the U.S.-domiciled guarantors and (3) a 65% pledge of the equity interest in the first-tier foreign subsidiaries of the U.S. Guarantors.
Interest
. Borrowings under the ABL Facility bear interest at a rate equal to, at the Borrowers’ option:
•
in the case of borrowings by the U.S. Borrower, the forward-looking secured overnight funding rate for the applicable interest period (“Term SOFR”) (including a credit spread adjustment of 0.11448% or 0.26161%, depending on the applicable interest period) or the base rate plus, in each case, an applicable margin; or
•
in the case of borrowings by the Canadian Borrower, bankers’ acceptance (“BA”) rate, Canadian prime rate or Canadian base rate plus, in each case, an applicable margin.
The applicable margin may vary between 2.00% and 2.50% with respect to the Term SOFR or Canadian BA rate-based borrowings and between 1.00% and 1.50% with respect to U.S. base rate, Canadian prime rate and Canadian base rate borrowings. The applicable margin is subject, in each case, to quarterly pricing adjustments (based on average facility availability).
Fees
. The Borrowers are required to pay a fee in respect of committed but unutilized commitments. The ABL Facility also requires the payment of customary agency and administrative fees.
Voluntary Prepayments
. The Borrowers are able to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans, in each case, in whole or in part, at any time without premium or penalty (other than customary breakage and related reemployment costs with respect to repayments of SOFR-based borrowings).
Covenants; Events of Default
. The ABL Facility includes affirmative and negative covenants that will impose substantial restrictions on the Company’s financial and business operations, including its ability to incur and secure debt, make investments, sell assets, pay dividends or make acquisitions. The ABL Facility also includes a requirement to maintain a monthly fixed charge coverage ratio of no less than 1.0 to 1.0 when availability under the ABL Facility is less than specified levels. The ABL Facility also contains various events of default that are customary for comparable facilities.
Debt Issuance Costs
. As of March 31, 2023 and December 31, 2022, the Company had $
1,416
and $
535
, respectively, of unamortized debt issuance costs related to the ABL Facility recorded in other long-term assets in the condensed consolidated balance sheet.
Term Loan Facility
On November 2, 2016, Cooper-Standard Automotive Inc., as borrower, entered into Amendment No. 1 to its senior term loan facility (the “Term Loan Facility”), which provided 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), could have been expanded (or a new term loan or revolving facility added) by an amount that would not cause the consolidated secured net debt ratio to exceed 2.25 to 1.00 plus $
400,000
plus any voluntary prepayments (including revolving facility and ABL Facility to the extent commitments are reduced) not funded from proceeds of long-term indebtedness.
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
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
interest rate. In accordance with this amendment, borrowings under the Term Loan Facility bore 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 2.00% per annum, or (2) with respect to base rate loans, the base rate, (which is the highest of the then current federal funds rate plus 0.50%, the prime rate most recently announced by the administrative agent under the term loan, and the one-month Eurodollar rate plus 1.0%) plus 1.0% per annum.
Maturity
. The Term Loan Facility would have matured on
November 2, 2023
.
Voluntary Prepayments
. In connection with the Refinancing Transactions, Cooper-Standard Automotive Inc. repaid the Term Loan Facility in full on the Settlement Date and the Term Loan Facility was terminated.
Debt Issuance Costs.
As of December 31, 2022, the Company had $
494
of unamortized debt issuance costs and $
319
of unamortized original issue discount related to the Term Loan Facility. Both the debt issuance costs and the original issue discount were amortized into interest expense over the term of the Term Loan Facility.
Debt Covenants
The Company was in compliance with all applicable covenants of the New Notes, the 2026 Senior Notes, and ABL Facility as of March 31, 2023.
Other Financing
Finance leases and other.
Other borrowings as of March 31, 2023 and December 31, 2022 reflect finance leases and other borrowings under local bank lines classified in debt payable within
one year
on the condensed consolidated balance sheet.
Receivable factoring.
As a part of its working capital management, the Company sells certain receivables through a single third-party financial institution (the “Factor”) in a pan-European program. The amount sold varies each month based on the amount of underlying receivables and cash flow needs of the Company. These are permitted transactions under the Company’s credit agreements governing the ABL Facility and the indentures governing the New Notes and 2026 Secured Notes. The European factoring facility 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 in the condensed consolidated statements of operations. The sale of receivables under this contract is considered an off-balance sheet arrangement to the Company and is accounted for as a true sale and is 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, 2023 | December 31, 2022 | ||||||||||
| Off-balance sheet arrangements | $ |
|
$ |
|
|||||||
Accounts receivable factored and related costs throughout the period were as follows:
| Off-Balance Sheet Arrangements | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Accounts receivable factored | $ |
|
$ |
|
|||||||
| Costs |
|
|
|||||||||
17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
8.
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. | ||||
Items Measured at Fair Value on a Recurring Basis
Estimates of the fair value of foreign currency 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 March 31, 2023 and December 31, 2022 were as follows:
| March 31, 2023 | December 31, 2022 | Input | |||||||||||||||
| Forward foreign exchange contracts - other current assets | $ |
|
$ |
|
Level 2 | ||||||||||||
| Forward foreign exchange contracts - accrued liabilities |
|
|
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.
During the three months ended March 31, 2023, there were no impairment charges recorded. During the three months ended March 31, 2022, the Company recorded impairment charges of $
455
due to idle assets in Europe. The fair value was determined using salvage value. In addition, during the three months ended March 31, 2022, the Company recorded a loss on the deconsolidation of a joint venture in the Asia Pacific region of $2,257, included in other income (expense), net in the condensed consolidated statements of operations. For further information see Note 2. “Deconsolidation and Sale-Leaseback.”
Items Not Carried at Fair Value
Fair values of the Company’s New Notes, 2026 Senior Notes, 2024 Senior Secured Notes and Term Loan Facility were as follows:
| March 31, 2023 | December 31, 2022 | ||||||||||
| Aggregate fair value | $ |
|
$ |
|
|||||||
|
Aggregate carrying value
(1)
|
|
|
|||||||||
(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.
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.
18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
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 change in fair value of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”) in the condensed consolidated balance sheet, to the extent that the hedges are effective, 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 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 flows 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. As of March 31, 2023 and December 31, 2022, the notional amount of these contracts was $
99,096
and $
135,285
, respectively, and consisted of hedges of cash flow transactions extending out to December 2023.
Pretax amounts related to the Company’s cash flow hedges that were recognized in other comprehensive income (loss) (“OCI”) were as follows:
| Gain (Loss) Recognized in OCI | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Forward foreign exchange contracts | $ |
|
$ |
|
|||||||
Pretax amounts related to the Company’s cash flow hedges that were reclassified from AOCI and recognized in cost of products sold were as follows:
| Gain (Loss) Reclassified from AOCI to Income | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Forward foreign exchange contracts | $ |
|
$ |
|
|||||||
19
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
9.
