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. On April 1, 2019, the Company completed the divestiture of its AVS product line.
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, 2019 (the “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 June 30, 2020 are not necessarily indicative of results for the full year. In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
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 June 30, 2019
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
As previously reported
|
|
Adjustment
|
|
As corrected
|
|
As previously reported
|
|
Adjustment
|
|
As corrected
|
|
Sales
|
$
|
764,806
|
|
|
$
|
(108)
|
|
|
$
|
764,698
|
|
|
$
|
1,644,844
|
|
|
$
|
(2,151)
|
|
|
$
|
1,642,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
44,239
|
|
|
(17)
|
|
|
44,222
|
|
|
46,570
|
|
|
(314)
|
|
|
46,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
545
|
|
|
—
|
|
|
545
|
|
|
702
|
|
|
(209)
|
|
|
493
|
|
|
Net income attributable to Cooper-Standard Holdings Inc.
|
145,296
|
|
|
(91)
|
|
|
145,205
|
|
|
141,836
|
|
|
(2,046)
|
|
|
139,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
8.39
|
|
|
$
|
—
|
|
|
$
|
8.39
|
|
|
$
|
8.14
|
|
|
$
|
(0.12)
|
|
|
$
|
8.02
|
|
|
Diluted
|
$
|
8.36
|
|
|
$
|
—
|
|
|
$
|
8.36
|
|
|
$
|
8.11
|
|
|
$
|
(0.12)
|
|
|
$
|
7.99
|
|
The following table presents the impact of these corrections on the Company’s condensed consolidated statements of comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
As previously reported
|
|
Adjustment
|
|
As corrected
|
|
As previously reported
|
|
Adjustment
|
|
As corrected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
$
|
(6,113)
|
|
|
$
|
285
|
|
|
$
|
(5,828)
|
|
|
$
|
(3,894)
|
|
|
$
|
36
|
|
|
$
|
(3,858)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to noncontrolling interests
|
1,199
|
|
|
(27)
|
|
|
1,172
|
|
|
952
|
|
|
(203)
|
|
|
749
|
|
|
Comprehensive income attributable to Cooper-Standard Holdings Inc.
|
137,718
|
|
|
167
|
|
|
137,885
|
|
|
138,713
|
|
|
(2,004)
|
|
|
136,709
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
The impact of these corrections on the balance as of June 30, 2019 in the Company’s condensed consolidated statements of changes in equity includes a decrease to total equity of $9,828, which consists of a decrease to retained earnings of $8,856, a decrease to accumulated other comprehensive loss of $193, and a decrease to noncontrolling interests of $1,165.
For the six months ended June 30, 2019, the impact of these corrections on the condensed consolidated statements of cash flows included a $1,837 decrease in net income, a $314 decrease in deferred income taxes, and a $2,151 increase in changes in operating assets and liabilities, resulting in no impact to net cash used in operating activities.
2. New Accounting Pronouncements
Recently Issued Accounting Pronouncements
The Company considered the recently issued accounting pronouncement summarized as follows, which could have a material impact on its consolidated financial statements or disclosures:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Standard
|
Description
|
Impact
|
Effective Date
|
|
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
|
Modifies ASC Topic 740 by removing certain exceptions and amending existing guidance in order to simplify the accounting for income taxes.
|
The Company is currently evaluating the impact of this guidance on its accounting policies and its consolidated financial statements.
|
January 1, 2021
|
3. Assets Held for Sale and Divestiture
Assets Held for Sale
In the fourth quarter of 2019, management approved a plan to sell its European rubber fluid transfer and specialty sealing businesses, as well as its Indian operations. The entities and the associated assets and liabilities met the criteria for presentation as held for sale as of 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 and depreciation of long-lived assets ceased. The planned divestiture did not meet the criteria for presentation as a discontinued operation.
The major classes of assets and liabilities held for sale were as follows:
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
Cash and cash equivalents
|
$
|
11,162
|
|
|
Accounts receivable, net
|
17,154
|
|
|
Tooling receivable, net
|
4,770
|
|
|
Inventories
|
17,022
|
|
|
Prepaid expenses
|
2,728
|
|
|
Other current assets
|
14,054
|
|
|
Property, plant and equipment, net
|
39,913
|
|
|
Operating lease right-of-use assets, net
|
2,946
|
|
|
Intangible assets, net
|
4,992
|
|
|
Other assets
|
1,218
|
|
|
Impairment of carrying value
|
(85,622)
|
|
|
Total assets held for sale
|
$
|
30,337
|
|
|
|
|
|
Accounts payable
|
$
|
13,937
|
|
|
Payroll liabilities
|
7,646
|
|
|
Accrued liabilities
|
7,977
|
|
|
Current operating lease liabilities
|
918
|
|
|
Pension benefits
|
3,618
|
|
|
Postretirement benefits other than pensions
|
2,778
|
|
|
Long-term operating lease liabilities
|
2,286
|
|
|
Other liabilities
|
1,933
|
|
|
Total liabilities related to assets held for sale
|
$
|
41,093
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Upon meeting the criteria for held for sale classification and during the three months ended March 31, 2020 , the Company recorded a non-cash impairment charge of $74,079 to reduce the carrying value of the held for sale entities to fair value less costs to sell. During the three months ended June 30, 2020, the Company recorded an additional non-cash charge of $12,391 to reflect the changes in the carrying value of the net assets 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 difference between the impairment of the carrying value on the assets held for sale compared to the impairment recorded in the statements of operations is due to foreign currency translation offset by costs to sell incurred in the second quarter.
The impairment charge, which is subject to adjustments as the transaction is finalized, includes the non-cash cumulative foreign currency translation losses recorded in equity related to the held for sale entities.
Subsequent Event
Subsequent to the end of the Company's second quarter, on July 1, 2020, the Company completed the divestiture of its European rubber fluid transfer and specialty sealing businesses, as well as its Indian operations, to Mutares SE & Co. KGaA (“Mutares”). The transaction includes payment denominated in Euro of €9,000, which consists of €6,500 in cash that was recorded as held for sale as of June 30, 2020, and €2,500 in deferred payment obligations, payable in December 2021.
