COOPER-STANDARD HOLDINGS INC.
The accompanying notes are an integral part of these financial statements.
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollar amounts in thousands)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Net loss | $ | (112,439 | ) | | $ | (5,363 | ) |
Other comprehensive (loss) income: | | | |
Currency translation adjustment | (28,889 | ) | | 1,970 |
|
Benefit plan liabilities adjustment, net of tax | 2,682 |
| | 1,387 |
|
Fair value change of derivatives, net of tax | (10,076 | ) | | 1,253 |
|
Other comprehensive (loss) income, net of tax | (36,283 | ) | | 4,610 |
|
Comprehensive loss | (148,722 | ) | | (753 | ) |
Comprehensive loss (income) attributable to noncontrolling interests | 2,358 |
| | (423 | ) |
Comprehensive loss attributable to Cooper-Standard Holdings Inc. | $ | (146,364 | ) | | $ | (1,176 | ) |
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
Net (loss) income | | $ | (3,617 | ) | | $ | 57,416 |
|
Other comprehensive income: | | | | |
Currency translation adjustment | | 2,219 |
| | 12,692 |
|
Benefit plan liabilities adjustment, net of tax | | 1,387 |
| | 1,307 |
|
Fair value change of derivatives, net of tax | | 1,253 |
| | 3,612 |
|
Other comprehensive income, net of tax | | 4,859 |
| | 17,611 |
|
Comprehensive income | | 1,242 |
| | 75,027 |
|
Comprehensive income attributable to noncontrolling interests | | (247 | ) | | (1,573 | ) |
Comprehensive income attributable to Cooper-Standard Holdings Inc. | | $ | 995 |
| | $ | 73,454 |
|
The accompanying notes are an integral part of these financial statements.
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except share amounts)
| | | March 31, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
| (unaudited) | |
| (unaudited) | |
|
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 262,169 |
| | $ | 264,980 |
| $ | 301,841 |
| | $ | 359,536 |
|
Accounts receivable, net | 480,828 |
| | 418,607 |
| 335,827 |
| | 423,155 |
|
Tooling receivable | 162,769 |
| | 141,106 |
| |
Tooling receivable, net | | 139,049 |
| | 148,175 |
|
Inventories | 186,272 |
| | 175,572 |
| 168,036 |
| | 143,439 |
|
Prepaid expenses | 33,206 |
| | 36,878 |
| 27,859 |
| | 34,452 |
|
Other current assets | 104,200 |
| | 108,683 |
| 94,191 |
| | 93,513 |
|
Assets held for sale | 122,966 |
| | 103,898 |
| 25,735 |
| | — |
|
Total current assets | 1,352,410 |
| | 1,249,724 |
| 1,092,538 |
| | 1,202,270 |
|
Property, plant and equipment, net | 990,665 |
| | 984,241 |
| 909,511 |
| | 988,277 |
|
Operating lease right-of-use assets | 92,508 |
|
| — |
| |
Operating lease right-of-use assets, net | | 113,090 |
|
| 83,376 |
|
Goodwill | 142,106 |
| | 143,681 |
| 141,870 |
| | 142,187 |
|
Intangible assets, net | 95,611 |
| | 99,602 |
| 74,306 |
| | 84,369 |
|
Other assets | 141,522 |
| | 145,855 |
| 152,948 |
| | 135,103 |
|
Total assets | $ | 2,814,822 |
| | $ | 2,623,103 |
| $ | 2,484,263 |
| | $ | 2,635,582 |
|
| | | | | | |
Liabilities and Equity | | | | | | |
Current liabilities: | | | | | | |
Debt payable within one year | $ | 169,087 |
| | $ | 101,323 |
| $ | 62,530 |
| | $ | 61,449 |
|
Accounts payable | 452,979 |
| | 452,320 |
| 357,003 |
| | 426,055 |
|
Payroll liabilities | 108,236 |
| | 92,604 |
| 82,980 |
| | 88,486 |
|
Accrued liabilities | 107,707 |
| | 98,907 |
| 120,383 |
| | 119,841 |
|
Current operating lease liabilities | 26,216 |
|
| — |
| 21,314 |
|
| 24,094 |
|
Liabilities held for sale | 75,830 |
| | 71,195 |
| 55,452 |
| | — |
|
Total current liabilities | 940,055 |
| | 816,349 |
| 699,662 |
| | 719,925 |
|
Long-term debt | 738,077 |
| | 729,805 |
| 744,745 |
| | 746,179 |
|
Pension benefits | 134,863 |
| | 138,771 |
| 133,123 |
| | 140,010 |
|
Postretirement benefits other than pensions | 41,875 |
| | 40,901 |
| 43,423 |
| | 48,313 |
|
Long-term operating lease liabilities | 68,905 |
|
| — |
| 90,947 |
|
| 60,234 |
|
Other liabilities | 36,945 |
| | 37,775 |
| 44,802 |
| | 44,939 |
|
Total liabilities | 1,960,720 |
| | 1,763,601 |
| 1,756,702 |
| | 1,759,600 |
|
7% Cumulative participating convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding | — |
| | — |
| — |
| | — |
|
Equity: | | | | | | |
Common stock, $0.001 par value, 190,000,000 shares authorized; 19,587,709 shares issued and 17,521,900 shares outstanding as of March 31, 2019, and 19,620,546 shares issued and 17,554,737 outstanding as of December 31, 2018 | 17 |
| | 17 |
| |
Common stock, $0.001 par value, 190,000,000 shares authorized; 18,950,351 shares issued and 16,884,542 shares outstanding as of March 31, 2020, and 18,908,566 shares issued and 16,842,757 outstanding as of December 31, 2019 | | 17 |
| | 17 |
|
Additional paid-in capital | 499,458 |
| | 501,511 |
| 492,325 |
| | 490,451 |
|
Retained earnings | 565,864 |
| | 576,025 |
| 507,287 |
| | 619,448 |
|
Accumulated other comprehensive loss | (241,633 | ) | | (246,088 | ) | (289,517 | ) | | (253,741 | ) |
Total Cooper-Standard Holdings Inc. equity | 823,706 |
| | 831,465 |
| 710,112 |
| | 856,175 |
|
Noncontrolling interests | 30,396 |
| | 28,037 |
| 17,449 |
| | 19,807 |
|
Total equity | 854,102 |
| | 859,502 |
| 727,561 |
| | 875,982 |
|
Total liabilities and equity | $ | 2,814,822 |
| | $ | 2,623,103 |
| $ | 2,484,263 |
| | $ | 2,635,582 |
|
The accompanying notes are an integral part of these financial statements.
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(Dollar amounts in thousands except share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2019 | 16,842,757 |
| | $ | 17 |
| | $ | 490,451 |
| | $ | 619,448 |
| | $ | (253,741 | ) | | $ | 856,175 |
| | $ | 19,807 |
| | $ | 875,982 |
|
Cumulative effect of change in accounting principle | — |
| | — |
| | — |
| | (1,573 | ) | | — |
| | (1,573 | ) | | — |
| | (1,573 | ) |
Share-based compensation, net | 41,785 |
| | — |
| | 1,874 |
| | — |
| | — |
| | 1,874 |
| | — |
| | 1,874 |
|
Net loss | — |
| | — |
| | — |
| | (110,588 | ) | | — |
| | (110,588 | ) | | (1,851 | ) | | (112,439 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (35,776 | ) | | (35,776 | ) | | (507 | ) | | (36,283 | ) |
Balance as of March 31, 2020 | 16,884,542 |
| | $ | 17 |
| | $ | 492,325 |
| | $ | 507,287 |
| | $ | (289,517 | ) | | $ | 710,112 |
| | $ | 17,449 |
| | $ | 727,561 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2018 | 17,554,737 |
| | $ | 17 |
| | $ | 501,511 |
| | $ | 576,025 |
| | $ | (246,088 | ) | | $ | 831,465 |
| | $ | 28,037 |
| | $ | 859,502 |
|
Cumulative effect of change in accounting principle | — |
| | — |
| | — |
| | (2,607 | ) | | — |
| | (2,607 | ) | | — |
| | (2,607 | ) |
Repurchase of common stock | (118,774 | ) | | — |
| | (2,057 | ) | | (3,880 | ) | | — |
| | (5,937 | ) | | — |
| | (5,937 | ) |
Share-based compensation, net | 85,937 |
| | — |
| | 4 |
| | (214 | ) | | — |
| | (210 | ) | | — |
| | (210 | ) |
Contribution from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,112 |
| | 2,112 |
|
Net (loss) income | — |
| | — |
| | — |
| | (3,460 | ) | | — |
| | (3,460 | ) | | (157 | ) | | (3,617 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 4,455 |
| | 4,455 |
| | 404 |
| | 4,859 |
|
Balance as of March 31, 2019 | 17,521,900 |
| | $ | 17 |
| | $ | 499,458 |
| | $ | 565,864 |
| | $ | (241,633 | ) | | $ | 823,706 |
| | $ | 30,396 |
| | $ | 854,102 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2017 | 17,914,599 |
| | $ | 18 |
| | 512,815 |
| | $ | 511,367 |
| | $ | (197,631 | ) | | $ | 826,569 |
| | $ | 28,520 |
| | $ | 855,089 |
|
Cumulative effect of change in accounting principle | — |
| | — |
| | — |
| | 8,639 |
| | (8,639 | ) | | — |
| | — |
| | — |
|
Share-based compensation, net | 151,288 |
| | — |
| | (73 | ) | | (4,714 | ) | | — |
| | (4,787 | ) | | — |
| | (4,787 | ) |
Purchase of noncontrolling interest | — |
| | — |
| | (2,682 | ) | | — |
| | — |
| | (2,682 | ) | | 312 |
| | (2,370 | ) |
Net income | — |
| | — |
| | — |
| | 56,792 |
| | — |
| | 56,792 |
| | 624 |
| | 57,416 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 16,662 |
| | 16,662 |
| | 949 |
| | 17,611 |
|
Balance as of March 31, 3018 | 18,065,887 |
| | $ | 18 |
| | $ | 510,060 |
| | $ | 572,084 |
| | $ | (189,608 | ) | | $ | 892,554 |
| | $ | 30,405 |
| | $ | 922,959 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2018 | 17,554,737 |
| | $ | 17 |
| | $ | 501,511 |
| | $ | 569,215 |
| | $ | (245,937 | ) | | $ | 824,806 |
| | $ | 26,669 |
| | $ | 851,475 |
|
Cumulative effect of change in accounting principle | — |
| | — |
| | — |
| | (2,607 | ) | | — |
| | (2,607 | ) | | — |
| | (2,607 | ) |
Repurchase of common stock | (118,774 | ) | | — |
| | (2,057 | ) | | (3,880 | ) | | — |
| | (5,937 | ) | | — |
| | (5,937 | ) |
Share-based compensation, net | 85,937 |
| | — |
| | 4 |
| | (214 | ) | | — |
| | (210 | ) | | — |
| | (210 | ) |
Contribution from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,112 |
| | 2,112 |
|
Net (loss) income | — |
| | — |
| | — |
| | (5,415 | ) | | — |
| | (5,415 | ) | | 52 |
| | (5,363 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 4,239 |
| | 4,239 |
| | 371 |
| | 4,610 |
|
Balance as of March 31, 2019 | 17,521,900 |
| | $ | 17 |
| | $ | 499,458 |
| | $ | 557,099 |
| | $ | (241,698 | ) | | $ | 814,876 |
| | $ | 29,204 |
| | $ | 844,080 |
|
The accompanying notes are an integral part of these financial statements.