Pension and Postretirement Benefits Other Than Pensions
The components of net periodic benefit (income) cost for the Company’s defined benefit plans and other postretirement benefit plans were as follows:
| Pension Benefits | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Expected return on plan assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of prior service cost and actuarial loss |
|
|
|
|
|||||||||||||||||||
| Net periodic benefit (income) cost | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Other Postretirement Benefits | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Amortization of prior service credit and actuarial (gain) loss |
(
|
(
|
(
|
|
|||||||||||||||||||
| Net periodic benefit (income) cost | $ |
(
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
The service cost component of net periodic benefit (income) cost is included in cost of products sold and selling, administrative and engineering expenses in the condensed consolidated statements of operations. All other components of net periodic benefit (income) cost are included in other income (expense), net in the condensed consolidated statements of operations for all periods presented.
On October 11, 2022, the Company’s Board of Directors approved a resolution to merge certain of the Company’s U.S. defined benefit pension plans, and terminate the resulting merged plan (“U.S. Pension Plan”) effective December 31, 2022. The termination of the U.S. Pension Plan is expected to take
to
eighteen months
to complete. As part of the termination process, the Company expects to settle benefit obligations under the U.S. Pension Plan through a combination of lump sum payments to eligible plan participants and the purchase of a group annuity contract, under which future benefit obligations and administration will be transferred to a third-party insurance company. Such settlements will be funded primarily from plan assets. Ultimate settlement of benefit obligations is dependent upon the participants’ elections. As of March 31, 2023 and December 31, 2022, the U.S. Pension Plan was underfunded under U.S. generally accepted accounting principles by $5,824 and $5,759, respectively.
20
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
10.
Other Income (Expense), Net
The components of other income (expense), net were as follows:
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
|
Deconsolidation of joint venture
(1)
|
$ |
|
$ |
(
|
|||||||
| Foreign currency (losses) gains |
(
|
|
|||||||||
| Components of net periodic cost other than service cost |
(
|
(
|
|||||||||
| Factoring costs |
(
|
(
|
|||||||||
| Miscellaneous income |
|
|
|||||||||
| Other expense, net | $ |
(
|
$ |
(
|
|||||||
11.
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.
Income tax (benefit) expense, loss before income taxes and the corresponding effective tax rate for the three months ended March 31, 2023 and 2022 were as follows:
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Income tax expense | $ |
|
$ |
|
|||||||
| Loss before income taxes |
(
|
(
|
|||||||||
| Effective tax rate |
|
% |
(
|
% | |||||||
The effective tax rate for the three months ended March 31, 2023 varied from the effective tax rate for the three months ended March 31, 2022 primarily due to the the geographic mix of pre-tax losses, and the inability to record a benefit for pre-tax losses in the U.S. and certain foreign jurisdictions due to valuation allowances, and other permanent items.
The income tax rate for the three months ended March 31, 2023 and 2022 varied from the U.S. statutory rate primarily due to the inability to record a tax benefit for pre-tax losses in the U.S. and certain foreign jurisdictions, tax credits, the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate, and other permanent items.
The Company’s current and future provision for income taxes is impacted by changes in valuation allowances in the U.S. and certain foreign jurisdictions. The Company’s future provision for income taxes will include no tax benefit with respect to losses incurred and, except for certain jurisdictions, no tax expense with respect to income generated in these countries until the respective valuation allowances are eliminated. Accordingly, income taxes are impacted by changes in valuation allowances and the mix of earnings among jurisdictions. The Company evaluates the realizability of its deferred tax assets on a quarterly basis. In completing this evaluation, the Company considers all available evidence in order to determine, based on the weight of the evidence, if a valuation allowance for its deferred tax assets is necessary. Such evidence includes historical results, future reversals of existing taxable temporary differences and expectations for future taxable income (exclusive of the reversal of temporary differences and carryforwards), as well as the implementation of feasible and prudent tax planning strategies. If, based on the weight of the evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized, a valuation allowance is recorded. If operating results improve or decline on a continual basis in a particular jurisdiction, the Company’s decision regarding the need for a valuation allowance could change, resulting in either the initial recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments, which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities.
21
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
On August 16, 2022, the U.S. enacted the Inflation Reduction Action of 2022, which, among other things, implements a 15% minimum tax on financial statement income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. The provisions were effective in the first quarter of 2023 and did not have a significant impact on the Company’s condensed consolidated financial statements.
12.
Net Loss Per Share Attributable to Cooper-Standard Holdings Inc.
Basic net loss per share attributable to Cooper-Standard Holdings Inc. was computed by dividing net loss attributable to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share attributable to Cooper-Standard Holdings Inc. was computed using the treasury stock method by dividing diluted net loss 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 loss per share attributable to Cooper-Standard Holdings Inc. was as follows:
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net loss available to Cooper-Standard Holdings Inc. common stockholders | $ |
(
|
$ |
(
|
|||||||
| Basic weighted average shares of common stock outstanding |
|
|
|||||||||
| Dilutive effect of common stock equivalents |
|
|
|||||||||
| Diluted weighted average shares of common stock outstanding |
|
|
|||||||||
| Basic net loss per share attributable to Cooper-Standard Holdings Inc. | $ |
(
|
$ |
(
|
|||||||
| Diluted net loss per share attributable to Cooper-Standard Holdings Inc. | $ |
(
|
$ |
(
|
|||||||
22
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
13.
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component, net of related tax, were as follows:
| Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Foreign currency translation adjustment | ||||||||||||||
| Balance at beginning of period | $ |
(
|
$ |
(
|
||||||||||
| Other comprehensive income (loss) before reclassifications |
(
|
(1)
|
|
(1)
|
||||||||||
| Amounts reclassified from accumulated other comprehensive loss |
|
(
|
||||||||||||
| Balance at end of period | $ |
(
|
$ |
(
|
||||||||||
| Benefit plan liabilities | ||||||||||||||
| Balance at beginning of period | $ |
(
|
$ |
(
|
||||||||||
|
Other comprehensive income (loss) before reclassifications (net of tax expense (benefit) of $
|
(
|
|
||||||||||||
| Amounts reclassified from accumulated other comprehensive loss |
|
(2)
|
|
(3)
|
||||||||||
| Balance at end of period | $ |
(
|
$ |
(
|
||||||||||
| Fair value change of derivatives | ||||||||||||||
| Balance at beginning of period | $ |
|
$ |
(
|
||||||||||
|
Other comprehensive income (loss) before reclassifications (net of tax expense (benefit) of $
|
|
|
||||||||||||
|
Amounts reclassified from accumulated other comprehensive loss (net of tax expense of $
|
(
|
(
|
||||||||||||
| Balance at end of period | $ |
|
$ |
|
||||||||||
| Accumulated other comprehensive loss, ending balance | $ |
(
|
$ |
(
|
||||||||||
(1)
Includes other comprehensive (loss) income related to intra-entity foreign currency balances that are of a long-term investment nature of $(
3,823
) and $
8,642
for the three months ended March 31, 2023 and 2022, respectively.