Divestiture
During the first quarter of 2019 and in prior periods, the Company also operated an AVS product line. On April 1, 2019, the Company completed its sale of the AVS product line to Continental AG. The total sale price of the transaction was $265,500, subject to certain adjustments. Cash proceeds received in the second quarter of 2019 were $243,362 after adjusting for certain liabilities assumed by the purchaser. The Company recognized a gain on the divestiture of $189,910 during the three months ended June 30, 2019. Adjustments to the gain recorded in the second half of 2019 related primarily to working capital adjustments.
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 Company usually enters into agreements with customers to produce products at the beginning of a vehicle’s life. Blanket purchase orders received from customers and related documents generally establish the annual terms, including pricing, related to a vehicle model. Customers typically pay for parts based on customary business practices with payment terms generally between 30 and 90 days.
Revenue by customer group for the three months ended June 30, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia Pacific
|
|
South America
|
|
Corporate, Eliminations and Other
|
|
Consolidated
|
|
Passenger and Light Duty
|
$
|
120,939
|
|
|
$
|
70,753
|
|
|
$
|
104,307
|
|
|
$
|
3,881
|
|
|
$
|
—
|
|
|
$
|
299,880
|
|
|
Commercial
|
1,971
|
|
|
3,223
|
|
|
1,413
|
|
|
—
|
|
|
823
|
|
|
7,430
|
|
|
Other
|
3,427
|
|
|
4,829
|
|
|
6
|
|
|
—
|
|
|
24,895
|
|
|
33,157
|
|
|
Revenue
|
$
|
126,337
|
|
|
$
|
78,805
|
|
|
$
|
105,726
|
|
|
$
|
3,881
|
|
|
$
|
25,718
|
|
|
$
|
340,467
|
|
Revenue by customer group for the six months ended June 30, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia Pacific
|
|
South America
|
|
Corporate, Eliminations and Other
|
|
Consolidated
|
|
Passenger and Light Duty
|
$
|
446,921
|
|
|
$
|
241,534
|
|
|
$
|
183,049
|
|
|
$
|
24,320
|
|
|
$
|
—
|
|
|
$
|
895,824
|
|
|
Commercial
|
5,149
|
|
|
8,780
|
|
|
1,959
|
|
|
10
|
|
|
1,957
|
|
|
17,855
|
|
|
Other
|
9,068
|
|
|
13,733
|
|
|
62
|
|
|
22
|
|
|
58,793
|
|
|
81,678
|
|
|
Revenue
|
$
|
461,138
|
|
|
$
|
264,047
|
|
|
$
|
185,070
|
|
|
$
|
24,352
|
|
|
$
|
60,750
|
|
|
$
|
995,357
|
|
Revenue by customer group for the three months ended June 30, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia Pacific
|
|
South America
|
|
Corporate, Eliminations and Other
|
|
Consolidated
|
|
Passenger and Light Duty
|
$
|
368,952
|
|
|
$
|
189,154
|
|
|
$
|
118,401
|
|
|
$
|
25,028
|
|
|
$
|
5
|
|
|
$
|
701,540
|
|
|
Commercial
|
5,439
|
|
|
7,872
|
|
|
17
|
|
|
60
|
|
|
488
|
|
|
13,876
|
|
|
Other
|
4,730
|
|
|
8,003
|
|
|
77
|
|
|
36
|
|
|
36,436
|
|
|
49,282
|
|
|
Revenue
|
$
|
379,121
|
|
|
$
|
205,029
|
|
|
$
|
118,495
|
|
|
$
|
25,124
|
|
|
$
|
36,929
|
|
|
$
|
764,698
|
|
Revenue by customer group for the six months ended June 30, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia Pacific
|
|
South America
|
|
Corporate, Eliminations and Other
|
|
Consolidated
|
|
Passenger and Light Duty
|
$
|
805,818
|
|
|
$
|
414,605
|
|
|
$
|
243,756
|
|
|
$
|
48,220
|
|
|
$
|
5
|
|
|
$
|
1,512,404
|
|
|
Commercial
|
11,231
|
|
|
16,297
|
|
|
17
|
|
|
83
|
|
|
1,035
|
|
|
28,663
|
|
|
Other
|
9,790
|
|
|
16,527
|
|
|
174
|
|
|
58
|
|
|
75,077
|
|
|
101,626
|
|
|
Revenue
|
$
|
826,839
|
|
|
$
|
447,429
|
|
|
$
|
243,947
|
|
|
$
|
48,361
|
|
|
$
|
76,117
|
|
|
$
|
1,642,693
|
|
The passenger 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 and fluid transfer systems for use in passenger vehicles and light trucks manufactured by global OEMs and, until March 31, 2019, anti-vibrations systems. 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 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 June 30, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia Pacific
|
|
South America
|
|
Corporate, Eliminations and Other
|
|
Consolidated
|
|
Sealing systems
|
$
|
48,952
|
|
|
$
|
53,330
|
|
|
$
|
69,517
|
|
|
$
|
2,791
|
|
|
$
|
—
|
|
|
$
|
174,590
|
|
|
Fuel and brake delivery systems
|
42,272
|
|
|
11,298
|
|
|
25,366
|
|
|
826
|
|
|
—
|
|
|
79,762
|
|
|
Fluid transfer systems
|
35,113
|
|
|
9,557
|
|
|
10,843
|
|
|
264
|
|
|
—
|
|
|
55,777
|
|
|
Other
|
—
|
|
|
4,620
|
|
|
—
|
|
|
—
|
|
|
25,718
|
|
|
30,338
|
|
|
Consolidated
|
$
|
126,337
|
|
|
$
|
78,805
|
|
|
$
|
105,726
|
|
|
$
|
3,881
|
|
|
$
|
25,718
|
|
|
$
|
340,467
|
|
Revenue by product line for the six months ended June 30, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia Pacific
|
|
South America
|
|
Corporate, Eliminations and Other
|
|
Consolidated
|
|
Sealing systems
|
$
|
173,508
|
|
|
$
|
180,576
|
|
|
$
|
118,541
|
|
|
$
|
16,340
|
|
|
$
|
—
|
|
|
$
|
488,965
|
|
|
Fuel and brake delivery systems
|
147,206
|
|
|
39,860
|
|
|
45,184
|
|
|
6,573
|
|
|
—
|
|
|
238,823
|
|
|
Fluid transfer systems
|
140,424
|
|
|
31,502
|
|
|
21,345
|
|
|
1,439
|
|
|
—
|
|
|
194,710
|
|
|
Other
|
—
|
|
|
12,109
|
|
|
—