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
| | | Three Months Ended March 31, | Three Months Ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Operating Activities: | | | | | | |
Net (loss) income | $ | (3,617 | ) | | $ | 57,416 |
| |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | |
Net loss | | $ | (112,439 | ) | | $ | (5,363 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | Adjustments to reconcile net loss to net cash used in operating activities: | | |
Depreciation | 32,830 |
| | 32,853 |
| 33,313 |
| | 32,830 |
|
Amortization of intangibles | 3,775 |
| | 3,406 |
| 4,450 |
| | 3,775 |
|
Impairment of assets held for sale | | 74,079 |
| | — |
|
Other impairment charges | | 977 |
| | — |
|
Share-based compensation expense | 3,186 |
| | 3,875 |
| 2,374 |
| | 3,186 |
|
Equity in earnings of affiliates, net of dividends related to earnings | 2,559 |
| | 2,821 |
| 3,814 |
| | 2,559 |
|
Loss on refinancing and extinguishment of debt | — |
| | 770 |
| |
Deferred income taxes | | (20,191 | ) | | (964 | ) |
Other | 531 |
| | 1,242 |
| 1,138 |
| | 1,495 |
|
Changes in operating assets and liabilities | (41,112 | ) | | (112,939 | ) | 10,455 |
| | (39,366 | ) |
Net cash used in operating activities | (1,848 | ) | | (10,556 | ) | (2,030 | ) | | (1,848 | ) |
Investing activities: | | | | | | |
Capital expenditures | (59,633 | ) | | (67,858 | ) | (50,591 | ) | | (59,633 | ) |
Acquisition of businesses, net of cash acquired | (452 | ) | | (3,223 | ) | — |
| | (452 | ) |
Proceeds from sale of fixed assets and other | 102 |
| | 889 |
| 482 |
| | 102 |
|
Net cash used in investing activities | (59,983 | ) | | (70,192 | ) | (50,109 | ) | | (59,983 | ) |
Financing activities: | | | | | | |
Principal payments on long-term debt | (1,012 | ) | | (887 | ) | (1,498 | ) | | (1,012 | ) |
Increase (decrease) in short-term debt, net | 65,791 |
| | (1,123 | ) | |
Purchase of noncontrolling interests | — |
| | (2,450 | ) | |
Increase in short-term debt, net | | 3,021 |
| | 65,791 |
|
Repurchase of common stock | (6,550 | ) | | — |
| — |
| | (6,550 | ) |
Taxes withheld and paid on employees' share-based payment awards | (2,706 | ) | | (9,621 | ) | (512 | ) | | (2,706 | ) |
Contribution from noncontrolling interest and other | 1,827 |
| | (881 | ) | |
Net cash provided by (used in) financing activities | 57,350 |
| | (14,962 | ) | |
Other | | (625 | ) | | 1,827 |
|
Net cash provided by financing activities | | 386 |
| | 57,350 |
|
Effects of exchange rate changes on cash, cash equivalents and restricted cash | 1,477 |
| | (69 | ) | (6,200 | ) | | 1,477 |
|
Changes in cash, cash equivalents and restricted cash | (3,004 | ) | | (95,779 | ) | (57,953 | ) | | (3,004 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 267,399 |
| | 518,461 |
| 361,742 |
| | 267,399 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 264,395 |
| | $ | 422,682 |
| $ | 303,789 |
| | $ | 264,395 |
|
| | | | | | |
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet: | | Balance as of | Balance as of |
| March 31, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
Cash and cash equivalents | $ | 262,169 |
| | $ | 264,980 |
| $ | 301,841 |
| | $ | 359,536 |
|
Restricted cash included in other current assets | 20 |
| | 18 |
| 13 |
| | 12 |
|
Restricted cash included in other assets | 2,206 |
| | 2,401 |
| 1,935 |
| | 2,194 |
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 264,395 |
| | $ | 267,399 |
| $ | 303,789 |
| | $ | 361,742 |
|
The accompanying notes are an integral part of these financial statements.
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, 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.
During the first quarter of 2019 and in prior periods, the Company also operated an anti-vibration systems (“AVS”) product line. Subsequent to the end of the first quarter, onOn April 1, 2019, the Company completed the divestiture of its anti-vibration systemsAVS product line. See Note 3. "Acquisitions and Divestitures" and Note 4. "Assets Held for Sale".
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, 20182019 (the “2018“2019 Annual Report”), as filed with the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These financial statements include all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of the Company. The operating results for the interim period ended March 31, 20192020 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.
Immaterial Correction of Errors
During the year ended December 31, 2019, the Company identified errors primarily related to periods prior to fiscal year 2019. The Company concluded these errors were not material individually or in the aggregate to any of the previously reported periods and, therefore, amendments of previously filed reports were not required. Corrections were made to the applicable prior periods reflected in the financial information herein.
The following table presents the impact of these corrections on the Company’s condensed consolidated statements of operations:
|
| | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
| As previously reported | | Adjustment | | As corrected |
Sales | $ | 880,038 |
| | $ | (2,043 | ) | | $ | 877,995 |
|
Income tax expense | 2,331 |
| | (297 | ) | | 2,034 |
|
Net income (loss) attributable to noncontrolling interests | 157 |
| | (209 | ) | | (52 | ) |
Net loss attributable to Cooper-Standard Holdings Inc. | (3,460 | ) | | (1,955 | ) | | (5,415 | ) |
| | | | | |
Earnings (loss) per share: | | | | | |
Basic | $ | (0.20 | ) | | $ | (0.11 | ) | | $ | (0.31 | ) |
Diluted | $ | (0.20 | ) | | $ | (0.11 | ) | | $ | (0.31 | ) |
The following table presents the impact of these corrections on the Company’s condensed consolidated statements of comprehensive income (loss):
|
| | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
| As previously reported | | Adjustment | | As corrected |
Currency translation adjustment | $ | 2,219 |
| | $ | (249 | ) | | $ | 1,970 |
|
Comprehensive loss (income) attributable to noncontrolling interests | (247 | ) | | (176 | ) | | (423 | ) |
Comprehensive income (loss) attributable to Cooper-Standard Holdings Inc. | 995 |
| | (2,171 | ) | | (1,176 | ) |
The impact of these corrections on the balance as of March 31, 2019 in the Company’s condensed consolidated statements of changes in equity includes a decrease to total equity of $10,022, which consists of a decrease to retained earnings of $8,765, increase to accumulated other comprehensive loss of $65, and decrease to noncontrolling interests of $1,192.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
For the three months ended March 31, 2019, the impact of these corrections on the condensed consolidated statement of cash flow included a $1,746 decrease in net income offset by an increase of $1,746 in changes in operating assets and liabilities, resulting in no impact to net cash provided by operating activities.
2. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
ASU 2016-02, Leases2016-13, Financial Instruments — Credit Losses (Topic 842)326)
On January 1, 2019,2020, the Company adopted Accounting Standards Codification (“ASC”) 842, Leases,326, Financial Instruments – Credit Losses, and all related amendments using the modified retrospective method whereby the cumulative effect of adopting the standard was recognized in equity at the date of initial application. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The most prominent among the changes in the standard is the recognitionconsideration of right-of-use assetslosses not yet incurred, but expected, based on current conditions and lease liabilities for all leases (except for short-term leases). The Company made a policy election for all asset classes to excludefuture forecasts. Adoption of the balance sheet recognition of leases with a lease term, at lease commencement, of 12 months or less and no purchase option reasonably certain to be exercised. The standard also requires additional disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from lease transactions. The new standard resulted in a materialan immaterial increase in right-of-use assets and lease liabilitiesthe allowance for credit losses, which decreased the tooling receivable on the Company’s condensed consolidated balance sheet beginning in 2019, and2020. The increase in credit loss expense was recorded as an adjustment to the opening balance of retained earnings. Adoption of the new standard had no impact on ourthe Company’s condensed consolidated income statement of operations or toon cash fromprovided by (used in) operating, financing or investing activities on ourits condensed consolidated cash flow statements.
The cumulative effects of the changes made to the Company’s condensed consolidated balance sheet as of January 1, 2020 were as follows: |
| | | | | | | | | | | |
| Balance as of December 31, 2019 | | Adjustments due to adoption of ASC 326 | | Balance as of January 1, 2020 |
| | | | | |
Tooling receivable, net | $ | 148,175 |
| | $ | (1,573 | ) | | $ | 146,602 |
|
Retained earnings | 619,448 |
| | (1,573 | ) | | 617,875 |
|
The Company adopted the following Accounting Standard Updates (“ASU”) during the three months ended March 31, 2020, which did not have a material impact on its condensed consolidated financial statements:
|
| | |
Standard | Description | Effective Date |
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
| Aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.
| January 1, 2020 |
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | Provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.
| January 1, 2020 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
The difference between the lease assets and lease liabilities was recorded as an adjustment to the opening balance of retained earnings. The cumulative effects of the changes made to the Company’s condensed consolidated balance sheet as of January 1, 2019 were as follows: |
| | | | | | | | | | | |
| Balance as of December 31, 2018 | | Adjustments due to adoption of ASC 842 | | Balance as of January 1, 2019 |
| | | | | |
Prepaid expenses | $ | 36,878 |
| | $ | (2,704 | ) | | $ | 34,174 |
|
Assets held for sale | 103,898 |
| | 9,559 |
| | 113,457 |
|
Operating lease right-of-use assets | — |
| | 102,268 |
| | 102,268 |
|
Accrued liabilities | 98,907 |
| | (336 | ) | | 98,571 |
|
Current operating lease liabilities | — |
| | 27,229 |
| | 27,229 |
|
Liabilities held for sale | 71,195 |
| | 9,561 |
| | 80,756 |
|
Long-term operating lease liabilities | — |
| | 75,276 |
| | 75,276 |
|
Retained earnings | 576,025 |
| | (2,607 | ) | | 573,418 |
|
The following table summarizes the impact of adopting the new standard on the Company’s condensed consolidated balance sheet as of March 31, 2019. |
| | | |
| March 31, 2019 |
Assets held for sale | $ | 9,136 |
|
Operating lease right-of-use assets | 92,508 |
|
Current operating lease liabilities | 26,216 |
|
Liabilities held for sale | 8,884 |
|
Long-term operating lease liabilities | 68,905 |
|
The Company elected the package of practical expedients on existing leases as of the effective date which permits the Company to carry forward lease classification and not reassess existing contracts in order to determine if the contracts contain a lease. The Company did not elect the hindsight practical expedient. Additionally, the Company elected the practical expedient to not reassess whether any expired or existing land easements contain leases.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
The Company adopted the following Accounting Standard Updates (“ASU”) during the three months ended March 31, 2019, which related to the fair value and financial instruments footnote disclosures: |
| | | |
Standard | Description | Impact | Effective Date |
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
| Eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. | Adoption resulted in the removal of the disclosure of the ineffective portion of the gain (loss) reclassified from Accumulated Other Comprehensive Income (“AOCI”) to income. | January 1, 2019 |
ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting
| Adds the OIS rate based on SOFR as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes. | No impact | January 1, 2019 |
Recently Issued Accounting Pronouncements
The Company considered the recently issued accounting pronouncement summarized as follows, which could have a material impact on its condensed consolidated financial statements or disclosures: |
| | | |
Standard | Description | Impact | Effective Date |
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
| This amendment modifies the disclosure requirements for ASC Topic 820 by removing and modifying existing disclosure requirements as well as adding new disclosures.
| The Company is undertaking a comprehensive evaluation of the impacts of adopting this standard and expects that the adoption of this standard will primarily result in additional quantitative disclosures for Level 3 fair value measurements. | January 1, 2020
|
3. Acquisitions and Divestitures
AMI Acquisition
In the first quarter of 2018, the Company finalized its purchase of 100% equity interest of the China fuel and brake business of AMI Industries (“AMI China”) for cash consideration of $3,900. This acquisition directly aligns with the Company’s growth strategy by expanding the Company’s fuel and brake business. The results of operations of AMI China are included in the Company’s condensed consolidated financial statements from the date of acquisition, February 1, 2018, and reported within the Asia Pacific segment. The pro forma effect of this acquisition would not have materially impacted the Company’s reported results for any periods presented, and as a result no pro forma information has been presented. This acquisition was accounted for as a business combination, with the total purchase price allocated using information available. The fair value of identifiable assets acquired and liabilities assumed exceeded the fair value of the consideration transferred by an immaterial amount.
INOAC Acquisition
Also in the first quarter of 2018, the Company purchased the remaining 49% equity interest of Cooper-Standard INOAC Pte. Ltd., a fluid transfer systems joint venture, at a purchase price of $2,450. This acquisition was accounted for as an equity transaction. Subsequent to the transaction, the Company owns 100% of the equity interests of Cooper-Standard INOAC Pte. Ltd.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Lauren Acquisition
In the third quarter of 2018, the Company acquired the assets and liabilities of Lauren Manufacturing and Lauren Plastics (together, “Lauren”), extruders and molders of organic, silicone, thermoplastic and engineered polymer products with expertise in sealing solutions, to further expand the Company’s Industrial and Specialty Group and non-automotive and adjacent markets. The base purchase price of the acquisition was $92,700, which is subject to certain adjustments. The results of operations of Lauren are included in the Company’s condensed consolidated financial statements from the date of acquisition and reported within the North America segment. The pro forma effect of this acquisition would not have materially impacted the Company’s reported results for any periods presented, and as a result no pro forma information has been presented. This acquisition was accounted for as a business combination, resulting in the recognition of intangible assets of $34,810 and tax deductible goodwill of $26,080. The total purchase price was allocated on a preliminary basis which is subject to change as the Company finalizes application of opening balance sheet adjustments. Since completion of initial estimates in the third quarter of 2018, the Company has recorded insignificant measurement period adjustments to increase the provisional identifiable net assets acquired, which resulted in a decrease to goodwill.