(2)
Includes the effect of the amortization of actuarial losses of $
147
and amortization of prior service cost of $
6
, net of tax of $
5
.
14.
Common Stock
15.
Commitments and Contingencies
23
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
16.
Segment Reporting
The Company’s automotive business is 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’s principal products within each of the reportable segments are sealing, fuel and brake delivery, and fluid transfer systems.
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. The results of each segment include certain allocations for general, administrative and other shared costs. Segment adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
Certain financial information on the Company’s reportable segments was as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| External Sales | Intersegment Sales | Adjusted EBITDA | External Sales | Intersegment Sales | Adjusted EBITDA | |||||||||||||||||||||||||||||||||
| North America | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Europe |
|
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||
| Asia Pacific |
|
|
|
|
|
(
|
||||||||||||||||||||||||||||||||
| South America |
|
|
|
|
|
(
|
||||||||||||||||||||||||||||||||
| Total Automotive |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Corporate, eliminations and other |
|
(
|
(
|
|
(
|
(
|
||||||||||||||||||||||||||||||||
| Consolidated | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Adjusted EBITDA | $ |
|
$ |
|
||||||||||
| Restructuring charges |
(
|
(
|
||||||||||||
| Deconsolidation of joint venture |
|
(
|
||||||||||||
| Impairment charges |
|
(
|
||||||||||||
| Loss on refinancing and extinguishment of debt |
(
|
|
||||||||||||
| EBITDA | $ |
(
|
$ |
(
|
||||||||||
| Income tax expense |
(
|
(
|
||||||||||||
| Interest expense, net of interest income |
(
|
(
|
||||||||||||
| Depreciation and amortization |
(
|
(
|
||||||||||||
| Net loss attributable to Cooper-Standard Holdings Inc. | $ |
(
|
$ |
(
|
||||||||||
24
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
| March 31, 2023 | December 31, 2022 | ||||||||||
| Segment assets: | |||||||||||
| North America | $ |
|
$ |
|
|||||||
| Europe |
|
|
|||||||||
| Asia Pacific |
|
|
|||||||||
| South America |
|
|
|||||||||
| Total Automotive |
|
|
|||||||||
| Corporate, eliminations and other |
|
|
|||||||||
| Consolidated | $ |
|
$ |
|
|||||||
25
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, 2022 filed with the U.S. Securities and Exchange Commission (“2022 Annual Report”), including Item 1A. “Risk Factors.” The following should be read in conjunction with our 2022 Annual Report and the other information included herein. Our discussion of trends and conditions supplements and updates such discussion included in our 2022 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 systems for use primarily in passenger vehicles and light trucks manufactured by global automotive original equipment manufacturers (“OEMs”). We are primarily a “Tier 1” supplier, with approximately 82% of our sales in 2022 made directly to major OEMs. We operate our automotive business along the following reportable segments: North America, Europe, Asia Pacific and South America. All other business activities are reported in Corporate, eliminations and other.
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 and production. Business conditions may vary significantly from period to period or region to region. In 2022, global automotive production continued to be negatively impacted by broad supply chain challenges, labor market disruptions and other lingering impacts of the COVID-19 pandemic. In 2023, while supply chain disruptions are improving, rising interest rates, energy market volatility, persistent inflation and continuing military actions in Eastern Europe are contributing to global economic uncertainty and are having broad negative impacts on key sectors of the global economy.
In North America, U.S. consumer confidence slipped in the latter portion of the first quarter of 2023 and remains well below historical averages. Key drivers of the decline in consumer sentiment are persistent inflation, rising interest rates, turmoil in the banking sector and increasing concerns over the likelihood of the economy entering a recession later in the year. Despite the dip in consumer confidence, the continuing strong labor market and government spending related to infrastructure are expected to drive modest economic growth during the year. Economists at the International Monetary Fund (IMF) are expecting the economies of the United States, Canada and Mexico to grow by 1.6 percent, 1.5 percent and 1.8 percent, respectively, in 2023.
In Europe, the war in Ukraine and related sanctions imposed on Russia continue to impact the regional economy, but the impacts on the supply chain and energy costs are diminishing. Industrial output has remained surprisingly resilient, and the labor market remains strong. Inflation remains a concern, however, and the European Central Bank is continuing to raise policy interest rates to stem inflation. At the same time, certain countries within the region continue to provide increased fiscal support at the household level to stimulate growth. The potential for escalation of the military actions in Ukraine remains a significant risk to the regional economy. In this uncertain environment, economists at the IMF are currently expecting the economy in the Eurozone region to grow by approximately 0.8 percent in 2023.
In the Asia Pacific region, China has recently ended its strict zero-COVID strategy and has lifted all related restrictive policy measures previously employed to prevent spread of the disease. With mobility restored, pent up consumer demand for both goods and services is expected to boost economic activity in the first half of 2023. At the same time, demand from external trading partners in Europe and the United States has been resilient and is likely to spur growth in exports. While considerable uncertainty remains in key economic sectors such as real estate, the nation’s leaders have pledged to provide additional monetary and fiscal support as necessary to ensure key economic targets are achieved. Economists at the IMF are expecting the Chinese economy to grow 5.2 percent in 2023.
26
In South America, the Brazilian economy will likely remain challenged by continued inflation and constraining interest rate policy. Following his election in October 2022, President Lula Da Silva has sought to address deep-rooted social problems and inequities with further expansive fiscal policy and social spending. The increased government spending is expected to spur inflation above 5 percent for the year and will likely force the central bank to maintain benchmark interest rates at high levels to dampen the inflationary pressure. Further, tax increases may be necessary to pay for the spending programs that already exceed strict budget levels. To the positive, it is expected that the re-opening of the Chinese economy will drive incremental demand for Brazil’s agricultural exports. Economists at the IMF are now estimating the Brazilian economy will grow 0.9 percent in 2023. We remain cautious for the economic outlook in this market given the long history of political instability and economic volatility in the region.