|
|
|
—
|
|
|
60,750
|
|
|
72,859
|
|
|
Consolidated
|
$
|
461,138
|
|
|
$
|
264,047
|
|
|
$
|
185,070
|
|
|
$
|
24,352
|
|
|
$
|
60,750
|
|
|
$
|
995,357
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Revenue by product line for the three months ended June 30, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia Pacific
|
|
South America
|
|
Corporate, Eliminations and Other
|
|
Consolidated
|
|
Sealing systems
|
$
|
140,759
|
|
|
$
|
143,988
|
|
|
$
|
78,253
|
|
|
$
|
19,017
|
|
|
$
|
—
|
|
|
$
|
382,017
|
|
|
Fuel and brake delivery systems
|
123,979
|
|
|
31,023
|
|
|
26,309
|
|
|
6,044
|
|
|
—
|
|
|
187,355
|
|
|
Fluid transfer systems
|
114,381
|
|
|
21,514
|
|
|
13,922
|
|
|
63
|
|
|
—
|
|
|
149,880
|
|
|
Anti-vibration systems
|
—
|
|
|
158
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
169
|
|
|
Other
|
2
|
|
|
8,346
|
|
|
—
|
|
|
—
|
|
|
36,929
|
|
|
45,277
|
|
|
Consolidated
|
$
|
379,121
|
|
|
$
|
205,029
|
|
|
$
|
118,495
|
|
|
$
|
25,124
|
|
|
$
|
36,929
|
|
|
$
|
764,698
|
|
Revenue by product line for the six months ended June 30, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia Pacific
|
|
South America
|
|
Corporate, Eliminations and Other
|
|
Consolidated
|
|
Sealing systems
|
$
|
286,405
|
|
|
$
|
299,379
|
|
|
$
|
161,782
|
|
|
$
|
36,846
|
|
|
$
|
—
|
|
|
$
|
784,412
|
|
|
Fuel and brake delivery systems
|
255,682
|
|
|
66,321
|
|
|
51,477
|
|
|
11,379
|
|
|
—
|
|
|
384,859
|
|
|
Fluid transfer systems
|
227,829
|
|
|
44,312
|
|
|
29,224
|
|
|
136
|
|
|
—
|
|
|
301,501
|
|
|
Anti-vibration systems
|
56,457
|
|
|
20,807
|
|
|
1,464
|
|
|
—
|
|
|
—
|
|
|
78,728
|
|
|
Other
|
466
|
|
|
16,610
|
|
|
—
|
|
|
—
|
|
|
76,117
|
|
|
93,193
|
|
|
Consolidated
|
$
|
826,839
|
|
|
$
|
447,429
|
|
|
$
|
243,947
|
|
|
$
|
48,361
|
|
|
$
|
76,117
|
|
|
$
|
1,642,693
|
|
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. Contract assets were not materially impacted by any other factors during the six months ended June 30, 2020.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
The Company’s contract liabilities consist of advance payments received and due from customers. Net contract assets (liabilities) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Change
|
|
Contract assets
|
|
$
|
2,609
|
|
|
$
|
1,100
|
|
|
$
|
1,509
|
|
|
Contract liabilities
|
|
(34)
|
|
|
(61)
|
|
|
27
|
|
|
Net contract assets
|
|
$
|
2,575
|
|
|
$
|
1,039
|
|
|
$
|
1,536
|
|
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 June 30, 2020 and December 31, 2019 were current liabilities of $7,533 and $12,916, respectively, and long-term liabilities of $6,474 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.
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.
Restructuring expense by segment for the three and six months ended June 30, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
North America
|
$
|
3,044
|
|
|
$
|
786
|
|
|
$
|
6,747
|
|
|
$
|
5,994
|
|
|
Europe
|
3,106
|
|
|
3,952
|
|
|
5,299
|
|
|
10,055
|
|
|
Asia Pacific
|
2,579
|
|
|
1,061
|
|
|
2,712
|
|
|
3,574
|
|
|
South America
|
849
|
|
|
10
|
|
|
2,051
|
|
|
26
|
|
|
Total Automotive
|
9,578
|
|
|
5,809
|
|
|
16,809
|
|
|
19,649
|
|
|
Corporate and other
|
196
|
|
|
118
|
|
241
|
|
|
3,993
|
|
|
Total
|
$
|
9,774
|
|
|
$
|
5,927
|
|
|
$
|
17,050
|
|
|
$
|
23,642
|
|
Restructuring activity for the six months ended June 30, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Costs
|
|
Other Exit Costs
|
|
|
|
Total
|
|
Balance as of December 31, 2019
|
$
|
22,990
|
|
|
$
|
4,005
|
|
|
|
|
$
|
26,995
|
|
|
Expense
|
10,781
|
|
|
6,269
|
|
|
|
|
17,050
|
|
|
Cash payments
|
(10,213)
|
|
|
(5,477)
|
|
|
|
|
(15,690)
|
|
|
Non-cash fixed asset impairments included in expense
|
—
|
|
|
(1,168)
|
|
|
|
|
(1,168)
|
|
|
Foreign exchange translation and other
|
(280)
|
|
|
80
|
|
|
|
|
(200)
|
|
|
Balance as of June 30, 2020
|
$
|
23,278
|
|
|
$
|
3,709
|
|
|
|
|
$
|
26,987
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
6. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Finished goods
|
$
|
41,187
|
|
|
$
|
57,070
|
|
|
Work in process
|
34,931
|
|
|
33,753
|
|
|
Raw materials and supplies
|
68,791
|
|
|
52,616
|
|
|
|
$
|
144,909
|
|
|
$
|
143,439
|
|
7. Leases
The Company primarily has operating and finance leases for certain manufacturing facilities, corporate offices and certain equipment. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities and long-term operating lease liabilities on the Company’s condensed consolidated balance sheet as of June 30, 2020. Finance leases are included in property, plant and equipment, net, debt payable within one year, and long-term debt on the Company’s condensed consolidated balance sheets.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Operating lease expense
|
$
|
7,814
|
|
|
$
|
7,985
|
|
|
$
|
16,419
|
|
|
$
|
16,665
|
|
|
Short-term lease expense
|
1,065
|
|
|
1,132
|
|
|
2,075
|
|
|
1,811
|
|
|
Variable lease expense
|
155
|
|
|
319
|
|
|
405
|
|
|
534
|
|
|
Finance lease expense:
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
671
|
|
|
572
|
|
|
1,352
|
|
|
1,015
|
|
|
Interest on lease liabilities
|
400
|
|
|
452
|
|
|
785
|
|
|
907
|
|
|
Total lease expense
|
$
|
10,105
|
|
|
$
|
10,460
|
|
|
$
|
21,036
|
|
|
$
|
20,932
|
|
|
|
|
|
|
|
|
|
|
Other information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
Supplemental Cash Flows Information
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
15,794
|
|
|
$
|
17,071
|
|
|
|
|
Operating cash flows for finance leases
|
|
810
|
|
|
759
|
|
|
|
|
Financing cash flows for finance leases
|
|
1,095
|
|
|
442
|
|
|
|
|
Non-cash right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
Operating leases
|
|
38,652
|
|
|
2,807
|
|
|
|
|
Finance leases
|
|
61
|
|
|
9,476
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term (in years)
|
|
|
|
|
|
|
|
Operating leases
|
|
8.1
|
|
5.6
|
|
|
|
Finance leases
|
|
10.9
|
|
11.9
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
|
|
|
Operating leases
|
|
5.3
|
%
|
|
4.7
|
%
|
|
|
|
Finance leases
|
|
6.0
|
%
|
|
9.7
|
%
|
|
|
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 June 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
|
Operating Leases
|
|
Finance
Leases
|
|
Remainder of 2020
|
|
|
|
|
|
$
|
14,345
|
|
|
$
|
1,729
|
|
|
2021
|
|
|
|
|
|
24,272
|
|
|
3,562
|
|
|
2022
|
|
|
|
|
|
19,161
|
|
|
3,320
|
|
|
2023
|
|
|
|
|
|
15,566
|
|
|
3,066
|
|
|
2024
|
|
|
|
|
|
12,531
|
|
|
3,209
|
|
|
Thereafter
|
|
|
|
|
|
57,402
|
|
|
24,108
|
|
|
Total future minimum lease payments
|
|
|
|
|
|
143,277
|
|
|
38,994
|
|
|
Less imputed interest
|
|
|
|
|
|
(30,165)
|
|
|
(10,647)
|
|
|
Total
|
|
|
|
|
|
$
|
113,112
|
|
|
$
|
28,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized on the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Operating Leases
|
|
|
|
|
Assets held for sale
|
$
|
2,946
|
|
|
$
|
—
|
|
|
Operating lease right-of-use assets, net
|
110,091
|
|
|
83,376
|
|
|
Current operating lease liabilities
|
20,913
|
|
|
24,094
|
|
|
Liabilities held for sale
|
3,204
|
|
|
—
|
|
|
Long-term operating lease liabilities
|
88,995
|
|
|
60,234
|
|
|
|
|
|
|
|
Finance Leases
|
|
|
|
|
Debt payable within one year
|
2,256
|
|
|
2,343
|
|
|
Long-term debt
|
26,091
|
|
|
27,430
|
|
As of June 30, 2020 and December 31, 2019, assets recorded under finance leases, net of accumulated depreciation were $31,245 and $32,571, respectively. As of June 30, 2020, the Company’s operating leases that had not yet commenced related entirely to operating leases within held for sale subsidiaries. See Note 3. “Assets Held for Sale and Divestiture.”
8. Property, Plant and Equipment
Property, plant and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Land and improvements
|
$
|
57,452
|
|
|
$
|
66,670
|
|
|
Buildings and improvements
|
291,373
|
|
|
310,797
|
|
|
Machinery and equipment
|
1,228,381
|
|
|
1,204,457
|
|
|
Construction in progress
|
87,228
|
|
|
161,951
|
|
|
|
1,664,434
|
|
|
1,743,875
|
|
|
Accumulated depreciation
|
(779,858)
|
|
|
(755,598)
|
|
|
Property, plant and equipment, net
|
$
|
884,576
|
|
|
$
|
988,277
|
|
During the six months ended June 30, 2020, the Company recorded impairment charges of $1,140, which included a charge of $977 during the three months ended March 31, 2020 due to the deterioration of financial results in a certain Asia Pacific location. The fair value was determined using estimated orderly liquidation value, which was deemed the highest and best use of the assets. The Company also recorded an impairment charge of $163 due to idle assets in various locations during the three months ended June 30, 2020. The fair value was determined using salvage value.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Based on the Company’s interim impairment assessment, the Company has determined there were no additional indicators of impairment identified during the six months ended June 30, 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.
During the six months ended June 30, 2019, the Company recorded an impairment charge related to machinery and equipment in certain Asia Pacific locations of $2,188. The fair value was determined using estimated orderly liquidation value, which was deemed the highest and best use of the assets.
9. Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill by reporting unit for the six months ended June 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Industrial Specialty Group
|
|
Total
|
|
Balance as of December 31, 2019
|
$
|
142,187
|
|
|
$
|
—
|
|
|
$
|
142,187
|
|
|
Reorganization
|
(14,036)
|
|
|
14,036
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation
|
(187)
|
|
|
—
|
|
|
(187)
|
|
|
Balance as of June 30, 2020
|
$
|
127,964
|
|
|
$
|
14,036
|
|
|
$
|
142,000
|
|
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. Other than the reorganization event noted above, there were no other indicators of potential impairment during the six months ended June 30, 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.