LS Mtron Automotive Parts Acquisition
In the fourth quarter of 2018, the Company acquired 80.1% of LS Mtron Ltd.’s automotive parts business, now named Cooper Standard Automotive and Industrial, Inc. The acquisition adds jounce brake lines and charge air cooling technology to the Company’s automotive fluid transfer, and fuel and brake delivery systems product lines and further expands core product offerings. The base purchase price was approximately $25,750, subject to certain adjustments. The noncontrolling interest was determined to have a fair value of $6,400. The results of operations of Cooper Standard Automotive and Industrial, Inc., are included in the Company’s condensed consolidated financial statements from the date of acquisition and reported within the Asia Pacific segment. The pro forma effect of this acquisition would not have materially impacted the Company’s reported results for any periods presented, and as a result no pro forma information has been presented. This acquisition was accounted for as a business combination, with the total purchase price allocated on a preliminary basis which is subject to change as the Company continues its review of potential purchase price adjustments during the measurement period. The fair value of identifiable assets acquired and liabilities assumed approximated the fair value of the consideration transferred. Since completion of initial estimates in the fourth quarter of 2018, the Company has recorded insignificant measurement period adjustments due to working capital adjustments, which resulted in an increase to the base purchase price.
Hutchings Automotive Products Acquisition
In the fourth quarter of 2018, the Company acquired the assets and liabilities of Hutchings Automotive Products, LLC (“Hutchings”), a North American supplier of high quality fluid carrying products for automotive powertrain and coolant systems applications. The base purchase price was approximately $42,100, subject to certain adjustments. The results of operations of Hutchings are included in the Company's condensed consolidated financial statements from the date of acquisition and reported within the North America segment. The pro forma effect of this acquisition would not have materially impacted the Company’s reported results for any periods presented, and as a result no pro forma information has been presented. This acquisition was accounted for as a business combination, resulting in the recognition of intangible assets of $11,100 and tax deductible goodwill of $5,200. The total purchase price was allocated on a preliminary basis which is subject to change as the Company continues its review of potential purchase price adjustments during the measurement period.
Subsequent Event
On April 1, 2019, the Company completed the divestiture of its anti-vibration systems product line. The sale price was $265,500, subject to certain adjustments. See Note 4. "AssetsAssets Held for Sale".Sale and Divestiture
4. Assets Held for Sale
In the thirdfourth quarter of 2018,2019, management approved a plan to sell the anti-vibration systems (“AVS”) product linecertain manufacturing facilities within its North America, Europe and Asia Pacific segments. The businessCompany expects to sell the manufacturing facilities in the second quarter of 2020. The manufacturing facilities and itsthe associated assets and liabilities met the criteria for presentation as held for sale as of September 1, 2018,March 31, 2020, and as such, the assets and liabilities associated with the transaction are separately classified as held for sale in the condensed consolidated balance sheet as of March 31, 2019 and depreciation of long-lived assets ceased. The planned divestiture did not meet the criteria for presentation as a discontinued operation.
On November 2, 2018,The major classes of assets and liabilities held for sale were as follows:
|
| | | |
| March 31, 2020 |
Accounts receivable, net | $ | 17,171 |
|
Tooling receivable, net | 3,508 |
|
Inventories | 18,157 |
|
Prepaid expenses | 3,519 |
|
Other current assets | 9,817 |
|
Property, plant and equipment, net | 38,691 |
|
Operating lease right-of-use assets, net | 2,782 |
|
Intangible assets, net | 4,981 |
|
Other assets | 1,188 |
|
Impairment of carrying value | (74,079 | ) |
Total assets held for sale | $ | 25,735 |
|
| |
Accounts payable | $ | 29,341 |
|
Payroll liabilities | 5,642 |
|
Accrued liabilities | 9,137 |
|
Current operating lease liabilities | 955 |
|
Pension benefits | 3,461 |
|
Postretirement benefits other than pensions | 2,715 |
|
Long-term operating lease liabilities | 2,363 |
|
Other liabilities | 1,838 |
|
Total liabilities related to assets held for sale | $ | 55,452 |
|
Upon meeting the criteria for held for sale classification, the Company entered intorecorded a definitive agreementnon-cash impairment charge of $74,079 to divestreduce the carrying value of the held for sale entities to fair value less costs to sell. Fair value, which is categorized within Level 3 of the fair value hierarchy, was determined using a market approach, estimated based on expected proceeds. The fair value less cost to sell must be assessed each reporting period that the asset group remains classified as held for sale.
The impairment charge, which is subject to adjustments as the transaction is finalized, includes the anticipated release of non-cash cumulative foreign currency translation losses, which were included as part of the carrying value of the held for sale entities. These losses will be reclassified from accumulated other comprehensive loss to net income (loss) upon closure of the transaction.
Divestiture
During the first quarter of 2019 and in prior periods, the Company also operated an AVS product line. Subsequent to the end of the first quarter, onOn April 1, 2019, the Company completed its sale of the AVS product line to Continental AG. The total sale price
Subsequent Event
Subsequent to the end of the transaction was $265,500,Company's first quarter, on May 7, 2020, the Company entered into a definitive agreement to divest certain manufacturing facilities within its Europe and Asia Pacific segments. The planned divestiture of the facilities is expected to close in the second quarter of 2020 and is subject to certain adjustments. The estimated net cash proceeds after taxescustomary closing conditions, including regulatory and transaction-related expenses and fees are expected to be approximately $220,000 to $225,000.third-party approvals.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
4. Revenue
Revenue is recognized for manufactured parts at a point in time, generally when products are shipped or delivered. The major classesCompany usually enters into agreements with customers to produce products at the beginning of assetsa vehicle’s life. Blanket purchase orders received from customers and liabilities heldrelated documents generally establish the annual terms, including pricing, related to a vehicle model. Customers typically pay for sale wereparts 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, 2020 was as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Passenger and Light Duty | $ | 325,982 |
| | $ | 170,781 |
| | $ | 78,742 |
| | $ | 20,439 |
| | $ | — |
| | $ | 595,944 |
|
Commercial | 3,178 |
| | 5,557 |
| | 546 |
| | 10 |
| | 1,134 |
| | 10,425 |
|
Other | 5,641 |
| | 8,904 |
| | 56 |
| | 22 |
| | 33,898 |
| | 48,521 |
|
Revenue | $ | 334,801 |
| | $ | 185,242 |
| | $ | 79,344 |
| | $ | 20,471 |
| | $ | 35,032 |
| | $ | 654,890 |
|
|
| | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
Accounts receivable, net | | $ | 47,613 |
| | $ | 35,498 |
|
Tooling receivable | | 1,976 |
| | 3,797 |
|
Inventories | | 14,149 |
| | 13,774 |
|
Prepaid expenses | | 1,474 |
| | 1,759 |
|
Other current assets | | 939 |
| | 1,197 |
|
Property, plant and equipment, net | | 30,846 |
| | 31,148 |
|
Operating lease right-of-use assets | | 9,136 |
| | — |
|
Goodwill | | 13,500 |
| | 13,500 |
|
Other assets | | 3,333 |
| | 3,225 |
|
Total assets held for sale | | $ | 122,966 |
| | $ | 103,898 |
|
| | | | |
Accounts payable | | $ | 41,546 |
| | $ | 38,065 |
|
Payroll liabilities | | — |
| | 6,826 |
|
Accrued liabilities | | 573 |
| | 1,000 |
|
Current operating lease liabilities | | 1,617 |
| | — |
|
Pension benefits | | 15,993 |
| | 15,894 |
|
Postretirement benefits other than pensions | | 8,696 |
| | 9,281 |
|
Long-term operating lease liabilities | | 7,267 |
| | — |
|
Other liabilities | | 138 |
| | 129 |
|
Total liabilities related to assets held for sale | | $ | 75,830 |
| | $ | 71,195 |
|
5. Revenue
Revenue by customer group for the three months ended March 31, 2019 was as follows: |
| | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Consolidated |
Automotive | $ | 436,866 |
| | $ | 225,451 |
| | $ | 127,398 |
| | $ | 23,192 |
| | $ | 812,907 |
|
Commercial | 6,339 |
| | 8,425 |
| | — |
| | 23 |
| | 14,787 |
|
Other | 31,502 |
| | 20,723 |
| | 97 |
| | 22 |
| | 52,344 |
|
Revenue | $ | 474,707 |
| | $ | 254,599 |
| | $ | 127,495 |
| | $ | 23,237 |
| | $ | 880,038 |
|
Revenue by customer group for the three months ended March 31, 2018 was as follows: | | | North America | | Europe | | Asia Pacific | | South America | | Consolidated | North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Automotive | $ | 488,737 |
| | $ | 260,656 |
| | $ | 149,169 |
| | $ | 26,450 |
| | $ | 925,012 |
| |
Passenger and Light Duty | | $ | 436,866 |
| | $ | 225,451 |
| | $ | 125,355 |
| | $ | 23,192 |
| | $ | — |
| | $ | 810,864 |
|
Commercial | 5,353 |
| | 9,580 |
| | 6 |
| | 145 |
| | 15,084 |
| 5,792 |
| | 8,425 |
| | — |
| | 23 |
| | 547 |
| | 14,787 |
|
Other | 5,088 |
| | 22,165 |
| | — |
| | 42 |
| | 27,295 |
| 5,060 |
| | 8,524 |
| | 97 |
| | 22 |
| | 38,641 |
| | 52,344 |
|
Revenue | $ | 499,178 |
| | $ | 292,401 |
| | $ | 149,175 |
| | $ | 26,637 |
| | $ | 967,391 |
| $ | 447,718 |
| | $ | 242,400 |
| | $ | 125,452 |
| | $ | 23,237 |
| | $ | 39,188 |
| | $ | 877,995 |
|
The automotivepassenger and light duty group consists of sales to automotive OEMs and automotive suppliers, while the commercial 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, fuel and brake delivery, fluid transfer and anti-vibration systems for use in passenger vehicles and light trucks manufactured by global OEMs. On April 1, 2019, the Company completed the divestiture of its AVS product line.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
A summary of the Company’s products as of March 31, 2019 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 & 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 |
Anti-Vibration Systems (Divested on April 1, 2019) | | Control and isolate vibration and noise in the vehicle to improve ride and handling |
Revenue by product line for the three months ended March 31, 20192020 was as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Sealing systems | $ | 124,556 |
| | $ | 127,246 |
| | $ | 49,024 |
| | $ | 13,549 |
| | $ | — |
| | $ | 314,375 |
|
Fuel and brake delivery systems | 104,934 |
| | 28,562 |
| | 19,818 |
| | 5,747 |
| | — |
| | 159,061 |
|
Fluid transfer systems | 105,311 |
| | 21,945 |
| | 10,502 |
| | 1,175 |
| | — |
| | 138,933 |
|
Other | — |
| | 7,489 |
| | — |
| | — |
| | 35,032 |
| | 42,521 |
|
Consolidated | $ | 334,801 |
| | $ | 185,242 |
| | $ | 79,344 |
| | $ | 20,471 |
| | $ | 35,032 |
| | $ | 654,890 |
|
|
| | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Consolidated |
Sealing systems | $ | 156,516 |
| | $ | 155,560 |
| | $ | 85,490 |
| | $ | 17,828 |
| | $ | 415,394 |
|
Fuel and brake delivery systems | 131,703 |
| | 35,298 |
| | 25,191 |
| | 5,335 |
| | 197,527 |
|
Fluid transfer systems | 113,448 |
| | 22,798 |
| | 15,361 |
| | 74 |
| | 151,681 |
|
Anti-vibration systems | 56,457 |
| | 20,649 |
| | 1,453 |
| | — |
| | 78,559 |
|
Other | 16,583 |
| | 20,294 |
| | — |
| | — |
| | 36,877 |
|
Consolidated | $ | 474,707 |
| | $ | 254,599 |
| | $ | 127,495 |
| | $ | 23,237 |
| | $ | 880,038 |
|
Revenue by product line for the three months ended March 31, 2018 was as follows: |
| | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Consolidated |
Sealing systems | $ | 172,811 |
| | $ | 184,452 |
| | $ | 117,890 |
| | $ | 19,909 |
| | $ | 495,062 |
|
Fuel and brake delivery systems | 138,801 |
| | 38,953 |
| | 22,095 |
| | 6,603 |
| | 206,452 |
|
Fluid transfer systems | 119,673 |
| | 23,009 |
| | 6,614 |
| | 125 |
| | 149,421 |
|
Anti-vibration systems | 67,521 |
| | 21,182 |
| | 2,576 |
| | — |
| | 91,279 |
|
Other | 372 |
| | 24,805 |
| | — |
| | — |
| | 25,177 |
|
Consolidated | $ | 499,178 |
| | $ | 292,401 |
| | $ | 149,175 |
| | $ | 26,637 |
| | $ | 967,391 |
|
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue. The Company has one major performance obligation category: manufactured parts.