Raw Materials
Our business is susceptible to inflationary pressures with respect to raw materials which may place operational and profitability burdens on the entire supply chain. Costs related to raw materials, such as steel, aluminum, and oil-derived commodities, continue to be volatile, which led to significant increases in these costs in 2021. Global events continued to add further price pressure and uncertainty to raw material costs in 2022 which has stabilized in Q1 2023. In addition, we continue to see significant inflationary pressure on wages, energy, transportation and other general costs. As such, we will continue to work on an ongoing basis with our customers and suppliers to mitigate both inflationary pressures and our material-related cost exposures through a combination of expanded index-based agreements and other commercial enhancements.
Production Levels
Our business is directly affected by the automotive vehicle production rates in North America, Europe, Asia Pacific and South America which have been adversely affected by a series of events in recent years. Beginning in the first quarter of 2020, we experienced production shutdowns related to the COVID-19 pandemic. Beginning in the first quarter of 2021, OEM production volumes were disrupted by the global shortage of semiconductors, effectively delaying the expected rebound in light vehicle production to pre-pandemic levels. In 2022, disruptions stemming from the Russia-Ukraine crisis and lockdowns in key Chinese manufacturing and trading hubs such as Shenzhen and Shanghai further exacerbated supply chain disruptions and vehicle production levels. We continue to collaborate closely with our customers to minimize production inefficiencies related to market disruptions while supporting their needs.
Light vehicle production in certain regions for the three months ended March 31, 2023 and 2022 was as follows:
| Three Months Ended March 31, | |||||||||||||||||
| (In millions of units) |
2023
(1)
|
2022
(1)
|
% Change | ||||||||||||||
| North America | 3.9 | 3.6 | 9.8% | ||||||||||||||
| Europe | 4.6 | 3.9 | 18.4% | ||||||||||||||
| Asia Pacific | 11.4 | 11.3 | 0.8% | ||||||||||||||
| Greater China | 5.7 | 6.2 | (7.3)% | ||||||||||||||
| South America | 0.7 | 0.6 | 14.1% | ||||||||||||||
(1)
Production data based on S&P Global (formerly IHS Markit), April 2023.
Production volumes in Europe were surprisingly resilient for the quarter considering the continuing military actions in Ukraine. Production volumes in North America showed modest year-over-year improvement as supply chain disruptions started to dissipate. In the Asia Pacific region, production levels slightly increased in the quarter. However, specifically within Greater China, production levels decreased as widespread economic shutdowns were once again imposed in the country in response to renewed outbreaks of the COVID-19 virus.
General Inflation and Recovery Strategy
With continued inflationary pressures on wages, energy, transportation and other general costs, in order to remain competitive, we are working with our customers on an ongoing basis to offset the costs associated with this inflation. We are actively negotiating pricing adjustments on current business and considering the impact of inflationary and other costs in our quotes for new business.
27
Results of Operations
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| (dollar amounts in thousands) | |||||||||||||||||
| Sales | $ | 682,458 | $ | 612,984 | $ | 69,474 | |||||||||||
| Cost of products sold | 640,630 | 591,442 | 49,188 | ||||||||||||||
| Gross profit | 41,828 | 21,542 | 20,286 | ||||||||||||||
| Selling, administration & engineering expenses | 52,089 | 51,904 | 185 | ||||||||||||||
| Amortization of intangibles | 1,807 | 1,746 | 61 | ||||||||||||||
| Restructuring charges | 2,379 | 7,831 | (5,452) | ||||||||||||||
| Impairment charges | — | 455 | (455) | ||||||||||||||
| Operating loss | (14,447) | (40,394) | 25,947 | ||||||||||||||
| Interest expense, net of interest income | (30,220) | (18,177) | (12,043) | ||||||||||||||
| Equity in losses of affiliates | (198) | (1,356) | 1,158 | ||||||||||||||
| Loss on refinancing and extinguishment of debt | (81,885) | — | (81,885) | ||||||||||||||
| Other expense, net | (4,004) | (1,211) | (2,793) | ||||||||||||||
| Loss before income taxes | (130,754) | (61,138) | (69,616) | ||||||||||||||
| Income tax expense | 358 | 652 | (294) | ||||||||||||||
| Net loss | (131,112) | (61,790) | (69,322) | ||||||||||||||
| Net loss attributable to noncontrolling interests | 745 | 430 | 315 | ||||||||||||||
| Net loss attributable to Cooper-Standard Holdings Inc. | $ | (130,367) | $ | (61,360) | $ | (69,007) | |||||||||||
Three Months Ended March 31, 2023 Compared with Three Months Ended March 31, 2022
Sales
| Three Months Ended March 31, | Variance Due To: | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | Volume / Mix* | Foreign Exchange | |||||||||||||||||||||||||||||||
| (dollar amounts in thousands) | |||||||||||||||||||||||||||||||||||
| Total sales | $ | 682,458 | $ | 612,984 | $ | 69,474 | $ | 86,410 | $ | (16,936) | |||||||||||||||||||||||||
* Net of customer price adjustments, including recoveries
Sales for the three months ended March 31, 2023 increased 11.3%, compared to the three months ended March 31, 2022. The increase in sales was driven by volume and mix (
higher net vehicle production volume due to the stabilization of the supply environment
and net of customer price adjustments including recovery of cost increases). This was partially offset by the negative impact of foreign exchange.
28
Gross Profit
| Three Months Ended March 31, | Variance Due To: | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | Volume / Mix* | Foreign Exchange | Cost Increases | |||||||||||||||||||||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||||||||||||||||||||||||
| Cost of products sold | $ | 640,630 | $ | 591,442 | $ | 49,188 | $ | 46,993 | $ | (12,654) | $ | 14,849 | ||||||||||||||||||||||||||
| Gross profit | 41,828 | 21,542 | 20,286 | 39,417 | (4,282) | (14,849) | ||||||||||||||||||||||||||||||||
| Gross profit percentage of sales | 6.1 | % | 3.5 | % | ||||||||||||||||||||||||||||||||||
* Net of customer price adjustments, including recoveries
Cost of products sold is primarily comprised of material, labor, manufacturing overhead, freight, depreciation and other direct operating expenses. The Company’s material cost of products sold was approxim
ately 50% and 50% of
total cost of products sold for the three months ended March 31, 2023 and 2022, respectively. The change in cost of products sold was impacted by higher volume and mix, inflation of commodity costs, labor and overhead, and higher energy costs. These costs were partially offset by foreign exchange, and manufacturing and purchasing savings through lean initiatives.
Gross profit for the three months ended March 31, 2023 increased $20.3 million, compared to the three months ended March 31, 2022. The change was driven by volume and mix, net of customer price adjustments including recovery of cost increases, manufacturing and purchasing savings through lean initiatives, partially offset by commodity and wage inflation, higher energy costs and foreign exchange.
Selling, Administration and Engineering Expense.