Intangible Assets
Intangible assets and accumulated amortization balances as of June 30, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Customer relationships
|
$
|
154,431
|
|
|
$
|
(118,957)
|
|
|
$
|
35,474
|
|
|
Other
|
43,634
|
|
|
(8,236)
|
|
|
35,398
|
|
|
Balance as of June 30, 2020
|
$
|
198,065
|
|
|
$
|
(127,193)
|
|
|
$
|
70,872
|
|
|
|
|
|
|
|
|
|
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
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
10. Debt
A summary of outstanding debt as of June 30, 2020 and December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Senior Notes
|
$
|
395,471
|
|
|
$
|
395,114
|
|
|
Senior Secured Notes
|
238,911
|
|
|
—
|
|
|
Term Loan
|
324,848
|
|
|
326,061
|
|
|
ABL Facility
|
—
|
|
|
—
|
|
|
Finance leases
|
28,347
|
|
|
29,773
|
|
|
Other borrowings
|
51,678
|
|
|
56,680
|
|
|
Total debt
|
1,039,255
|
|
|
807,628
|
|
|
Less current portion
|
(56,358)
|
|
|
(61,449)
|
|
|
Total long-term debt
|
$
|
982,897
|
|
|
$
|
746,179
|
|
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. 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 June 30, 2020 and December 31, 2019, the Company had $4,529 and $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.
13.0% Senior Secured Notes due 2024
On May 29, 2020, Cooper Standard Automotive Inc. (the “Issuer”), a wholly-owned subsidiary of the Company, issued $250,000 aggregate principal amount of its 13.0% Senior Secured Notes due 2024 (the “Senior Secured Notes”), pursuant to the Indenture, dated as of May 29, 2020 (the “Indenture”), by and among the Issuer, the other guarantors party thereto and U.S. Bank National Association, as trustee, in a transaction exempt from registration under Rule 144A and Regulation S of the Securities Act of 1933. Proceeds from the Senior Secured Notes were used to provide additional liquidity for the Company.
The Senior Secured Notes are guaranteed on a senior secured basis by CS Intermediate HoldCo 1 LLC and each of the Issuer’s present and future subsidiaries that are obligors or guarantee the Term Loan Facility and each of the Issuer’s wholly owned domestic subsidiaries that are obligors under, or guarantee, certain other indebtedness, subject to certain exceptions. The notes are also guaranteed on a senior unsecured basis by Cooper-Standard Latin America B.V.
The Issuer may redeem all or part of the Senior Secured Notes prior to maturity at the prices set forth in the Indenture. The Senior Secured Notes mature on June 1, 2024. Interest on the Senior Secured Notes is payable semi-annually in arrears in cash on June 1 and December 1 of each year, commencing on December 1, 2020.
The Indenture contains certain covenants that limit the Issuer’s and its subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness or issue certain preferred stock; make restricted payments; sell assets; create or incur liens; and merge or consolidate with other entities. These covenants are subject to a number of important limitations and exceptions. The Indenture also provides for customary events of default for non-investment grade debt securities, which, if any occur, would permit or require the principal, interest and any other monetary obligations on all the then-outstanding Senior Secured Notes to be due and payable immediately.
The Company paid approximately $6,220 of debt issuance costs in connection with the transaction. Additionally, the Senior Secured Notes were issued at a discount of $5,000. As of June 30, 2020, the Company had $6,145 of unamortized debt issuance costs and $4,944 of unamortized original issue discount related to the Senior Secured Notes, 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 Senior Secured Notes.
Term Loan Facility
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. 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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
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. The Term Loan Facility matures on November 2, 2023, unless earlier terminated.
As of June 30, 2020 and December 31, 2019, the Company had $1,977 and $2,273 of unamortized debt issuance costs, respectively, and $1,274 and $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 Third Amended and Restated Loan Agreement of its ABL Facility, which 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 was 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 $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 June 30, 2020, there were no loans outstanding under the ABL Facility. The Company’s borrowing base was $52,026. Net of the greater of 10% of the borrowing base or $15,000 that cannot be borrowed without triggering the fixed charge coverage ratio maintenance covenant and $5,264 of outstanding letters of credit, the Company effectively had $31,762 available for borrowing under its ABL facility .
Any borrowings under the ABL Facility will mature, and the commitments of the lenders under the ABL Facility will terminate, on 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 June 30, 2020 and December 31, 2019, the Company had $1,284 and $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, Senior Secured Notes, Term Loan Facility and ABL Facility as of June 30, 2020.
Other
Other borrowings as of June 30, 2020 and December 31, 2019 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)
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.
|
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 June 30, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Input
|
|
Forward foreign exchange contracts - other current assets
|
$
|
51
|
|
|
$
|
467
|
|
|
Level 2
|
|
Forward foreign exchange contracts - accrued liabilities
|
(4,588)
|
|
|
(42)
|
|
|
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. “Assets Held for Sale and Divestiture” and Note 8. “Property, Plant and Equipment.”
Items Not Carried at Fair Value
Fair values of the Company’s Senior Notes, Senior Secured Notes and Term Loan Facility were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Aggregate fair value
|
$
|
789,632
|
|
|
$
|
693,600
|
|
|
Aggregate carrying value (1)
|
978,100
|
|
|
729,800
|
|
(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. As of June 30, 2020 and December 31, 2019, the notional amount of these contracts was $57,898 and $92,150, respectively, and consisted of hedges of transactions up to December 2020.