A contract’s transaction price is allocated to each distinct performance obligation and recognized when the performance obligation is satisfied. It is not unusual for the Company’s contracts to include multiple performance obligations. For such contracts, the Company generally allocates the contract’s transaction price to each performance obligation based on the purchase order or other arranged pricing.
The Company recognizes revenue at a point in time, generally when products are shipped or delivered. The point at which revenue is recognized often depends on the shipping terms.
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. Although purchase orders do not usually specify quantities, fulfillment of customers’ purchasing requirements can be the Company’s obligation for the entire production life of the vehicle. These agreements generally may be terminated by the Company’s customer at any time, but such cancellations have historically been minimal. Customers typically pay for parts based on customary business practices with payment terms generally between 30 and 90 days. The Company has no significant financing arrangements with customers.
The Company applies the optional exemption to forgo disclosing information about its remaining performance obligations because its contracts usually have an original expected duration of one year or less. It also applies an accounting policy to treat shipping and handling costs that are incurred after revenue is recognizable as a fulfillment activity by expensing such costs as incurred, instead of as a separate performance obligation. This approach is consistent with the Company’s
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
historical accounting practices. The Company has chosen to present revenue net of sales and other similar taxes, which is also consistent with its historical accounting practices.Revenue by product line for the three months ended March 31, 2019 was as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Sealing systems | $ | 145,646 |
| | $ | 155,391 |
| | $ | 83,529 |
| | $ | 17,829 |
| | $ | — |
| | $ | 402,395 |
|
Fuel and brake delivery systems | 131,703 |
| | 35,298 |
| | 25,168 |
| | 5,335 |
| | — |
| | 197,504 |
|
Fluid transfer systems | 113,448 |
| | 22,798 |
| | 15,302 |
| | 73 |
| | — |
| | 151,621 |
|
Anti-vibration systems | 56,457 |
| | 20,649 |
| | 1,453 |
| | — |
| | — |
| | 78,559 |
|
Other | 464 |
| | 8,264 |
| | — |
| | — |
| | 39,188 |
| | 47,916 |
|
Consolidated | $ | 447,718 |
| | $ | 242,400 |
| | $ | 125,452 |
| | $ | 23,237 |
| | $ | 39,188 |
| | $ | 877,995 |
|
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 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 its 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. ChangesContract assets were not materially impacted by any other factors during the three months ended March 31, 2019 were not materially impacted by any other factors.2020.
The Company’s contract liabilities consist of advance payments received and due from customers. Net contract assets (liabilities) consisted of the following: |
| | | | | | | | | | | | |
| | March 31, 2020 | | December 31, 2019 | | Change |
Contract assets | | $ | 9,130 |
| | $ | 1,100 |
| | $ | 8,030 |
|
Contract liabilities | | (43 | ) | | (61 | ) | | 18 |
|
Net contract assets | | $ | 9,087 |
|
| $ | 1,039 |
|
| $ | 8,048 |
|
|
| | | | | | | | | | | | |
| | March 31, 2019 | | December 31, 2018 | | Change |
Contract assets | | $ | 11,934 |
| | $ | 14,757 |
| | $ | (2,823 | ) |
Contract liabilities | | (135 | ) | | (143 | ) | | 8 |
|
Net contract assets (liabilities) | | $ | 11,799 |
|
| $ | 14,614 |
|
| $ | (2,815 | ) |
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. Amounts related to commitments of future payments to customers on the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 were current liabilities of $11,954 and $12,916, respectively, and long-term liabilities of $7,360 and $9,502, respectively.
The Company provides assurance-type warranties to its customers. Such warranties provide customers with assurance that the related product will function as intended and complies with any agreed-upon specifications, and are recognized in costs of products sold.
6.5. 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”), other related exit costs and asset impairments related to restructuring activities. Employee separation costs are recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Restructuring expense by segment for the three months ended March 31, 20192020 and 20182019 was as follows: |
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
North America | $ | 3,703 |
| | $ | 5,208 |
|
Europe | 2,193 |
| | 6,103 |
|
Asia Pacific | 133 |
| | 2,513 |
|
South America | 1,202 |
| | 16 |
|
Total Automotive | 7,231 |
| | 13,840 |
|
Corporate and other | 45 |
| | 3,875 |
|
Total | $ | 7,276 |
| | $ | 17,715 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
North America | $ | 7,133 |
| | $ | 1,104 |
|
Europe | 7,553 |
| | 5,529 |
|
Asia Pacific | 2,886 |
| | 438 |
|
South America | 143 |
| | 54 |
|
Total | $ | 17,715 |
| | $ | 7,125 |
|
Restructuring activity for the three months ended March 31, 20192020 was as follows: |
| | | | | | | | | | | |
| Employee Separation Costs | | Other Exit Costs | | Total |
Balance as of December 31, 2019 | $ | 22,990 |
| | $ | 4,005 |
| | $ | 26,995 |
|
Expense | 4,415 |
| | 2,861 |
| | 7,276 |
|
Cash payments | (6,362 | ) | | (3,037 | ) | | (9,399 | ) |
Foreign exchange translation and other | (626 | ) | | (38 | ) | | (664 | ) |
Balance as of March 31, 2020 | $ | 20,417 |
| | $ | 3,791 |
| | $ | 24,208 |
|
|
| | | | | | | | | | | |
| Employee Separation Costs | | Other Exit Costs | | Total |
Balance as of December 31, 2018 | $ | 9,398 |
| | $ | 3,829 |
| | $ | 13,227 |
|
Expense | 14,177 |
| | 3,538 |
| | 17,715 |
|
Cash payments | (4,798 | ) | | (2,107 | ) | | (6,905 | ) |
Foreign exchange translation and other | (168 | ) | | (520 | ) | | (688 | ) |
Balance as of March 31, 2019 | $ | 18,609 |
| | $ | 4,740 |
| | $ | 23,349 |
|
7.6. Inventories
Inventories consist of the following: |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Finished goods | $ | 54,135 |
| | $ | 57,070 |
|
Work in process | 36,741 |
| | 33,753 |
|
Raw materials and supplies | 77,160 |
| | 52,616 |
|
| $ | 168,036 |
| | $ | 143,439 |
|
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Finished goods | $ | 55,061 |
| | $ | 50,999 |
|
Work in process | 43,127 |
| | 37,815 |
|
Raw materials and supplies | 88,084 |
| | 86,758 |
|
| $ | 186,272 |
| | $ | 175,572 |
|
8.7. Leases
On January 1, 2019, the Company adopted ASC 842, Leases, and all related amendments using the modified retrospective method. The Company determines if an arrangement is a lease at inception.primarily has operating and finance leases for certain manufacturing facilities, corporate offices and certain equipment. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities and long-term operating lease liabilities on the Company’s condensed consolidated balance sheet as of March 31, 2019.2020. Finance leases are included in property, plant and equipment, net, debt payable within one year, and long-term debt on the Company’s condensed consolidated balance sheets.
Lease right-of-use assets are recognized at commencement date based upon the present value of the remaining future minimum lease payments over the lease term. The Company’s lease terms include options to renew or terminate the lease when it is reasonably certain that it will exercise the option. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based upon information available at the commencement date to determine the present value of future lease payments. The Company applies the portfolio approach for the incremental borrowing rate on its leases based upon similar lease terms and payments. The lease right-of-use asset also includes lease payments made in advancecomponents of lease commencement and excludes lease incentives. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components. For real estate leases, these components are accounted for separately, while for equipment leases commencing on or after January 1, 2019, the Company accounts for the lease and non-lease componentswere as
a single lease component.follows: |
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Operating lease expense | $ | 8,605 |
| | $ | 8,680 |
|
Short-term lease expense | 1,010 |
| | 679 |
|
Variable lease expense | 250 |
| | 215 |
|
Finance lease expense: | | | |
Amortization of right-of-use assets | 681 |
| | 443 |
|
Interest on lease liabilities | 385 |
| | 455 |
|
Total lease expense | $ | 10,931 |
| | $ | 10,472 |
|
Variable lease cost includes payments based upon changes in a rate or index, such as consumer price indexes, as well as usage of the leased asset. Short-term lease cost includes leases with terms, at lease commencement, of 12 months or less and no purchase option reasonably certain to be exercised, including leases with a duration of one month or less. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
The Company primarily has operating and finance leases for certain manufacturing facilities, corporate offices and certain equipment. The Company’s leases have remaining lease terms of less than one year to 15 years, some of which may include one or more options to extend the leases for up to five years for each renewal. As of March 31, 2019, assets recorded under finance leases, net of accumulated depreciation were $21,643, which includes $62 held for sale.
The components of lease expense were as follows: |
| | | | |
| | Three Months Ended March 31, 2019 |
Operating lease cost | | $ | 8,680 |
|
Short-term lease cost | | 679 |
|
Variable lease cost | | 215 |
|
Finance lease cost: | | |
Amortization of right-of-use assets | | 443 |
|
Interest on lease liabilities | | 455 |
|
Total lease cost | | $ | 10,472 |
|
Other information related to leases was as follows: |
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Supplemental Cash Flows Information | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows for operating leases | $ | 7,933 |
| | $ | 8,656 |
|
Operating cash flows for finance leases | 410 |
| | 323 |
|
Financing cash flows for finance leases | 648 |
| | 267 |
|
Non-cash right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | 37,205 |
| | 164 |
|
Finance leases | 61 |
| | 9,452 |
|
| | | |
Weighted Average Remaining Lease Term (in years) | | | |
Operating leases | 8.2 |
| | 5.5 |
|
Finance leases | 11.1 |
| | 12.0 |
|
| | | |
Weighted Average Discount Rate | | | |
Operating leases | 5.3 | % | | 4.7 | % |
Finance leases | 6.1 | % | | 9.6 | % |
|
| | | |
| Three Months Ended March 31, 2019 |
Supplemental Cash Flows Information | |
Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows for operating leases | $ | 8,656 |
|
Operating cash flows for finance leases | 323 |
|
Financing cash flows for finance leases | 267 |
|
Non-cash right-of-use assets obtained in exchange for lease obligations: | |
Operating leases | 164 |
|
Finance leases | 9,452 |
|
| |
Weighted Average Remaining Lease Term (in years) | |
Operating leases | 5.5 |
|
Finance leases | 12.0 |
|
| |
Weighted Average Discount Rate | |
Operating leases | 4.7 | % |
Finance leases | 9.6 | % |
| |
Future minimum lease payments under non-cancellable leases as of March 31, 2020 were as follows: |
| | | | | | | | |
Year | | Operating Leases | | Finance Leases |
Remainder of 2020 | | $ | 21,117 |
| | $ | 2,696 |
|
2021 | | 23,120 |
| | 3,543 |
|
2022 | | 18,019 |
| | 3,301 |
|
2023 | | 15,143 |
| | 3,047 |
|
2024 | | 12,385 |
| | 3,190 |
|
Thereafter | | 56,959 |
| | 23,988 |
|
Total future minimum lease payments | | 146,743 |
| | 39,765 |
|
Less imputed interest | | (31,164 | ) | | (11,059 | ) |
Total | | $ | 115,579 |
| | $ | 28,706 |
|
Amounts recognized on the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 were as follows:
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Operating Leases | | | |
Assets held for sale | $ | 2,782 |
| | $ | — |
|
Operating lease right-of-use assets, net | 113,090 |
| | 83,376 |
|
Current operating lease liabilities | 21,314 |
| | 24,094 |
|
Liabilities held for sale | 3,318 |
| | — |
|
Long-term operating lease liabilities | 90,947 |
| | 60,234 |
|
| | | |
Finance Leases | | | |
Debt payable within one year | 2,284 |
| | 2,343 |
|
Long-term debt | 26,422 |
| | 27,430 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows: |
| | | | | | | | |
Year | | Operating Leases | | Finance Leases |
Remainder of 2019 | | $ | 24,480 |
| | $ | 2,056 |
|
2020 | | 25,444 |
| | 2,920 |
|
2021 | | 17,580 |
| | 2,717 |
|
2022 | | 13,649 |
| | 2,544 |
|
2023 | | 11,844 |
| | 2,305 |
|
Thereafter | | 25,897 |
| | 21,494 |
|
Total future minimum lease payments | | 118,894 |
| | 34,036 |
|
Less imputed interest | | (14,889 | ) | | (14,006 | ) |
Total | | $ | 104,005 |
| | $ | 20,030 |
|
| | | | |
Amounts recognized in the condensed consolidated balance sheet as of March 31, 2019 |
Debt payable within one year | | $ | — |
| | $ | 1,937 |
|
Current operating lease liabilities | | 26,216 |
| | — |
|
Liabilities held for sale | | 8,884 |
| | 48 |
|
Long-term debt | | — |
| | 18,045 |
|
Long-term operating lease liabilities | | 68,905 |
| | — |
|
| | $ | 104,005 |
| | $ | 20,030 |
|
As of March 31, 2020 and December 31, 2019, assets recorded under finance leases, net of accumulated depreciation were $31,705 and $32,571, respectively. As of March 31, 2020, the Company had additional operating leases, primarily for real estate, that have not yet commenced with undiscounted lease payments of approximately $55,323.$1,725. These operating leases will commence between 2019 andin 2020 with lease terms up to 1510 years.