Selling, administration and engineering expense includes administrative expenses as well as product engineering and design and development costs. Selling, administration and engineering expense for the three months ended March 31, 2023 was 7.6% of sales compared to 8.5% for the three months ended March 31, 2022
. The decrease was primarily due to the non-recurrence of a prior year credit loss, salaried headcount initiative savings and foreign exchange partially offset by higher compensation related costs.
Amortization of Intangibles.
Intangible amortization for the three months ended March 31, 2023 was comparable to the three months ended March 31, 2022.
Restructuring.
Restructuring charges for the three months ended March 31, 2023 decreased $5.5 million compared to the three months ended March 31, 2022. The decrease was driven by lower restructuring charges primarily in Europe.
Impairment Charges.
Non-cash impairment charges for the three months ended March 31, 2023 decreased $0.5 million compared to the three months ended March 31, 2022, primarily due to impairments in Europe in the prior year period.
Interest Expense, Net.
Net interest expense for the three months ended March 31, 2023 increased $12.0 million compared to the three months ended March 31, 2022, primarily due to an increase in interest rates on the new debt subsequent to the Refinancing Transactions.
Loss on Refinancing and Extinguishment of Debt.
Loss on refinancing and extinguishment of debt for the three months ended March 31, 2023 was $81.9 million, which resulted from certain fees and the partial write off of new and unamortized debt issuance costs and unamortized original issue discount related to the Refinancing Transactions (as further described in Liquidity and Capital Resources).
Other Expense, Net.
Other expense, net, for the three months ended March 31, 2023 increased $2.8 million compared to the three months ended March 31, 2022, primarily due to the unfavorable impact of foreign exchange and increased net periodic benefit cost, offset in part by the absence of a loss on deconsolidation of a joint venture in the Asia Pacific region during the 2022 period.
Income Tax Expense.
Income tax expense for the three months ended March 31, 2023 was $0.4 million on losses before income taxes of $130.8 million compared to an income tax expense of $0.7 million on losses before income taxes of $61.1 million for the three months ended March 31, 2022. The effective tax rate for the three months ended March 31, 2023 differed from the effective tax rate for the three months ended March 31, 2022 primarily due to the geographic mix of pre-tax losses, the inability to record a tax benefit for pre-tax losses in the U.S. and certain foreign jurisdictions due to valuation allowances, and other permanent items.
29
Segment Results of Operations
Our business is organized into 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 tables present sales and segment adjusted EBITDA for each of the reportable segments.
Three Months Ended March 31, 2023 Compared with Three Months Ended March 31, 2022
Sales
| Three Months Ended March 31, | Variance Due To: | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change |
Volume/ Mix
*
|
Foreign Exchange | |||||||||||||||||||||||||||||||
| (dollar amounts in thousands) | |||||||||||||||||||||||||||||||||||
| Sales to external customers | |||||||||||||||||||||||||||||||||||
| North America | $ | 365,127 | $ | 321,894 | $ | 43,233 | $ | 45,404 | $ | (2,171) | |||||||||||||||||||||||||
| Europe | 161,855 | 131,414 | 30,441 | 37,671 | (7,230) | ||||||||||||||||||||||||||||||
| Asia Pacific | 94,785 | 103,753 | (8,968) | (1,957) | (7,011) | ||||||||||||||||||||||||||||||
| South America | 28,841 | 21,519 | 7,322 | 7,311 | 11 | ||||||||||||||||||||||||||||||
| Total Automotive | 650,608 | 578,580 | 72,028 | 88,429 | (16,401) | ||||||||||||||||||||||||||||||
| Corporate, eliminations and other | 31,850 | 34,404 | (2,554) | (2,019) | (535) | ||||||||||||||||||||||||||||||
| Consolidated | $ | 682,458 | $ | 612,984 | $ | 69,474 | $ | 86,410 | $ | (16,936) | |||||||||||||||||||||||||
*
Net of customer price adjustments, including recoveries
•
Volume and mix, net of customer price adjustments including recoveries, was mainly driven by vehicle production volume increases due to the stabilization of the supply environment
.
•
The impact of foreign currency exchange was primarily related to the Euro, Chinese Renminbi and Canadian Dollar.
Segment adjusted EBITDA
| Three Months Ended March 31, | Variance Due To: | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change |
Volume/ Mix
*
|
Foreign Exchange | Cost (Increases)/ Decreases | |||||||||||||||||||||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||||||||||||||||||||||||
| Segment adjusted EBITDA | ||||||||||||||||||||||||||||||||||||||
| North America | $ | 25,874 | $ | 17,496 | $ | 8,378 | $ | 19,798 | $ | (3,694) | $ | (7,726) | ||||||||||||||||||||||||||
| Europe | (12,395) | (14,657) | 2,262 | 15,443 | (1,678) | (11,503) | ||||||||||||||||||||||||||||||||
| Asia Pacific | 1,690 | (742) | 2,432 | (216) | (1,758) | 4,406 | ||||||||||||||||||||||||||||||||
| South America | 1,928 | (409) | 2,337 | 3,317 | (344) | (636) | ||||||||||||||||||||||||||||||||
| Total Automotive | 17,097 | 1,688 | 15,409 | 38,342 | (7,474) | (15,459) | ||||||||||||||||||||||||||||||||
| Corporate, eliminations and other | (4,640) | (1,543) | (3,097) | 1,075 | (198) | (3,974) | ||||||||||||||||||||||||||||||||
| Consolidated adjusted EBITDA | $ | 12,457 | $ | 145 | $ | 12,312 | $ | 39,417 | $ | (7,672) | $ | (19,433) | ||||||||||||||||||||||||||
*
Net of customer price adjustments, including recoveries
•
Volume and mix, net of customer price adjustments including recoveries, was driven by vehicle production volume increases due to the stabilization of the supply environment
.
•
The impact of foreign currency exchange was primarily related to the Mexican Peso, Chinese Renminbi and Euro.
•
The Cost (Increases) / Decreases category above includes:
◦
Commodity cost and inflationary economics; and
◦
Manufacturing and purchasing savings through lean initiatives.
30
Liquidity and Capital Resources
Short and Long-Term Liquidity Considerations and Risks
The sources to fund our ongoing working capital, capital expenditures, debt service and other funding requirements are 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. “Debt and Other Financing” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for additional information.
We continue to actively preserve cash and enhance liquidity, including decreasing our capital expenditures. 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 flows 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 continued impact of COVID-19, and other factors. Based on those actions and current projections of light vehicle production and customer demand for our products, 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 requirements, capital expenditures, debt service and other funding requirements for the foreseeable future, despite the challenges facing the industry.