Interest rate swaps - The Company has historically used interest rate swap contracts to manage cash flow variability associated with its variable rate Term Loan Facility. The interest rate swap contract, which fixes the interest payments of variable rate debt instruments, is used to manage exposure to fluctuations in interest rates. As of June 30, 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 June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Forward foreign exchange contracts
|
$
|
3,372
|
|
|
$
|
1,867
|
|
|
$
|
(9,499)
|
|
|
$
|
3,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax amounts related to the Company’s cash flow hedges that were reclassified from AOCI and recognized in cost of products sold were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Reclassified from AOCI to Income
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Forward foreign exchange contracts
|
$
|
(4,666)
|
|
|
$
|
827
|
|
|
$
|
(4,551)
|
|
|
$
|
1,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
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 indentures governing the Senior Notes and Senior Secured 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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Off-balance sheet arrangements
|
$
|
43,658
|
|
|
$
|
103,818
|
|
Accounts receivable factored and related costs throughout the period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Accounts receivable factored
|
$
|
50,685
|
|
|
$
|
94,284
|
|
|
$
|
227,193
|
|
|
$
|
267,987
|
|
|
|
|
|
|
|
|
|
|
Costs
|
162
|
|
|
148
|
|
|
471
|
|
|
473
|
|
|
|
|
|
|
|
|
|
The Company continues to service sold receivables and acts as collection agent for the Factor. As of June 30, 2020 and December 31, 2019, cash collections on behalf of the Factor that have yet to be remitted were $12,474 and $21,485, respectively, and are reflected in cash and cash equivalents in the condensed consolidated balance sheet.
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
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Service cost
|
$
|
213
|
|
|
$
|
965
|
|
|
$
|
189
|
|
|
$
|
943
|
|
|
Interest cost
|
2,033
|
|
|
759
|
|
|
2,952
|
|
|
1,063
|
|
|
Expected return on plan assets
|
(3,421)
|
|
|
(559)
|
|
|
(4,155)
|
|
|
(591)
|
|
|
Amortization of prior service cost and actuarial loss
|
485
|
|
|
790
|
|
|
781
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) cost
|
$
|
(690)
|
|
|
$
|
1,955
|
|
|
$
|
(233)
|
|
|
$
|
2,008
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Service cost
|
$
|
426
|
|
|
$
|
1,954
|
|
|
$
|
378
|
|
|
$
|
2,054
|
|
|
Interest cost
|
4,066
|
|
|
1,541
|
|
|
5,904
|
|
|
2,123
|
|
|
Expected return on plan assets
|
(6,842)
|
|
|
(1,136)
|
|
|
(8,310)
|
|
|
(1,186)
|
|
|
Amortization of prior service cost and actuarial loss
|
970
|
|
|
1,584
|
|
|
1,562
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) cost
|
$
|
(1,380)
|
|
|
$
|
3,943
|
|
|
$
|
(466)
|
|
|
$
|
4,200
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Service cost
|
$
|
26
|
|
|
$
|
93
|
|
|
$
|
25
|
|
|
$
|
91
|
|
|
Interest cost
|
170
|
|
|
168
|
|
|
202
|
|
|
179
|
|
|
Amortization of prior service credit and actuarial gain
|
(483)
|
|
|
104
|
|
|
(566)
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) cost
|
$
|
(287)
|
|
|
$
|
365
|
|
|
$
|
(339)
|
|
|
$
|
363
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Service cost
|
$
|
52
|
|
|
$
|
189
|
|
|
$
|
66
|
|
|
$
|
208
|
|
|
Interest cost
|
340
|
|
|
341
|
|
|
461
|
|
|
382
|
|
|
Amortization of prior service credit and actuarial gain
|
(966)
|
|
|
211
|
|
|
(1,308)
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) cost
|
$
|
(574)
|
|
|
$
|
741
|
|
|
$
|
(781)
|
|
|
$
|
721
|
|
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.
14. Other Expense, Net
The components of other expense, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Foreign currency losses
|
$
|
(3,791)
|
|
|
$
|
(1,172)
|
|
|
$
|
(7,023)
|
|
|
$
|
(1,456)
|
|
|
Components of net periodic benefit cost other than service cost
|
(46)
|
|
|
(551)
|
|
|
(109)
|
|
|
(968)
|
|
|
Factoring costs
|
(162)
|
|
|
(148)
|
|
|
(471)
|
|
|
(473)
|
|
|
Miscellaneous (expense) income
|
(702)
|
|
|
90
|
|
|
(538)
|
|
|
320
|
|
|
Other expense, net
|
$
|
(4,701)
|
|
|
$
|
(1,781)
|
|
|
$
|
(8,141)
|
|
|
$
|
(2,577)
|
|
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, income (loss) before income taxes and the corresponding effective tax rate for the three and six months ended June 30, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Income tax (benefit) expense
|
$
|
(38,982)
|
|
|
$
|
44,222
|
|
|
$
|
(53,099)
|
|
|
$
|
46,256
|
|
|
(Loss) income before income taxes
|
(174,966)
|
|
|
188,882
|
|
|
(301,522)
|
|
|
185,553
|
|
|
Effective tax rate
|
22
|
%
|
|
23
|
%
|
|
18
|
%
|
|
25
|
%
|
The effective tax rate for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019 varied from prior periods primarily due to the geographic mix of pre-tax losses driven by the impairment charge on held for sale entities and the inability to record a tax benefit for pre-tax losses in certain foreign jurisdictions. Additionally, a discrete expense of $12,871 for the initial recognition of valuation allowances against net deferred tax assets in certain foreign jurisdictions was recorded in the six months ended June 30, 2020. In accordance with recent legislation, one of the business tax provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) allows 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 $14,344 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 and six months ended June 30, 2020. The income tax rate for the three and six months ended June 30, 2020 and 2019 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 is 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.