9.8. Property, Plant and Equipment
Property, plant and equipment consists of the following: |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Land and improvements | $ | 56,571 |
| | $ | 66,670 |
|
Buildings and improvements | 278,531 |
| | 310,797 |
|
Machinery and equipment | 1,163,390 |
| | 1,204,457 |
|
Construction in progress | 149,995 |
| | 161,951 |
|
| 1,648,487 |
| | 1,743,875 |
|
Accumulated depreciation | (738,976 | ) | | (755,598 | ) |
Property, plant and equipment, net | $ | 909,511 |
| | $ | 988,277 |
|
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Land and improvements | $ | 72,210 |
| | $ | 72,931 |
|
Buildings and improvements | 314,061 |
| | 313,722 |
|
Machinery and equipment | 1,097,801 |
| | 1,076,369 |
|
Construction in progress | 194,401 |
| | 192,533 |
|
| 1,678,473 |
| | 1,655,555 |
|
Accumulated depreciation | (687,808 | ) | | (671,314 | ) |
Property, plant and equipment, net | $ | 990,665 |
| | $ | 984,241 |
|
Due to the deterioration of financial results in a certain Asia Pacific location, the Company recorded an impairment charge of $977 during the three months ended March 31, 2020. The fair value was determined using estimated orderly liquidation value, which was deemed the highest and best use of the assets. Based on the Company’s interim impairment assessment, the Company has determined there were no additional indicators of impairment identified during the three months ended March 31, 2020. However, the Company continues to monitor the impacts of COVID-19 on its business and a lack of recovery of production volumes could result in an impairment charge in future periods.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
10.9. Goodwill and Intangible Assets
Goodwill
The balance of goodwill relates to the North America reporting unit. Changes in the carrying amount of goodwill by reportable operating segmentreporting unit for the three months ended March 31, 20192020 were as follows: |
| | | | | | | | | | | |
| North America | | Industrial Specialty Group | | Total |
Balance as of December 31, 2019 | $ | 142,187 |
| | $ | — |
| | $ | 142,187 |
|
Reorganization | (14,036 | ) | | 14,036 |
| | — |
|
Foreign exchange translation | (317 | ) | | — |
| | (317 | ) |
Balance as of March 31, 2020 | $ | 127,834 |
| | $ | 14,036 |
| | $ | 141,870 |
|
|
| | | |
| North America |
Balance as of December 31, 2018 | $ | 143,681 |
|
Acquisitions | (1,689 | ) |
Foreign exchange translation | 114 |
|
Balance as of March 31, 2019 | $ | 142,106 |
|
The Company’s organizational structure changed on January 1, 2020. See Note 22. “Segment Reporting” for further detail on this reorganization of the Company’s business. Prior to this reorganization, the Company’s North America operating segment was the only reporting unit in which goodwill was recorded. As a result of the reorganization, a portion of the goodwill that was previously attributable to the North America reporting unit was reallocated to the Industrial Specialty Group reporting unit based on the relative fair value approach. The Industrial Specialty Group reporting unit is a component of the Advanced Technology Group operating segment, which is reflected in “Corporate, eliminations and other”.The reorganization of the business represented a triggering event to test goodwill for impairment as of January 1, 2020. No impairment was identified as a result of completing the goodwill impairment test.
Goodwill is tested for impairment by reporting unit annually or more frequently if events or circumstances indicate that an impairment may exist. ThereOther than the reorganization event noted above, there were no other indicators of potential impairment during the three months ended March 31, 2019.2020. The Company continues to monitor the significant global economic uncertainty as a result of COVID-19 to assess the outlook for demand for products and the impact on the Company’s business and overall financial performance. A lack of recovery or further deterioration in market conditions and production volumes, among other factors, as a result of the COVID-19 pandemic could result in an impairment charge in future periods.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Intangible Assets
Intangible assets and accumulated amortization balances as of March 31, 20192020 and December 31, 20182019 were as follows:
|
| | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 154,345 |
| | $ | (116,066 | ) | | $ | 38,279 |
|
Other | 43,595 |
| | (7,568 | ) | | 36,027 |
|
Balance as of March 31, 2020 | $ | 197,940 |
| | $ | (123,634 | ) | | $ | 74,306 |
|
| | | | | |
Customer relationships | $ | 156,557 |
| | $ | (113,871 | ) | | $ | 42,686 |
|
Other | 49,556 |
| | (7,873 | ) | | 41,683 |
|
Balance as of December 31, 2019 | $ | 206,113 |
| | $ | (121,744 | ) | | $ | 84,369 |
|
|
| | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 156,884 |
| | $ | (102,524 | ) | | $ | 54,360 |
|
Other | 46,170 |
| | (4,919 | ) | | 41,251 |
|
Balance as of March 31, 2019 | $ | 203,054 |
| | $ | (107,443 | ) | | $ | 95,611 |
|
| | | | | |
Customer relationships | $ | 157,286 |
| | $ | (98,937 | ) | | $ | 58,349 |
|
Other | 45,401 |
| | (4,148 | ) | | 41,253 |
|
Balance as of December 31, 2018 | $ | 202,687 |
| | $ | (103,085 | ) | | $ | 99,602 |
|
11.10. Debt
A summary of outstanding debt as of March 31, 20192020 and December 31, 20182019 is as follows: |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Senior Notes | $ | 395,293 |
| | $ | 395,114 |
|
Term Loan | 325,455 |
| | 326,061 |
|
ABL Facility | — |
| | — |
|
Finance leases | 28,706 |
| | 29,773 |
|
Other borrowings | 57,821 |
| | 56,680 |
|
Total debt | 807,275 |
| | 807,628 |
|
Less current portion | (62,530 | ) | | (61,449 | ) |
Total long-term debt | $ | 744,745 |
| | $ | 746,179 |
|
|
| | | | | |
| March 31, 2019 | | December 31, 2018 |
Senior Notes | 394,578 |
| | 394,399 |
|
Term Loan | 327,879 |
| | 328,485 |
|
ABL Facility | 75,000 |
| | 50,000 |
|
Finance leases | 19,982 |
| | 10,297 |
|
Other borrowings | 89,725 |
| | 47,947 |
|
Total debt | 907,164 |
| | 831,128 |
|
Less current portion | (169,087 | ) | | (101,323 | ) |
Total long-term debt | 738,077 |
| | 729,805 |
|
5.625% Senior Notes due 2026
In November 2016, the Company issued $400,000 aggregate principal amount of its 5.625% Senior Notes due 2026 (the “Senior Notes”). The Senior Notes mature on November 15, 2026.2026. Interest on the Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year.
Debt issuance costs related to the Senior Notes are amortized into interest expense over the term of the Senior Notes. As of March 31, 20192020 and December 31, 2018,2019, the Company had $5,422$4,707 and $5,601$4,886 of unamortized debt issuance costs, respectively, related to the Senior Notes, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheets.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Term Loan Facility
Also in November 2016, the Company entered into Amendment No. 1 to its senior term loan facility (“Term Loan Facility”), which provides for loans in an aggregate principal amount of $340,000. Subject to certain conditions, the Term Loan Facility, without the consent of the then-existing lenders (but subject to the receipt of commitments), may be expanded (or a new term loan or revolving facility added) by an amount that will not cause the consolidated secured net debt ratio to exceed 2.25 to 1.00 plus $400,000 plus any voluntary prepayments, including the ABL Facility (as defined below) to the extent commitments are reduced, not funded from proceeds of long-term indebtedness. The Term Loan Facility matures on November 2, 2023, unless earlier terminated.
On May 2, 2017, the Company entered into Amendment No. 2 to the Term Loan Facility to modify the interest rate. Subsequently, on March 6, 2018, the Company entered into Amendment No. 3 to the Term Loan Facility to further modify the interest rate. In accordance with this amendment, borrowings under the Term Loan Facility bear interest, at the Company’s option, at either (1) with respect to Eurodollar rate loans, the greater of the applicable Eurodollar rate and 0.75% plus 2.0% 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 0.5%, the prime rate most recently announced by the administrative agent under the term loan, and the one-month Eurodollar rate plus 1.0%) plus 1.0% per annum. As a result of Amendment No. 3, the Company recognized a loss on refinancing
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and extinguishment of debt of $770 in the twelve months ended December 31, 2018, which was due to the partial write off of new and unamortized debt issuance costs and unamortized original issue discount.share amounts)
As of March 31, 20192020 and December 31, 2018,2019, the Company had $2,718$2,125 and $2,866$2,273 of unamortized debt issuance costs, respectively, and $1,753$1,370 and $1,849$1,466 of unamortized original issue discount, respectively, related to the Term Loan Facility, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheets. Both the debt issuance costs and the original issue discount are amortized into interest expense over the term of the Term Loan Facility.
ABL Facility
In November 2016, the Company entered into a $210,000 Third Amended and Restated Loan Agreement of its senior asset-based revolving credit facility (“ABL Facility”).
The ABL Facility, provides forwhich provided an aggregate revolving loan availability of up to $210,000, subject to borrowing base availability. In March 2020, the Company entered into the First Amendment of the Third Amended and Restated Loan Agreement (“the Amendment”). As a result of the Amendment, the senior asset-based revolving credit facility (“ABL Facility”) maturity was extended to March 2025 and the aggregate revolving loan availability includingwas reduced to $180,000. The aggregate revolving loan availability includes a $100,000 letter of credit sub-facility and a $25,000 swing line sub-facility. The ABL Facility also provides for an uncommitted $100,000 incremental loan facility, for a potential total ABL Facility of $310,000,$280,000, if requested by the borrowers under the ABL Facility and the lenders agree to fund such increase. No consent of any lender is required to effect any such increase, except for those participating in the increase.
As of March 31, 2019, $75,000 was drawn2020, there were no loans outstanding under the ABL Facility, and subject toFacility. The Company’s borrowing base availability,was $173,278. Net of the Company had $120,088 in availability, less10% of the borrowing base that cannot be borrowed without triggering the fixed charge coverage ratio maintenance covenant and $10,289 of outstanding letters of credit, of $10,783. Subsequent to the AVS divestiture on April 1, 2019, theCompany effectively had $145,661 available for borrowing base was reduced by $27,400.under its ABL facility.