Refinancing Transactions
On January 27, 2023 (the “Settlement Date”), the Company, Cooper-Standard Automotive Inc. (the “Issuer”), a wholly-owned subsidiary of the Company, and certain other of the Company’s direct and indirect subsidiaries completed certain refinancing transactions (the “Refinancing Transactions”) consisting of: (i) the exchange (the “Exchange Offer”) of $357,446 aggregate principal amount of the Issuer’s then existing 5.625% Senior Notes due 2026 (the “2026 Senior Notes”) (representing 89.36% of the aggregate principal amount outstanding of the 2026 Senior Notes) for $357,446 aggregate principal amount of the Issuer’s newly issued 5.625% Cash Pay / 10.625% PIK Toggle Senior Secured Third Lien Notes due 2027 (the “Third Lien Notes”), (ii) the issuance by the Issuer (the “Concurrent Notes Offering”) of $580,000 aggregate principal amount of 13.50% Cash Pay / PIK Toggle Senior Secured First Lien Notes due 2027 (the “First Lien Notes” and, together with the Third Lien Notes, the “New Notes”) to holders of 2026 Senior Notes or their designees who participated in the Exchange Offer, including to certain backstop commitment parties who committed to purchase the First Lien Notes not otherwise subscribed for, (iii) the related consent solicitation (the “Consent Solicitation”) to remove substantially all of the covenants, certain events of default and certain other provisions contained in the 2026 Senior Notes and the indenture governing the 2026 Senior Notes and to release and discharge the guarantee of the 2026 Senior Notes by the Company, (iv) the effectiveness of the Third Amendment (as defined below) to the senior asset-based revolving credit facility (“ABL Facility”) and (v) the use of proceeds from the Concurrent Notes Offering, together with cash on hand, to prepay all amounts outstanding under the Term Loan Facility at par, plus any accrued and unpaid interest thereon, to redeem the Issuer’s existing 2024 Senior Secured Notes (as defined below), including the prepayment premium and any accrued and unpaid interest thereon, and to pay fees and expenses related to the Refinancing Transactions. As a result of the Refinancing Transactions, the Issuer extended the maturities of its indebtedness and reduced the amount of cash interest it is required to pay on such indebtedness for the next two years. The Company recognized a loss on the refinancing and extinguishment of debt of $81,885 during the three months ended March 31, 2023. Additionally, the Company incurred total fees of $90,740 associated with the Refinancing Transactions, of which $83,961 were paid during the three months ended March 31, 2023, $4,237 were paid during 2022 and $2,541 are recorded in accounts payable in the condensed consolidated balance sheets as of March 31, 2023 and will be paid in future periods. The fees paid during the three months ended March 31, 2023 are reflected as a financing outflow in the condensed consolidated statement of cash flows. Of the fees paid during the three months ended March 31, 2023, $73,335 was included in the loss on the refinancing and extinguishment of debt referenced above, $9,996 is presented as a direct deduction from the principal balance in the condensed consolidated balance sheet, and $630 related to amending the ABL Facility is recorded in other long-term assets in the condensed consolidated balance sheet.
New Notes
On the Settlement Date, the Issuer issued $580,000 aggregate principal amount of First Lien Notes pursuant to an indenture, dated as of the Settlement Date (the “First Lien Notes Indenture”), by and among the Issuer, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (the “First Lien Collateral Agent”).
The First Lien Notes will mature on March 31, 2027. The First Lien Notes bear interest at the rate of 13.50% per annum, payable in cash; provided, however, that for the first four interest periods after the Settlement Date, the Issuer has the
31
option, in its sole discretion, to pay up to 4.50% of such interest on the First Lien Notes, in such amount as specified by the Issuer, by increasing the principal amount of the outstanding First Lien Notes or, in limited circumstances as described in the First Lien Notes Indenture, by issuing additional First Lien Notes. As of March 31, 2023, the aggregate principal amount of the First Lien Notes recognized in the condensed consolidated balance sheet assumes the Company will elect to pay 4.50% of the first interest payment in payment-in-kind. Interest on the First Lien Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2023.
As of March 31, 2023, the Company had $9,388 of unamortized debt issuance costs and $415 of unamortized original issue discount related to the First Lien Notes, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheet. Both the debt issuance costs and the original issue discount are amortized into interest expense over the term of the First Lien Notes.
On the Settlement Date, the Issuer issued $357,446 aggregate principal amount of Third Lien Notes pursuant to an indenture, dated as of the Settlement Date (the “Third Lien Notes Indenture”), by and among the Issuer, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (the “Third Lien Collateral Agent”).
The Third Lien Notes will mature on May 15, 2027. The Third Lien Notes bear interest at the rate of 5.625% per annum, payable in cash; provided, however, that for the first four interest periods after the Settlement Date, the Issuer has the option, in its sole discretion, to instead pay such interest at 10.625% per annum either by increasing the principal amount of the outstanding Third Lien Notes or, in limited circumstances as described the Third Lien Notes Indenture, by issuing additional Third Lien Notes. As of March 31, 2023, the aggregate principal amount of the Third Lien Notes recognized in the condensed consolidated balance sheet assumes interest on the Third Lien Notes will be fully paid in payment-in-kind. Interest on the Third Lien Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2023.
Debt issuance costs related to the Third Lien Notes are amortized into interest expense over the term of the Third Lien Notes. As of March 31, 2023, the Company had $5,782 of unamortized debt issuance costs related to the Third Lien Notes, which are presented as a direct deduction from the principal balance in the condensed consolidated balance sheet.
In connection with the issuance of the New Notes, the First Lien Collateral Agent, the Third Lien Collateral Agent, the collateral agent under the ABL Facility, the Issuer, Holdings and the several other parties named therein entered into the First Lien and Third Lien Intercreditor Agreement, providing for the relative priorities of their respective security interests in the assets securing the First Lien Notes, the Third Lien Notes and the ABL Facility, and certain other matters relating to the administration of security interests.
For additional information regarding the guarantees, covenants and events of default with respect to the New Notes, see Note 7. “Debt and Other Financing” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
2026 Senior Notes
On November 2, 2016, the Issuer issued $400,000 aggregate principal amount of 2026 Senior Notes. On the Settlement Date, in connection with the Refinancing Transactions, the Issuer completed the Exchange Offer and delivered $357,446 aggregate principal amount of the exchanged 2026 Senior Notes to the trustee for cancellation. Following the completion of the Exchange Offer, $42,554 aggregate principal amount of the 2026 Senior Notes remain outstanding.
The 2026 Senior Notes are guaranteed by each of the Issuer’s wholly-owned existing or subsequently organized U.S. subsidiaries, subject to certain exceptions, to the extent such subsidiary guarantees the ABL Facility. The Issuer may, at its option, redeem all or part of the 2026 Senior Notes at various points in time prior to maturity, as described in the indenture governing the 2026 Senior Notes. The 2026 Senior Notes will mature on November 15, 2026. Interest on the 2026 Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year.