16. Net (Loss) Income Per Share Attributable to Cooper-Standard Holdings Inc.
Basic net (loss) income per share attributable to Cooper-Standard Holdings Inc. was computed by dividing net (loss) income attributable to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share attributable to Cooper-Standard Holdings Inc. was computed using the treasury stock method by dividing diluted net (loss) income 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) income per share attributable to Cooper-Standard Holdings Inc. was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to Cooper-Standard Holdings Inc. common stockholders
|
$
|
(134,219)
|
|
|
$
|
145,205
|
|
|
$
|
(244,807)
|
|
|
$
|
139,790
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares of common stock outstanding
|
16,914,971
|
|
|
17,312,359
|
|
|
16,899,344
|
|
|
17,423,162
|
|
|
Dilutive effect of common stock equivalents
|
—
|
|
|
64,099
|
|
|
—
|
|
|
67,806
|
|
|
Diluted weighted average shares of common stock outstanding
|
16,914,971
|
|
|
17,376,458
|
|
|
16,899,344
|
|
|
17,490,968
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share attributable to Cooper-Standard Holdings Inc.
|
$
|
(7.93)
|
|
|
$
|
8.39
|
|
|
$
|
(14.49)
|
|
|
$
|
8.02
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share attributable to Cooper-Standard Holdings Inc.
|
$
|
(7.93)
|
|
|
$
|
8.36
|
|
|
$
|
(14.49)
|
|
|
$
|
7.99
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
17. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component, net of related tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(182,315)
|
|
|
$
|
(139,505)
|
|
|
$
|
(153,933)
|
|
|
$
|
(141,104)
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
6,699
|
|
(1)
|
(9,025)
|
|
(1)
|
(21,683)
|
|
(1)
|
(7,426)
|
|
(1)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
3,824
|
|
|
—
|
|
|
3,824
|
|
|
|
Balance at end of period
|
$
|
(175,616)
|
|
|
$
|
(144,706)
|
|
|
$
|
(175,616)
|
|
|
$
|
(144,706)
|
|
|
|
Benefit plan liabilities
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(97,478)
|
|
|
$
|
(102,988)
|
|
|
$
|
(100,160)
|
|
|
$
|
(104,375)
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
(1,405)
|
|
(2)
|
(3,225)
|
|
(2)
|
619
|
|
(2)
|
(2,348)
|
|
(2)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
689
|
|
(3)
|
278
|
|
(4)
|
1,347
|
|
(5)
|
788
|
|
(6)
|
|
Balance at end of period
|
$
|
(98,194)
|
|
|
$
|
(105,935)
|
|
|
$
|
(98,194)
|
|
|
$
|
(105,935)
|
|
|
|
Fair value change of derivatives
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(9,724)
|
|
|
$
|
795
|
|
|
$
|
352
|
|
|
$
|
(458)
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
2,828
|
|
(7)
|
1,438
|
|
(7)
|
(7,156)
|
|
(7)
|
2,928
|
|
(7)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
3,410
|
|
(8)
|
(610)
|
|
(8)
|
3,318
|
|
(8)
|
(847)
|
|
(8)
|
|
Balance at end of period
|
$
|
(3,486)
|
|
|
$
|
1,623
|
|
|
$
|
(3,486)
|
|
|
$
|
1,623
|
|
|
|
Accumulated other comprehensive loss, ending balance
|
$
|
(277,296)
|
|
|
$
|
(249,018)
|
|
|
$
|
(277,296)
|
|
|
$
|
(249,018)
|
|
|
(1)Includes other comprehensive income (loss) related to intra-entity foreign currency balances that are of a long-term investment nature of $3,485 and $(848) for the three months ended June 30, 2020 and 2019, respectively, and $(19,218) and $1,966 for the six months ended June 30, 2020 and 2019, respectively.
(2)Net of tax (benefit) expense of $(47) and $(918) for the three months ended June 30, 2020 and 2019, respectively, and $290 and $(907) for the six months ended June 30, 2020 and 2019, respectively. Includes other comprehensive loss of $3,224 for each of the three and six months ended June 30, 2019 related to benefit plan liability remeasurement due to the divestiture of the Company’s AVS product line. See Note 3. “Assets Held for Sale and Divestiture.”
(3)Includes the effect of the amortization of actuarial losses of $915 and amortization of prior service cost of $21, net of tax of $247. See Note 13. “Pension and Postretirement Benefits Other Than Pensions.”
(4)Includes the effect of the amortization of actuarial losses of $970, offset by the amortization of prior service credits of $34, net settlement gain of $65 and curtailment gain of $204, net of tax of $389. The settlement and curtailment relate to the divestiture of the Company’s AVS product line. See Note 3. “Assets Held for Sale and Divestiture.”
(5)Includes the effect of the amortization of actuarial losses of $1,787 and amortization of prior service cost of $42, net of tax of $482. See Note 13. “Pension and Postretirement Benefits Other Than Pensions.”
(6)Includes the effect of the amortization of actuarial losses of $1,743, offset by the amortization of prior service credits of $113, net settlement gain of $65 and curtailment gain of $204, net of tax of $573. The settlement and curtailment relate to the divestiture of the Company’s AVS product line. See Note 3. “Assets Held for Sale and Divestiture.”
(7)Net of tax expense (benefit) of $544 and $429 for the three months ended June 30, 2020 and 2019, respectively, and $(2,343) and $882 for the six months ended June 30, 2020 and 2019, respectively. See Note 11. “Fair Value Measurements and Financial Instruments.”
(8)Net of tax (benefit) expense of $(1,256) and $217 for the three months ended June 30, 2020 and 2019, respectively, and $(1,233) and $305 for the six months ended June 30, 2020 and 2019, respectively. See Note 11. “Fair Value Measurements and Financial Instruments.”
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
18. Common Stock
Share Repurchase Program
In June 2018, the Company’s Board of Directors approved a common stock repurchase program (the “2018 Program”) authorizing the Company to repurchase, in the aggregate, up to $150,000 of its outstanding common stock. Under the 2018 Program, repurchases may be made on the open market, through private transactions, accelerated share repurchases, round lot or block transactions on the New York Stock Exchange or otherwise, as determined by management and in accordance with prevailing market conditions and federal securities laws and regulations. The Company expects to fund any future repurchases from cash on hand and future cash flows from operations. The Company is not obligated to acquire a particular amount of securities, and the 2018 Program may be discontinued at any time at the Company’s discretion. The 2018 Program became effective in November 2018. As of June 30, 2020, the Company had approximately $98,720 of repurchase authorization remaining under the 2018 Program.
The Company did not make any repurchases during the six months ended June 30, 2020.
2019 Repurchases
In May 2019, the Company entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase the Company’s common stock pursuant to the 2018 Program. Under the ASR agreement, the Company made an up-front payment of $30,000 and received an initial delivery of 626,305 shares of its common stock in the second quarter of 2019. The repurchase was completed in the third quarter of 2019 when the Company received final delivery of an additional 72,875 shares. A total of 699,180 shares were repurchased at a weighted average purchase price of $42.91 per share.
In addition to the repurchase under the ASR agreement, during the six months ended June 30, 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.
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 2020, the Company granted Restricted Stock Units (“RSUs”), Performance Units (“PUs”) and stock options. The RSUs cliff vest after three years, the PUs vest ratably over three years after the initial 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.
Share-based compensation expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
PUs
|
$
|
145
|
|
|
$
|
241
|
|
|
$
|
219
|
|
|
$
|
890
|
|
|
RSUs
|
1,767
|
|
|
2,287
|
|
|
3,410
|
|
|
4,009
|
|
|
Stock options
|
649
|
|
|
768
|
|
|
1,306
|
|
|
1,583
|
|
|
Total
|
$
|
2,561
|
|
|
$
|
3,296
|
|
|
$
|
4,935
|
|
|
$
|
6,482
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
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 June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Sales(1)
|
$
|
2,355
|
|
|
$
|
8,099
|
|
|
$
|
8,430
|
|
|
$
|
15,533
|
|
|
Purchases(2)
|
22
|
|
|
399
|
|
|
178
|
|
|
724
|
|
|
Dividends received(3)
|
—
|
|
|
—
|
|
|
5,245
|
|
|
4,917
|
|
(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 as of June 30, 2020 and December 31, 2019 were $2,513 and $4,297, respectively.
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 June 30, 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 June 30, 2020 and December 31, 2019, the undiscounted reserve for environmental investigation and remediation was approximately $7,607 and $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.
22. Segment Reporting
The Company’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 the 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 and six months ended June 30, 2019 have been reclassified from North America and Europe from the table below. The adjusted EBITDA amounts previously reported for the three and six months ended June 30, 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. On April 1, 2019, the Company completed the divestiture of the AVS product line.
The Company uses Segment adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. The results of each segment include certain allocations for general, administrative and other shared costs. Segment adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
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:
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Three Months Ended June 30,
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2020
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2019
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External Sales
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Intersegment Sales
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Adjusted EBITDA
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External Sales
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Intersegment Sales
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Adjusted EBITDA
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North America
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$
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126,337
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$
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2,128
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$
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(42,874)
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$
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379,121
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$
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4,359
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$
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53,883
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Europe
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78,805
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1,224
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(41,403)
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205,029
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3,122
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5,996
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Asia Pacific
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105,726
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213
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(2,172)
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118,495
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877
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(1,826)
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South America
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3,881
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—
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(4,351)
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25,124
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48
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(1,106)
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Total Automotive
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314,749
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3,565
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(90,800)
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727,769
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8,406
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56,947
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Corporate, eliminations and other
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25,718
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(3,565)
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(2,952)
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36,929
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(8,406)
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1,024
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Consolidated
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$
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340,467
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$
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—
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$
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(93,752)
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$
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764,698
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$
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—
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$
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57,971
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Six Months Ended June 30,
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2020
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2019
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External Sales
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Intersegment Sales
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Adjusted EBITDA
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External Sales
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Intersegment Sales
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Adjusted EBITDA
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North America
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$
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461,138
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$
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6,596
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$
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(5,855)
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$
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826,839
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$
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9,066
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$
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113,034
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Europe
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264,047
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4,315
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(46,026)
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447,429
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6,207
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15,271
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Asia Pacific
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185,070
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670
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(19,229)
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243,947
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1,618
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(2,233)
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South America
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24,352
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68
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(8,928)
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48,361
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53
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(2,139)
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Total Automotive
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934,607
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11,649
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(80,038)
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1,566,576
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16,944
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123,933
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Corporate, eliminations and other
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60,750
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(11,649)
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(5,435)
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76,117
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(16,944)
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(1,828)
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Consolidated
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$
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995,357
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$
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—
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$
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(85,473)
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$
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1,642,693
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$
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—
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$
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122,105
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Three Months Ended June 30,
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Six Months Ended June 30,
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2020
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2019
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2020
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2019
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Adjusted EBITDA
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$
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(93,752)
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$
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57,971
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$
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(85,473)
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$
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122,105
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Gain on sale of business
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—
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189,910
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—
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189,910
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Impairment of assets held for sale
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(12,391)
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—
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(86,470)
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—
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Restructuring charges
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(9,774)
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(5,927)
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(17,050)
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(23,642)
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Project costs
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(1,809)
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(405)
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(4,234)
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(1,668)
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Other impairment charges
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(163)
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(2,188)
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(847)
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(2,188)
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Lease termination costs
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(81)
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(491)
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(601)
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(491)
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EBITDA
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$
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(117,970)
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$
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238,870
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$
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(194,675)
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$
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284,026
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Income tax benefit (expense)
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38,982
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(44,222)
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53,099
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(46,256)
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Interest expense, net of interest income
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(12,771)
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(11,575)
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(23,008)
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(23,507)
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Depreciation and amortization
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(42,460)
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(37,868)
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(80,223)
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(74,473)
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Net (loss) income attributable to Cooper-Standard Holdings Inc.
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$
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(134,219)
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$
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145,205
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$
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(244,807)
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$
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139,790
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
|
|
|
|
|
|
|
|
|
|
|
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June 30, 2020
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December 31, 2019
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Segment assets:
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North America
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$
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908,339
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$
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1,040,650
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Europe
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431,781
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553,977
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Asia Pacific
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521,830
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614,952
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South America
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53,341
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65,438
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Total Automotive
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1,915,291
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2,275,017
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Corporate, eliminations and other
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573,306
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360,565
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Consolidated
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$
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2,488,597
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$
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2,635,582
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