Any borrowings under ourthe ABL Facility will mature, and the commitments of the lenders under ourthe ABL Facility will terminate, on November 2, 2021.the earlier of March 24, 2025 or the date 91 days prior to the maturity date of the Term Loan Facility (or another fixed asset facility replacing the Term Loan Facility).
As a result of the Amendment, the Company wrote off $177 in unamortized debt issuance costs, which are presented in interest expense, net of interest income in the condensed consolidated statements of operations. As of March 31, 20192020 and December 31, 2018,2019, the Company had $925$1,352 and $1,015,$657, respectively, of unamortized debt issuance costs related to the ABL Facility, which are presented in other assets in the condensed consolidated balance sheets.
Debt Covenants
The Company was in compliance with all covenants of the Senior Notes, Term Loan Facility and ABL Facility as of March 31, 2019.2020.
Other
Other borrowings as of March 31, 20192020 and December 31, 20182019 reflect borrowings under local bank lines classified in debt payable within one year on the condensed consolidated balance sheet.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
12.11. Fair Value Measurements and Financial Instruments
Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy is utilized, which prioritizes the inputs used in measuring fair value as follows:
|
| |
Level 1: | Observable inputs such as quoted prices in active markets; |
Level 2: | Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |
Level 3: | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Items Measured at Fair Value on a Recurring Basis
Estimates of the fair value of foreign currency and interest rate derivative instruments are determined using exchange traded prices and rates. The Company also considers the risk of non-performance in the estimation of fair value and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. In certain instances where market data is not available, the Company uses management judgment to develop assumptions that are used to determine fair value. Fair value measurements and the fair value hierarchy level for the Company’s assets and liabilities measured or disclosed at fair value on a recurring basis as of March 31, 20192020 and December 31, 20182019 were as follows: |
| | | | | | | | | |
| March 31, 2020 | | December 31, 2019 | | Input |
Forward foreign exchange contracts - other current assets | $ | 203 |
| | $ | 467 |
| | Level 2 |
Forward foreign exchange contracts - accrued liabilities | (12,777 | ) | | (42 | ) | | Level 2 |
|
| | | | | | | | | |
| March 31, 2019 | | December 31, 2018 | | Input |
Forward foreign exchange contracts - other current assets | $ | 1,037 |
| | $ | 277 |
| | Level 2 |
Forward foreign exchange contracts - accrued liabilities | (33 | ) | | (925 | ) | | Level 2 |
Items Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, the Company measures certain assets and liabilities at fair value on a nonrecurring basis, which are not included in the table above. As these nonrecurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy. For further information on assets and liabilities measured at fair value on a nonrecurring basis see Note 3. "Acquisitions“Assets Held for Sale and Divestitures".Divestiture” and Note 8. “Property, Plant and Equipment.”
Items Not Carried at Fair Value
Fair values of the Company’s Senior Notes and Term Loan Facility were as follows: |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Aggregate fair value | $ | 476,660 |
| | $ | 693,600 |
|
Aggregate carrying value (1) | 728,950 |
| | 729,800 |
|
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Aggregate fair value | $ | 681,656 |
| | $ | 684,687 |
|
Aggregate carrying value (1) | 732,350 |
| | 733,200 |
|
(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. Derivatives are recorded at fair value in other current assets, other assets, accrued liabilities and other long-term liabilities. For a cash flow hedge, the effective portion of the change in fair value of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”) in the condensed consolidated balance sheet and reclassified into earnings when the underlying hedged transaction is realized. The realized gains and losses are recorded on the same line as the hedged transaction in the condensed consolidated statements of operations.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
The Company is exposed to credit risk in the event of nonperformance by its counterparties on its derivative financial instruments. The Company mitigates this credit risk exposure by entering into agreements directly with major financial institutions with high credit standards that are expected to fully satisfy their obligations under the contracts.
Cash Flow Hedges
Forward Foreign Exchange Contracts - The Company uses forward contracts to mitigate the potential volatility to earnings and cash flow arising from changes in currency exchange rates that impact the Company’s foreign currency transactions. The principal currencies hedged by the Company include various European currencies, the Canadian Dollar, and the Mexican Peso, and the Brazilian Real.Peso. As of March 31, 20192020 and December 31, 2018,2019, the notional amount of these contracts was $110,665$101,856 and $154,237,$92,150, respectively, and consisted of hedges of transactions up to December 2019.2020.
Interest rate swaps - The Company has historically used interest rate swap contracts to manage cash flow variability associated with its variable rate Term Loan Facility. The interest rate swap contract, which fixes the interest payments of variable
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
rate debt instruments, is used to manage exposure to fluctuations in interest rates. As of March 31, 2019,2020, there were no interest rate swap contracts outstanding.
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, |
| 2020 | | 2019 |
Forward foreign exchange contracts | $ | (12,871 | ) | | $ | 1,943 |
|
|
| | | | | | | | |
| Gain Recognized in OCI |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
Forward foreign exchange contracts | | $ | 1,943 |
| | $ | 4,925 |
|
Interest rate swaps | | — |
| | 338 |
|
Total | | $ | 1,943 |
| | $ | 5,263 |
|
Pretax amounts related to the Company’s cash flow hedges that were reclassified from AOCI were as follows: |
| | | | | | | | | |
| | | Gain (Loss) Reclassified from AOCI to Income |
| | | Three Months Ended March 31, |
| Classification | | 2020 | | 2019 |
Forward foreign exchange contracts | Cost of products sold | | $ | 115 |
| | $ | 325 |
|
|
| | | | | | | | | |
| | | Gain (Loss) Reclassified from AOCI to Income |
| | | Three Months Ended March 31, |
| Classification | | 2019 | | 2018 |
Forward foreign exchange contracts | Cost of products sold | | $ | 325 |
| | $ | 485 |
|
Interest rate swaps | Interest expense, net of interest income | | — |
| | (211 | ) |
Total | | | $ | 325 |
| | $ | 274 |
|
| | | | | |
13.12. Accounts Receivable Factoring
As a part of its working capital management, the Company sells certain receivables through a single third-party financial institution in a pan-European program (the “Factor”). The amount sold varies each month based on the amount of underlying receivables and cash flow needs of the Company. These are permitted transactions under the Company’s credit agreements governing the ABL Facility and Term Loan Facility and the indenture governing the Senior Notes. The European factoring facility, which was renewed in March 2020, allows the Company to factor up to €120 million of its Euro-denominated accounts receivable, accelerating access to cash and reducing credit risk. The factoring facility expires in December 2023.
Costs incurred on the sale of receivables are recorded in other expense, net and interest expense, net of interest income in the condensed consolidated statements of 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, 2019 | | December 31, 2018 |
Off-balance sheet arrangements | $ | 94,805 |
| | $ | 100,409 |
|
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Off-balance sheet arrangements | $ | 102,605 |
| | $ | 103,818 |
|
Accounts receivable factored and related costs throughout the period were as follows: |
| | | | | | | |
| Off-Balance Sheet Arrangements |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Accounts receivable factored | $ | 176,508 |
| | $ | 173,703 |
|
Costs | 309 |
| | 325 |
|
The Company continues to service sold receivables and acts as collection agent for the Factor. As of March 31, 2020 and December 31, 2019, cash collections on behalf of the Factor that have yet to be remitted were $17,377 and $21,485, respectively, and are reflected in cash and cash equivalents in the condensed consolidated balance sheet.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Accounts receivable factored and related costs throughout the period were as follows:
|
| | | | | | | | |
| Off-Balance Sheet Arrangements |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
Accounts receivable factored | | $ | 173,703 |
| | $ | 216,571 |
|
Costs | | 325 |
| | 400 |
|
The Company continues to service sold receivables and acts as collection agent for the Factor. As of March 31, 2019 and December 31, 2018, cash collections on behalf of the Factor that have yet to be remitted were $21,788 and $14,542, respectively, and are reflected in cash and cash equivalents in the condensed consolidated balance sheet.
14.13. 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 | Pension Benefits |
| Three Months Ended March 31, | Three Months Ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Service cost | $ | 189 |
| | $ | 1,111 |
| | $ | 213 |
| | $ | 1,096 |
| $ | 213 |
| | $ | 989 |
| | $ | 189 |
| | $ | 1,111 |
|
Interest cost | 2,952 |
| | 1,060 |
| | 2,706 |
| | 1,070 |
| 2,033 |
| | 782 |
| | 2,952 |
| | 1,060 |
|
Expected return on plan assets | (4,155 | ) | | (595 | ) | | (4,354 | ) | | (632 | ) | (3,421 | ) | | (577 | ) | | (4,155 | ) | | (595 | ) |
Amortization of prior service cost and actuarial loss | 781 |
| | 616 |
| | 601 |
| | 688 |
| 485 |
| | 794 |
| | 781 |
| | 616 |
|
Net periodic benefit (income) cost | $ | (233 | ) | | $ | 2,192 |
| | $ | (834 | ) | | $ | 2,222 |
| $ | (690 | ) | | $ | 1,988 |
| | $ | (233 | ) | | $ | 2,192 |
|
| | | Other Postretirement Benefits | Other Postretirement Benefits |
| Three Months Ended March 31, | Three Months Ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Service cost | $ | 41 |
| | $ | 117 |
| | $ | 77 |
| | $ | 126 |
| $ | 26 |
| | $ | 96 |
| | $ | 41 |
| | $ | 117 |
|
Interest cost | 259 |
| | 203 |
| | 300 |
| | 198 |
| 170 |
| | 173 |
| | 259 |
| | 203 |
|
Amortization of prior service credit and actuarial gain | (742 | ) | | 38 |
| | (418 | ) | | 77 |
| (483 | ) | | 107 |
| | (742 | ) | | 38 |
|
Other | — |
| | — |
| | 1 |
| | — |
| |
Net periodic benefit (income) cost | $ | (442 | ) | | $ | 358 |
| | $ | (40 | ) | | $ | 401 |
| $ | (287 | ) | | $ | 376 |
| | $ | (442 | ) | | $ | 358 |
|
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 expense, net in the condensed consolidated statements of operations for all periods presented.
In accordance with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Company will defer making minimum funding cash contributions of approximately $3,600 to its U.S. pension plans until 2021.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
15.14. Other Expense, Net
The components of other expense, net were as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Foreign currency losses | $ | (3,232 | ) | | $ | (284 | ) |
Components of net periodic benefit cost other than service cost | (63 | ) | | (417 | ) |
Losses on sales of receivables | (309 | ) | | (325 | ) |
Miscellaneous income | 164 |
| | 230 |
|
Other expense, net | $ | (3,440 | ) | | $ | (796 | ) |
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Foreign currency losses | $ | (284 | ) | | $ | (1,588 | ) |
Components of net periodic benefit cost other than service cost | (417 | ) | | (237 | ) |
Losses on sales of receivables | (325 | ) | | (325 | ) |
Miscellaneous income | 230 |
| | 431 |
|
Other expense, net | $ | (796 | ) | | $ | (1,719 | ) |
16.15. Income Taxes
The Company determines its effective tax rate each quarter based upon its estimated annual effective tax rate. The Company records the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year where no tax benefit can be recognized are excluded from the estimated annual effective tax rate.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Income tax (benefit) expense, (loss) incomeloss before income taxes and the corresponding effective tax rate for the three months ended March 31, 20192020 and 2018,2019 were as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Income tax (benefit) expense | $ | (14,117 | ) | | $ | 2,034 |
|
Loss before income taxes | (126,556 | ) | | (3,329 | ) |
Effective tax rate | 11 | % | | (61 | )% |
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Income tax expense | $ | 2,331 |
| | $ | 11,891 |
|
(Loss) income before income taxes | (1,286 | ) | | 69,307 |
|
Effective tax rate | (181 | )% | | 17 | % |
The effective tax rate for the three months ended March 31, 20192020 compared to the three months ended March 31, 20182019 was lowerhigher primarily due to the geographic mix of pre-tax earningslosses driven by the impairment charge on held for sale entities and the inability to record a tax benefit for pre-tax losses in certain foreign jurisdictions. Additionally, a discrete expense of $13,309 for the initial recognition of valuation allowances against net deferred tax assets in certain foreign jurisdictions was recorded in the three months ended March 31, 2020. In accordance with recent legislation, one of the business tax provisions of the CARES Act included allowing net operating losses (“NOL”) generated by the Company in tax years to be carried back up to five years at the tax rates in effect during those periods, rather than carried forward at current federal tax rates of 21%. The Company has included a benefit in the estimated annual effective tax rate for this CARES Act provision which was used to calculate the income tax benefit recorded in the three months ended March 31, 2020. The income tax rate for the three months ended March 31, 20192020 and 20182019 varies from the U.S. statutory rate primarily due to the inability to record a tax benefit for pre-tax losses in certain foreign jurisdictions to the extent not offset by other categories of income, tax credits, the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate, and other permanent items. Further, the Company’s current and future provision for income taxes may beis impacted by the initial recognition of and changes in valuation allowances in certain countries. The Company intends to maintain these valuation allowances until it is more likely than not that the deferred tax assets will be realized.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
17.16. Net Income (Loss) Income Per Share Attributable to Cooper-Standard Holdings Inc.
Basic net (loss) incomeloss per share attributable to Cooper-Standard Holdings Inc. was computed by dividing net (loss) incomeloss attributable to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) incomeloss per share attributable to Cooper-Standard Holdings Inc. was computed using the treasury stock method by dividing diluted net (loss) incomeloss available to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding, including the dilutive effect of common stock equivalents, using the average share price during the period.