The Company paid approximately $7,055 of debt issuance costs in connection with the issuance of the 2026 Senior Notes. The debt issuance costs are being amortized into interest expense over the term of the 2026 Senior Notes. As of March 31, 2023 and December 31, 2022, the Company had $273 and $2,741 of unamortized debt issuance costs related to the 2026 Senior Notes, which is presented as a direct deduction from the principal balance in the consolidated balance sheets.
32
2024 Senior Secured Notes
On May 29, 2020, the Issuer issued $250,000 aggregate principal amount of its 13.000% Senior Secured Notes due 2024 (the “2024 Senior Secured Notes”), pursuant to an indenture, dated as of May 29, 2020, by and among the Issuer, the other guarantors party thereto and U.S. Bank National Association, as trustee. In the first quarter of 2023, in connection with the Refinancing Transactions, the Issuer redeemed all of the outstanding 2024 Senior Secured Notes on the Settlement Date at the redemption price of 106.500% of the principal amount thereof, plus accrued and unpaid interest thereon.
The Company paid approximately $6,431 of debt issuance costs in connection with the issuance of the 2024 Senior Secured Notes. Additionally, the 2024 Senior Secured Notes were issued at a discount of $5,000. As of December 31, 2022, the Company had $3,021 of unamortized debt issuance costs and $2,508 of unamortized original issue discount related to the 2024 Senior Secured Notes, which were presented as direct deductions from the principal balance in the consolidated balance sheet. Both the debt issuance costs and the original issue discount were amortized into interest expense over the term of the 2024 Senior Secured Notes.
ABL Facility
On November 2, 2016, Holdings, Cooper-Standard Automotive Inc. (the “U.S. Borrower”), Cooper-Standard Automotive Canada Limited (the “Canadian Borrower”), Cooper-Standard Automotive International Holdings B.V. (the “Dutch Borrower”, and, together with the U.S. Borrower and the Canadian Borrower, the “Borrowers”) and certain subsidiaries of the U.S. Borrower, entered into a third amendment and restatement of the ABL Facility. In March 2020, the Borrowers entered into Amendment No. 1 to the Third Amended and Restated Loan Agreement (“the First Amendment”). As a result of the First Amendment, the ABL Facility maturity was extended to March 2025 and the aggregate revolving loan commitment was reduced to $180.0 million. In May 2020, the Borrowers entered into Amendment No. 2 to the Third Amended and Restated Loan Agreement (the “Second Amendment”), which Second Amendment modified certain covenants under the ABL Facility. In December 2022, the Borrowers entered into Amendment No. 3 to the Third Amended and Restated Loan Agreement (the “Third Amendment”), which became effective on the Settlement Date. The Third Amendment provides for the ABL Facility to be amended to:
•
permit the U.S. Borrower to issue the New Notes in the Concurrent Notes Offering and Exchange Offer, including the granting of liens, subject to the restrictions set forth in the ABL Facility;
•
provide for certain of the U.S. Borrower’s wholly-owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands, Romania and certain other jurisdictions specified from time to time to become guarantors under the ABL Facility;
•
authorize the collateral agent under the ABL Facility to enter into an intercreditor agreement with the collateral trustees for the New Notes; and
•
remove the Dutch Borrower as a borrower under the ABL Facility.
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 $280,000 (if requested by the Borrowers and the lenders agree to fund such increase). No consent of any lender (other than those participating in the increase) is required to effect any such increase. The Company’s borrowing base as of March 31, 2023 was $172,483. Net the greater of 10% of the borrowing base or $15,000 that cannot be borrowed without triggering the fixed charge coverage ratio maintenance covenant and $6,203 of outstanding letters of credit, the Company effectively had $149,031 available for borrowing under its ABL Facility.
As of March 31, 2023, there were no borrowings under the ABL Facility.
Maturity
. Any borrowings under our ABL Facility will mature, and the commitments of the lenders under our ABL Facility will terminate, on March 24, 2025.
Borrowing Base
. As of the Settlement Date, the loan and letter of credit availability under the ABL Facility is subject to a borrowing base, which at any time is limited to the lesser of: (A) the maximum facility amount (subject to certain adjustments) and (B) (i) up to 85% of eligible accounts receivable; plus (ii) the lesser of 70% of eligible inventory or 85% of the appraised net orderly liquidation value of eligible inventory; plus (iii) up to the lesser of $30,000 and 85% of eligible tooling accounts receivable; minus reserves established by the Agent. The accounts receivable portion of the borrowing base is subject to certain formulaic limitations (including concentration limits). The inventory portion of the borrowing base is limited to eligible inventory, as determined by the Agent. The borrowing base is also subject to certain reserves, which are established by the Agent (which may include changes to the advance rates indicated above). Loan availability under the ABL Facility is apportioned as follows: $160,000 to the U.S. Borrower and $20,000 to the Canadian Borrower.
Interest
. Borrowings under the ABL Facility bear interest at a rate equal to, at the Borrowers’ option:
33
•
in the case of borrowings by the U.S. Borrower, the forward-looking secured overnight funding rate for the applicable interest period (“Term SOFR”) (including a credit spread adjustment of 0.11448% or 0.26161%, depending on the applicable interest period) or the base rate plus, in each case, an applicable margin; or
•
in the case of borrowings by the Canadian Borrower, bankers’ acceptance (“BA”) rate, Canadian prime rate or Canadian base rate plus, in each case, an applicable margin.
The applicable margin may vary between 2.00% and 2.50% with respect to the Term SOFR or Canadian BA rate-based borrowings and between 1.00% and 1.50% with respect to U.S. base rate, Canadian prime rate and Canadian base rate borrowings. The applicable margin is subject, in each case, to quarterly pricing adjustments (based on average facility availability).
Fees
. The Borrowers are required to pay a fee in respect of committed but unutilized commitments. The ABL Facility also requires the payment of customary agency and administrative fees.
Voluntary Prepayments
. The Borrowers are able to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans, in each case, in whole or in part, at any time without premium or penalty (other than customary breakage and related reemployment costs with respect to repayments of SOFR-based borrowings).
Debt Issuance Costs
. As of March 31, 2023 and December 31, 2022, the Company had $1,416 and $535, respectively, of unamortized debt issuance costs related to the ABL Facility recorded in other long-term assets in the condensed consolidated balance sheets.
For additional information regarding the guarantees, covenants and events of default with respect to the ABL Facility, see Note 7. “Debt and Other Financing” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
Term Loan Facility
On November 2, 2016, Cooper-Standard Automotive Inc., as borrower, entered into Amendment No. 1 to its senior term loan facility (the “Term Loan Facility”), which provided for loans in an aggregate principal amount of $340,000. In connection with the Refinancing Transactions, Cooper-Standard Automotive Inc. repaid the Term Loan Facility in full on the Settlement Date and the Term Loan Facility was terminated.