Information used to compute basic and diluted net (loss) incomeloss per share attributable to Cooper-Standard Holdings Inc. was as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Net loss available to Cooper-Standard Holdings Inc. common stockholders | $ | (110,588 | ) | | $ | (5,415 | ) |
| | | |
Basic weighted average shares of common stock outstanding | 16,883,717 |
| | 17,535,195 |
|
Dilutive effect of common stock equivalents | — |
| | — |
|
Diluted weighted average shares of common stock outstanding | 16,883,717 |
| | 17,535,195 |
|
| | | |
Basic net loss per share attributable to Cooper-Standard Holdings Inc. | $ | (6.55 | ) | | $ | (0.31 | ) |
| | | |
Diluted net loss per share attributable to Cooper-Standard Holdings Inc. | $ | (6.55 | ) | | $ | (0.31 | ) |
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Net (loss) income attributable to Cooper-Standard Holdings Inc. | $ | (3,460 | ) | | $ | 56,792 |
|
Decrease in fair value of share-based awards | — |
| | 1 |
|
Diluted net (loss) income available to Cooper-Standard Holdings Inc. common stockholders | $ | (3,460 | ) | | $ | 56,793 |
|
| | | |
Basic weighted average shares of common stock outstanding | 17,535,195 |
| | 17,991,488 |
|
Dilutive effect of common stock equivalents | — |
| | 519,625 |
|
Diluted weighted average shares of common stock outstanding | 17,535,195 |
| | 18,511,113 |
|
| | | |
Basic net (loss) income per share attributable to Cooper-Standard Holdings Inc. | $ | (0.20 | ) | | $ | 3.16 |
|
| | | |
Diluted net (loss) income per share attributable to Cooper-Standard Holdings Inc. | $ | (0.20 | ) | | $ | 3.07 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
18.17. Accumulated Other Comprehensive Income (Loss)Loss
Changes in accumulated other comprehensive income (loss)loss by component, net of related tax, were as follows:
| | | Three Months Ended March 31, | | Three Months Ended March 31, | |
| 2019 | | 2018 | | 2020 | | 2019 | |
Foreign currency translation adjustment | | | | | | | | |
Balance at beginning of period | $ | (141,255 | ) | | $ | (95,485 | ) | | $ | (153,933 | ) | | $ | (141,104 | ) | |
Other comprehensive income before reclassifications | 1,815 |
| (1) | 11,743 |
| (1) | |
Other comprehensive income (loss) before reclassifications | | (28,382 | ) | (1) | 1,599 |
| (1) |
Balance at end of period | $ | (139,440 | ) | | $ | (83,742 | ) | | $ | (182,315 | ) | | $ | (139,505 | ) | |
Benefit plan liabilities | | | | | | | | |
Balance at beginning of period | $ | (104,375 | ) | | $ | (100,749 | ) | | $ | (100,160 | ) | | $ | (104,375 | ) | |
Other comprehensive income (loss) before reclassifications | 877 |
| (2) | (575 | ) | (2) | |
Amounts reclassified from accumulated other comprehensive income (loss) | 510 |
| (3) | (6,687 | ) | (4) | |
Other comprehensive income before reclassifications | | 2,024 |
| (2) | 877 |
| (2) |
Amounts reclassified from accumulated other comprehensive loss | | 658 |
| (3) | 510 |
| (4) |
Balance at end of period | $ | (102,988 | ) | | $ | (108,011 | ) | | $ | (97,478 | ) | | $ | (102,988 | ) | |
Fair value change of derivatives | | | | | | | | |
Balance at beginning of period | $ | (458 | ) | | $ | (1,397 | ) | | $ | 352 |
| | $ | (458 | ) | |
Other comprehensive income before reclassifications | 1,490 |
| (5) | 3,982 |
| (5) | |
Amounts reclassified from accumulated other comprehensive income (loss) | (237 | ) | (6) | (440 | ) | (6) | |
Other comprehensive income (loss) before reclassifications | | (9,984 | ) | (5) | 1,490 |
| (5) |
Amounts reclassified from accumulated other comprehensive loss | | (92 | ) | (6) | (237 | ) | (6) |
Balance at end of period | $ | 795 |
| | $ | 2,145 |
| | $ | (9,724 | ) | | $ | 795 |
| |
Accumulated other comprehensive loss, ending balance | $ | (241,633 | ) | | $ | (189,608 | ) | | $ | (289,517 | ) | | $ | (241,698 | ) | |
| |
(1) | Includes other comprehensive income (loss) related to intra-entity foreign currency balances that are of a long-term investment nature of $2,814$(22,703) and $2,287$2,814 for the three months ended March 31, 2020 and 2019, and 2018, respectively. |
| |
(2) | Net of tax expense (benefit) of $11$337 and $(286)$11 for the three months ended March 31, 20192020 and 2018,2019, respectively. |
| |
(3) | Includes the effect of the amortization of actuarial losses of $872 and amortization of prior service cost of $21, net of tax of $235. See Note 13. “Pension and Postretirement Benefits Other Than Pensions.” |
| |
(4) | Includes the effect of the amortization of prior service credits of $79, offset by the amortization of actuarial losses of $773, net of tax of $184. See Note 14. "Pension13. “Pension and Postretirement Benefits Other Than Pensions". |
| |
(4) | Includes the effect of the adoption of ASU 2018-12 of $8,569 and the amortization of prior service credits of $78, offset by curtailment loss of $1,188 and the amortization of actuarial losses of $1,025, net of tax of $253. See Note 14. "Pension and Postretirement Benefits Other Than Pensions".Pensions.” |
| |
(5) | Net of tax (benefit) expense (benefit) of $453$(2,887) and $1,281$453 for the three months ended March 31, 20192020 and 2018,2019, respectively. See Note 12. "Fair11. “Fair Value Measurements and Financial Instruments".Instruments.” |
| |
(6) | Includes the effectNet of the adoptiontax expense of ASU 2018-02 of $70$23 and $88 for the three months ended March 31, 2018, net of tax expense (benefit) of $882020 and $113 for the three months ended March 31, 2019, and 2018, respectively. See Note 12. "Fair11. “Fair Value Measurements and Financial Instruments".Instruments.” |
19.18. Common Stock
Share Repurchase Program
In June 2018, the Company’s Board of Directors approved a common stock repurchase program (the “2018 Program”) authorizing the Company to repurchase, in the aggregate, up to $150.0 million$150,000 of its outstanding common stock. Under the 2018 Program, repurchases may be made on the open market, through private transactions, accelerated share repurchases, round lot or block transactions on the New York Stock Exchange or otherwise, as determined by management and in accordance with prevailing market conditions and federal securities laws and regulations. The Company expects to fund any future repurchases from cash on hand and future cash flows from operations. The Company is not obligated to acquire a particular amount of securities, and the 2018 Program may be discontinued at any time at the Company’s discretion. The 2018 Program became effective in November 2018. As of March 31, 2020, the Company had approximately $98,720 of repurchase authorization remaining under the 2018 Program.
The Company did not make any repurchases during the three months ended March 31, 2020. During the three months ended March 31, 2019, the Company repurchased 85,000 shares at an average purchase price of $69.85 per share, excluding commissions, for a total cost of $5,937. The Company did not make any repurchases during the three months ended March 31, 2018.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
20.19. Share-Based Compensation
The Company’s long-term incentive plans allow for the grant of various types of share-based awards to key employees and directors of the Company and its affiliates. The Company generally awards grants on an annual basis.
In February 2019,2020, the Company granted Restricted Stock Units (“RSUs”), Performance Units (“PUs”) and stock options. The RSUs cliff vest after three years, the PUs cliff vest atratably over three years after the end of their three-yearinitial two-year performance period, and the stock options vest ratably over three years. The number of PUs that will vest depends on the Company’s achievement of target performance goals related to the Company’s return on invested capital (“ROIC”) and total shareholder return, which may range from 0% to 200% of the target award amount. The grant-date fair value of the RSUs was determined using the closing price of the Company’s common stock on the date of grant. The grant-date fair value of the PUs was determined using a lattice model. The grant-date fair value of the stock options was determined using the Black-Scholes option pricing model.
Share-based compensation expense was as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
PUs | $ | 74 |
| | $ | 649 |
|
RSUs | 1,643 |
| | 1,722 |
|
Stock options | 657 |
| | 815 |
|
Total | $ | 2,374 |
| | $ | 3,186 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
PUs | $ | 649 |
| | $ | 295 |
|
RSUs | 1,722 |
| | 2,741 |
|
Stock options | 815 |
| | 839 |
|
Total | $ | 3,186 |
| | $ | 3,875 |
|
21.20. Related Party Transactions
A summary of the material related party transactions with affiliates accounted for under the equity method was as follows: |
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Sales(1) | $ | 6,075 |
| | $ | 7,434 |
|
Purchases(2) | 156 |
| | 325 |
|
Dividends received(3) | 5,245 |
| | 4,917 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Sales(1) | $ | 7,434 |
| | $ | 8,073 |
|
Purchases(2) | 325 |
| | 174 |
|
Dividends received(3) | 4,917 |
| | 4,508 |
|
(1) Relates to transactions with Nishikawa Cooper LLC (“NISCO”)
(2) Relates to transactions with NISCO and Polyrub Cooper Standard FTS Private Limited
(3) From NISCO and Nishikawa Tachaplalert Cooper Ltd. inclusive of any gross up of dividend related to withholding tax
Amounts receivable from NISCO and Sujan Cooper Standard AVS Private Limited as of March 31, 20192020 and December 31, 20182019 were $6,959$4,070 and $6,066,$4,297, respectively.
22.21. Commitments and Contingencies
The Company is periodically involved in claims, litigation and various legal matters that arise in the ordinary course of business. The Company accrues for litigation exposure when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified. As of March 31, 2019,2020, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for claims, litigation and various legal matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company’s financial condition, results of operations or cash flows could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.
In addition, the Company conducts and monitors environmental investigations and remedial actions at certain locations. As of March 31, 20192020 and December 31, 2018,2019, the undiscounted reserve for environmental investigation and remediation was approximately $5,099$5,835 and $4,668,$6,104, respectively. While the Company’s costs to defend and settle known claims arising under environmental laws have not been material in the past and are not currently estimated to be material, such costs may be material in the future.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
23.22. Segment Reporting
The Company has determined that it operatesCompany’s organizational structure changed on January 1, 2020, creating a global automotive business (“Automotive”) and Advanced Technology Group (“ATG”). The Company’s business is now organized in fourthe following reportable segments: North America, Europe, Asia Pacific and South America. ATG and all other business activities are reported in Corporate, eliminations and other. The Corporate, eliminations and other External Sales and Intersegment Sales amounts previously reported for the three months ended March 31, 2019 have been reclassified from North America and Europe from the table below. The adjusted EBITDA amounts previously reported for the three months ended March 31, 2019 and Segment Asset amounts previously reported as of December 31, 2019 have been reclassified from North America, Europe, Asia Pacific and South America from the tables below.
The Company’s principal products within each of these segments are sealing, fuel and brake delivery, and fluid transfer systems. During the first quarter of 2019 and in prior periods, the Company also operated an anti-vibration systems product line. Subsequent to the end of the first quarter, onOn April 1, 2019, the Company completed the divestiture of the anti-vibration systemsAVS product line.
Effective January 1, 2019,The Company uses Segment adjusted EBITDA as the Company changedmeasure of earnings to assess the measurementperformance of its operating segmentseach segment and determine the resources to segment adjusted EBITDA.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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Certain financial information on the Company’s reportable segments was as follows:
| | | | 2019 | | 2018 | | Three Months Ended March 31, |
Three Months Ended March 31, 2019 | | External Sales | | Intersegment Sales | | Adjusted EBITDA | | External Sales | | Intersegment Sales | | Adjusted EBITDA | |
| | | 2020 | | 2019 |
| | | External Sales | | Intersegment Sales | | Adjusted EBITDA | | External Sales | | Intersegment Sales | | Adjusted EBITDA |
North America | | $ | 474,707 |
| | $ | 3,451 |
| | $ | 57,564 |
| | $ | 499,178 |
| | $ | 3,626 |
| | $ | 86,776 |
| | $ | 334,801 |
| | $ | 4,468 |
| | $ | 37,019 |
| | $ | 447,718 |
| | $ | 4,707 |
| | $ | 59,151 |
|
Europe | | 254,599 |
| | 3,085 |
| | 9,441 |
| | 292,401 |
| | 3,707 |
| | 22,968 |
| | 185,242 |
| | 3,091 |
| | (4,623 | ) | | 242,400 |
| | 3,085 |
| | 9,275 |
|
Asia Pacific | | 127,495 |
| | 741 |
| | 767 |
| | 149,175 |
| | 1,719 |
| | 13,490 |
| | 79,344 |
| | 457 |
| | (17,057 | ) | | 125,452 |
| | 741 |
| | (407 | ) |
South America | | 23,237 |
| | 5 |
| | (1,386 | ) | | 26,637 |
| | 14 |
| | (597 | ) | | 20,471 |
| | 68 |
| | (4,577 | ) | | 23,237 |
| | 5 |
| | (1,033 | ) |
Eliminations and other | | — |
| | (7,282 | ) | | — |
| | — |
| | (9,066 | ) | | — |
| |
Total Automotive | | | 619,858 |
| | 8,084 |
| | 10,762 |
| | 838,807 |
| | 8,538 |
| | 66,986 |
|
Corporate, eliminations and other | | | 35,032 |
| | (8,084 | ) | | (2,483 | ) | | 39,188 |
| | (8,538 | ) | | (2,852 | ) |
Consolidated | | $ | 880,038 |
| | $ | — |
| | $ | 66,386 |
| | $ | 967,391 |
| | $ | — |
| | $ | 122,637 |
| | $ | 654,890 |
| | $ | — |
| | $ | 8,279 |
| | $ | 877,995 |
| | $ | — |
| | $ | 64,134 |
|
| | | | Three Months Ended March 31, | Three Months Ended March 31, |
| | 2019 | | 2018 | 2020 |
| 2019 |
Adjusted EBITDA | | $ | 66,386 |
| | $ | 122,637 |
| $ | 8,279 |
| | $ | 64,134 |
|
Impairment of assets held for sale | | (74,079 | ) | | — |
|
Restructuring charges | | (17,715 | ) | | (7,125 | ) | (7,276 | ) | | (17,715 | ) |
Project costs | | (1,263 | ) | | — |
| (2,425 | ) | | (1,263 | ) |
Loss on refinancing and extinguishment of debt | | — |
| | (770 | ) | |
Other impairment charges | | (684 | ) | | — |
|
Lease termination costs | | (520 | ) | | — |
|
EBITDA | | $ | 47,408 |
| | $ | 114,742 |
| $ | (76,705 | ) | | $ | 45,156 |
|
Income tax expense | | (2,331 | ) | | (11,891 | ) | |
Income tax benefit (expense) | | 14,117 |
| | (2,034 | ) |
Interest expense, net of interest income | | (11,932 | ) | | (9,800 | ) | (10,237 | ) | | (11,932 | ) |
Depreciation and amortization | | (36,605 | ) | | (36,259 | ) | (37,763 | ) | | (36,605 | ) |
Net (loss) income attributable to Cooper-Standard Holdings Inc. | | $ | (3,460 | ) | | $ | 56,792 |
| |
Net loss attributable to Cooper-Standard Holdings Inc. | | $ | (110,588 | ) | | $ | (5,415 | ) |
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Segment assets: | | | |
North America | $ | 1,011,035 |
| | $ | 1,040,650 |
|
Europe | 455,656 |
| | 553,977 |
|
Asia Pacific | 536,618 |
| | 614,952 |
|
South America | 58,923 |
| | 65,438 |
|
Total Automotive | 2,062,232 |
| | 2,275,017 |
|
Corporate, eliminations and other | 422,031 |
| | 360,565 |
|
Consolidated | $ | 2,484,263 |
| | $ | 2,635,582 |
|
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Segment assets | | | |
North America | $ | 1,271,547 |
| | $ | 1,174,604 |
|
Europe | 604,943 |
| | 541,495 |
|
Asia Pacific | 660,331 |
| | 616,093 |
|
South America | 61,744 |
| | 54,629 |
|
Eliminations and other | 216,257 |
| | 236,282 |
|
Consolidated | $ | 2,814,822 |
| | $ | 2,623,103 |
|
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, 20182019 filed with the U.S. Securities and Exchange Commission (“20182019 Annual Report”) see Item 1A. “Risk Factors.” The following should be read in conjunction with our 20182019 Annual Report and the other information included herein. Our discussion of trends and conditions supplements and updates such discussion included in our 20182019 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 85%83% of our sales in 20182019 made directly to major OEMs. We operate our business along fourthe following reportable segments: North America, Europe, Asia Pacific and South America. All other business activities are reported in Corporate, eliminations and other.
During the first quarter of 2019 and in prior periods, the Companywe also operated an anti-vibration systems (“AVS”) business. Subsequent to the end of the first quarter, onOn April 1, 2019, the Companywe completed the divestiture of the anti-vibration systems business.
Recent Trends and Conditions
General Economic Conditions and Outlook
The global automotive industry is susceptible to uncertain economic conditions that could adversely impact new vehicle demand.demand and production. Business conditions may vary significantly from period to period or region to region. The COVID-19 pandemic created an unusually high degree of economic disruption during the first quarter of 2020 and is continuing to drive uncertainty for the economic outlook and the automotive industry around the world. Economists at the International Monetary Fund (IMF) are now expecting the global economy to contract by approximately 3.0% in 2020.
Economic conditions and consumer confidence in North America have been negatively impacted by concerns over the COVID-19 pandemic and government imposed lock-downs to contain the spread of the disease. The United States government has taken historic measures to provide fiscal stimulus to the economy in an effort to sustain businesses, limit job losses and preempt deeper declines in consumer confidence. Despite these efforts, IMF economists now expect economic contraction of approximately 6.0% for the region in 2020. In addition, the IMF is projecting unemployment in North America will approach 10.4% for the year.
The duration of the government imposed lock-downs, while unknown at this time, will be a major determinant of when economic recovery can begin. Even after the lock-downs are lifted, concerns about a resurgence of COVID-19 cases and uncertainty related to the presidential election in the United States will likely weigh on consumer confidence for an extended period of time.
In North America in 2019,the European region, the IMF is projecting economic growth in the U.S. iscontraction of approximately 6.6% for 2020. Unemployment rates will vary by country, but are generally expected to continue, albeit at a more modest rate than 2018. Continued uncertainty regarding global trade relationships, among other factors, could dampen economic momentum. Modest economic growth is also expectedincrease by 200 to continue in Canada and Mexico in 2019. The mix of vehicles produced and sold in the region continues to shift away from passenger cars in favor of crossover utility vehicles and light trucks.
In Europe, economic momentum slowed in the second half of 2018.500 basis points versus 2019 levels. Geopolitical concerns and the implementation of new environmental regulations in the automotive industry likely contributed to the slow-down. Looking ahead, we expect the continuation of global trade tensions, financial pressures within some of the key European Union member countries and Britain’s pending separation from the European Union (“Brexit”) will continue to createweigh on the economies of the region but have been superseded by concerns over the current and potential future impacts of the COVID-19 pandemic. Certain European governments have mandated closures of broad segments of the economy, and the timing of when industries are allowed to resume operations will be a high level of uncertainty and challenge the regional economic outlook in 2019.key to beginning a recovery.
In the Asia Pacific region, the IMF expects China’s economic growth rate to slow to just 1.0% in 2020 following two months of aggressive COVID-19 containment measures during the first quarter. While the containment measures have been lifted and industries are currently ramping up towards full production, significant challenges remain for the Chinese government continueseconomy. Consumer confidence is likely to manageremain suppressed for a period of time, dampening both investment and consumption. In addition, potential new policies by the nation’s economy with a goalUnited States and other developed countries that would encourage the repatriation of sustaining growth. For 2019,
production of certain strategically sensitive products in the official growth target was set at 6.0% - 6.5%. The range is lower than 2018 as rising debt, inflationwake of the COVID-19 pandemic could reduce export demand and uncertainty are pressuring consumption and continuing tension within U.S.-China trade relationships is impacting exports. Fiscal tools such as tax cuts and increased investment in infrastructure may be used to in order to meet government growth targets.further pressure employment levels.
In South America, the IMF estimates that the Brazilian economy is expected to growwill contract by approximately 2.0%5.3% in 20192020 as compared to 1.1%2019. Unemployment is projected to increase to nearly 15.0%. In response to the COVID-19 pandemic, the Brazilian government has approved an aggressive fiscal spending package to stimulate economic activity. While seen as urgently necessary, this spending will add to the country’s already high national debt level and could lead to lower consumer confidence and foreign investment in 2018. The stronger growth forecast is based on an improving labor market, rising credit growth and market-friendly government agenda. While our near-term outlook for South America is positive, wethe region going forward. We remain cautious for the mid to long-term outlook given the long history of political instability and economic volatility in the region.
The current domestic and international political environment, including existing and potential changes to U.S. policies related to global trade, tariffs and border enforcement, has resulted in increasing uncertainty surrounding the future state of the global economy. We continue to monitor the potential impacts of both foreign and domestic economic policies and we continue to expect adverse impacts to our material costs as a result of previously-announced and potential new tariffs.
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 and oil-derived commodities, continue to be volatile. In addition, we continue to expect commodity cost volatility to have an impact on future earnings and operating cash flows. As such, on an ongoing basis, we work with our customers and suppliers to mitigate both inflationary pressures and our material-related cost exposures.
Production Levels
Our business is directly affected by the automotive vehicle production rates in North America, Europe, Asia Pacific and South America. New vehicle demand is drivenBeginning in early Q1 2020, as a result of COVID-19, we experienced the shutdown of effectively all of our facilities in Asia Pacific coinciding with the shutdown of our customer facilities in that region. Facility shutdowns then occurred in March 2020 for a majority of our facilities in North America, Europe and South America.
Production resumed in Asia Pacific by macroeconomicthe end of Q1 2020, albeit at a lower capacity. We anticipate that production will increase steadily throughout Q2 2020. We expect production to gradually resume in Q2 2020 for our North America, Europe and other factors, such as interest rates, manufacturerSouth America facilities, in conjunction with production resuming for our customers in the regions. We are collaborating closely with our customers in preparing our own restart plans, while also adding enhanced safety standards and dealer sales incentives, fuel prices, consumer confidence, employment levels, income growth trends and government and tax incentives. The industry could face uncertainties that may adversely impact consumer demand for vehicles as well as the future production environment.measures to protect our employees.
Light vehicle production in certain regions for the three months ended March 31, 2020 and 2019 and 2018 was:was as follows:
| | | Three Months Ended March 31, | Three Months Ended March 31, |
(In millions of units) | 2019(1) | | 2018(1) | | % Change | 2020(1) | | 2019(1) | | % Change |
North America | 4.3 |
| | 4.4 |
| | (2.5)% | 3.8 |
| | 4.2 |
| | (10.3)% |
Europe | 5.6 |
| | 5.9 |
| | (4.9)% | 4.6 |
| | 5.7 |
| | (18.9)% |
Asia Pacific(2) | 11.5 |
| | 12.5 |
| | (7.5)% | 8.2 |
| | 11.7 |
| | (30.1)% |
Greater China | | 3.2 |
| | 6.0 |
| | (46.1)% |
South America | 0.8 |
| | 0.8 |
| | (4.7)% | 0.7 |
| | 0.8 |
| | (16.9)% |