As of December 31, 2022, the Company had $494 of unamortized debt issuance costs and $319 of unamortized original issue discount related to the Term Loan Facility. Both the debt issuance costs and the original issue discount were amortized into interest expense over the term of the Term Loan Facility.
For a further description of the Term Loan Facility, see Note 7. “Debt and Other Financing” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
Cash Flows
Operating Activities.
Net cash provided by operations was $30.4 million for the three months ended March 31, 2023, compared to net cash used in operations of $12.2 million for the three months ended March 31, 2022. The net change was primarily due to working capital improvements and improved operating performance.
Investing Activities.
Net cash used in investing activities was $29.0 million for the three months ended March 31, 2023, compared to net cash provided by investing activities of $20.1 million for the three months ended March 31, 2022. The change was primarily related to proceeds of $50.0 million related to the sale-leaseback of a certain European facility which were received in the three months ended March 31, 2022. We expect to continue initiatives to reduce overall capital spending and anticipate that we will spend approximately $70 - $80 million on capital expenditures in 2023.
Financing Activities.
Net cash used in financing activities totaled $75.7 million for the three months ended March 31, 2023, compared to net cash used in financing activities of $3.0 million for the three months ended March 31, 2022. The change was primarily due to the impact of the Refinancing Transactions.
Share Repurchase Program
In June 2018, our Board of Directors approved a common stock repurchase program (the “2018 Program”) authorizing us to repurchase, in the aggregate, up to $150.0 million of our 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 us and in accordance with prevailing market conditions and federal securities laws and regulations. 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, changes in tax laws (including the Inflation Reduction Act) and other factors. We are not obligated to acquire a
34
particular amount of securities, and the 2018 Program may be discontinued at any time at our discretion. As of March 31, 2023, we had approximately $98.7 million of repurchase authorization remaining under the 2018 Program.
We did not make any repurchases under the 2018 Program during the three months ended March 31, 2023
or 2022
.
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, New Notes, 2026 Senior Notes and 2024 Senior Secured 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.
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The following table provides a reconciliation of EBITDA and Adjusted EBITDA from net loss, which is the most comparable financial measure in accordance with U.S. GAAP:
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (dollar amounts in thousands) | |||||||||||
| Net loss attributable to Cooper-Standard Holdings Inc. | $ | (130,367) | $ | (61,360) | |||||||
| Income tax expense | 358 | 652 | |||||||||
| Interest expense, net of interest income | 30,220 | 18,177 | |||||||||
| Depreciation and amortization | 27,982 | 32,133 | |||||||||
| EBITDA | $ | (71,807) | $ | (10,398) | |||||||
| Restructuring charges | 2,379 | 7,831 | |||||||||
|
Deconsolidation of joint venture
(1)
|
— | 2,257 | |||||||||
|
Impairment charges
(2)
|
— | 455 | |||||||||
|
Loss on refinancing and extinguishment of debt
(3)
|
81,885 | — | |||||||||
| Adjusted EBITDA | $ | 12,457 | $ | 145 | |||||||
(1)
Loss attributable to deconsolidation of a joint venture in the Asia Pacific region, which required adjustment to fair value in the three months ended March 31, 2022.
(2)
Non-cash impairment charges in the three months ended March 31, 2022 related to idle assets in Europe.
(3)
Loss on refinancing and extinguishment of debt relating to the Refinancing Transactions during the three months ended March 31, 2023.
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Contingencies and Environmental Matters
The information concerning contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters, contained in Note 15. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, is incorporated herein by reference.
Critical Accounting Estimates
There have been no significant changes in our critical accounting estimates during the three months ended March 31, 2023.
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 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: volatility or decline of the Company’s stock price, or absence of stock price appreciation; impacts, including commodity cost increases and disruptions related to the war in Ukraine and the COVID-related lockdowns in China; our ability to achieve commercial recoveries and to offset the adverse impact of higher commodity and other costs through pricing and other negotiations with our customers; the impact, and expected continued impact, of the 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 our Advanced Technology Group; possible variability of our working capital requirements; risks associated with our international 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 and variable rates of interest; 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’ 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 and regulatory proceedings, claims or investigations against us; work stoppages or other labor disruptions; the ability of our intellectual property to withstand legal challenges; cyber-attacks, data 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; the possibility of a failure to maintain effective controls and procedures; the possibility of future impairment charges to our goodwill and long-lived assets; our ability to identify, attract, develop and retain a skilled, engaged and diverse workforce; our ability to procure insurance at reasonable rates; and our dependence on our subsidiaries for cash to satisfy our obligations.
You should not place undue reliance on these forward-looking statements. Our 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
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 2022 Annual Report.
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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 March 31, 2023 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
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, 2023, we had approximately $98.7 million of repurchase authorization remaining under our 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 14. “Common Stock” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
A summary of our shares of common stock repurchased during the three months ended March 31, 2023 is shown 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) | ||||||||||||||||||||||
| January 1, 2023 through January 31, 2023 | — | $ | — | — | $ | 98.7 | ||||||||||||||||||||
| February 1, 2023 through February 28, 2023 | — | — | — | 98.7 | ||||||||||||||||||||||
| March 1, 2023 through March 31, 2023 | 12,240 | 15.90 | — | 98.7 | ||||||||||||||||||||||
| Total | 12,240 | — | ||||||||||||||||||||||||
(1)
Represents shares repurchased by the Company to satisfy employee tax withholding requirements due upon the vesting of restricted stock awards.
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Item 6. Exhibits
|
Exhibit
No. |
Description of Exhibit | |||||||
| 4.1 | ||||||||
| 4.2 | ||||||||
| 4.3 |
Indenture, dated as of January 27, 2023, by and among Cooper-Standard Automotive Inc., as issuer, the Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent, relating to 5.625% Cash Pay / 10.625% PIK Toggle Senior Secured Third Lien Notes due 2027
(incorporated by reference to Exhibit 4.
2
to Cooper-Standard Holdings Inc.’s Current Report on Form 8-K filed January 30, 2023 (File No.001-36127)).
|
|||||||
| 10.1*† | ||||||||
| 10.2*† | ||||||||
| 10.3*† | ||||||||
| 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 | |||||||
40
| 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. | ||||
| † | Management contract or compensatory plan or arrangement. | ||||
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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. | ||||||||||||||
| May 4, 2023 |
/S/ JONATHAN P. BANAS
|
|||||||||||||
| Date |
Jonathan P. Banas
Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) |
|||||||||||||
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TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits