Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 2.00M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 33K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 33K
4: EX-32 Certification -- §906 - SOA'02 HTML 29K
10: R1 Document and Entity Information HTML 86K
11: R2 Condensed Consolidated Statements of Operations HTML 120K
12: R3 Condensed Consolidated Statements of Comprehensive HTML 60K
Income (Loss)
13: R4 Condensed Consolidated Balance Sheets HTML 154K
14: R5 Condensed Consolidated Balance Sheets HTML 34K
(Parenthetical)
15: R6 Condensed Consolidated Statements of Changes in HTML 94K
Equity
16: R7 Condensed Consolidated Statements of Cash Flows HTML 113K
17: R8 Condensed Consolidated Statements of Cash Flows HTML 37K
Reconciliation of Cash, Cash Equivalents and
Restricted Cash
18: R9 Overview HTML 43K
19: R10 Revenue HTML 206K
20: R11 Restructuring HTML 57K
21: R12 Inventories HTML 32K
22: R13 Leases HTML 144K
23: R14 Property, Plant and Equipment HTML 38K
24: R15 Goodwill and Intangibles HTML 50K
25: R16 Fair Value Measurements and Financial Instruments HTML 61K
26: R17 Pension and Postretirement Benefits other than HTML 97K
Pensions
27: R18 Other Income (Expense), Net HTML 42K
28: R19 Income Taxes HTML 44K
29: R20 Net Income (Loss) Per Share Attributable to HTML 46K
Cooper-Standard Holdings Inc.
30: R21 Accumulated Other Comprehensive Income (Loss) HTML 68K
31: R22 Common Stock HTML 26K
32: R23 Commitments and Contingencies HTML 28K
33: R24 Segment Reporting HTML 133K
34: R25 Pay vs Performance Disclosure HTML 37K
35: R26 Insider Trading Arrangements HTML 30K
36: R27 Overview (Policies) HTML 28K
37: R28 Revenue (Tables) HTML 198K
38: R29 Restructuring (Tables) HTML 58K
39: R30 Inventories (Tables) HTML 33K
40: R31 Property, Plant and Equipment (Tables) HTML 35K
41: R32 Goodwill and Intangibles (Tables) HTML 55K
42: R33 Debt (Tables) HTML 54K
43: R34 Fair Value Measurements and Financial Instruments HTML 57K
(Tables)
44: R35 Accounts Receivable Factoring (Tables) HTML 39K
45: R36 Pension and Postretirement Benefits other than HTML 92K
Pensions (Tables)
46: R37 Other Income (Expense), Net (Tables) HTML 42K
47: R38 Income Taxes (Tables) HTML 35K
48: R39 Net Income (Loss) Per Share Attributable to HTML 45K
Cooper-Standard Holdings Inc. (Tables)
49: R40 Accumulated Other Comprehensive Loss (Tables) HTML 67K
50: R41 Segment Reporting (Tables) HTML 129K
51: R42 Deconsolidation and Divestiture (Details) HTML 65K
52: R43 Revenue by end customer (Details) HTML 70K
53: R44 Revenue by type (Details) HTML 88K
54: R45 Revenue Net contract assets (Liabilities) HTML 38K
(Details)
55: R46 Revenue other (Details) HTML 33K
56: R47 Restructuring - Summary of Restructuring Expense HTML 43K
(Detail)
57: R48 Restructuring - Summary of Activity of HTML 42K
Restructuring (Detail)
58: R49 Inventories - Summary of Inventories (Detail) HTML 34K
59: R50 Leases Lease Amounts Recognized on Balance Sheet HTML 31K
(Details)
60: R51 Property, Plant and Equipment (Details) HTML 27K
61: R52 Property, Plant and Equipment Additional HTML 40K
Information (Details)
62: R53 Goodwill and Intangibles - Carrying Amount of HTML 38K
Goodwill by Reportable Operating Segment (Detail)
63: R54 Goodwill and Intangibles - Intangible Assets and HTML 41K
Accumulated Amortization Balances (Detail)
64: R55 Accounts Receivable Factoring HTML 33K
65: R56 Debt - Outstanding Debt (Detail) HTML 65K
66: R57 Debt - Additional Information (Detail) HTML 178K
67: R58 Fair Value Measurements and Financial Instruments HTML 33K
- Fair Value Hierarchy Level for Company's
Liabilities Measured (Detail)
68: R59 Fair Value Measurements and Financial Instruments HTML 29K
- Fair Values of Debt Instruments (Details)
69: R60 Fair Value Measurements and Financial Instruments HTML 33K
- Additional Information (Detail)
70: R61 Fair Value Measurements and Financial Instruments HTML 27K
- Gains (losses) on Cash Flow Hedges Reported in
Accumulated Other Comprehensive Income (Loss)
(Details)
71: R62 Fair Value Measurements and Financial Instruments HTML 27K
- Reclassifications out of accumulated other
comprehensive income (Loss) (Details)
72: R63 Accounts Receivable Factoring Additional Detail HTML 26K
(Details)
73: R64 Pension and Postretirement Benefits other than HTML 53K
Pensions - Net Periodic Benefit Cost of Defined
Benefit Plans and Other Postretirement Benefit
Plans (Detail)
74: R65 Pension and Postretirement Benefits other than HTML 30K
Pensions Pensions - Additional Information
(Details)
75: R66 Other Income (Expense), Net - Details of HTML 37K
Components of Other Income Expense, Net (Detail)
76: R67 Income Taxes Effective Income Tax Rate (Details) HTML 35K
77: R68 Income Taxes Additional Information (Details) HTML 28K
78: R69 Net Income (Loss) Per Share Attributable to HTML 49K
Cooper-Standard Holdings Inc. - Basic and Diluted
Net Income Per Share Attributable (Detail)
79: R70 Net Income (Loss) Per Share Attributable to HTML 27K
Cooper-Standard Holdings Inc. - Common Stock
Equivalents (Detail)
80: R71 Accumulated Other Comprehensive Loss - Changes in HTML 71K
Accumulated Other Comprehensive Income (Loss)
(Detail)
81: R72 Common Stock (Details) HTML 29K
82: R73 Commitments and Contingencies - Additional HTML 27K
Information (Details)
83: R74 Segment Reporting Information on Company's HTML 123K
Business Segments (Detail)
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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 in the Company’s condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, net, debt payable within one year, and long-term debt in the Company’s condensed consolidated balance sheets.
As
of September 30, 2023, the Company had additional leases, primarily for real estate, that had not yet commenced with undiscounted lease payments of approximately $3,163.
iLeases
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 in the Company’s condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, net, debt payable within one year, and long-term debt in the Company’s condensed consolidated balance sheets.
As
of September 30, 2023, the Company had additional leases, primarily for real estate, that had not yet commenced with undiscounted lease payments of approximately $3,163.
iProperty, Plant and Equipment
Property, plant and equipment consists of the following:
During
the three and nine months ended September 30, 2023, the Company recorded impairment charges of $0 and $654, respectively, primarily due to idle assets in Europe and North America. The fair value was determined using salvage value. During the three and nine months ended September 30, 2022, the Company recorded impairment charges of $379 and $837, respectively, due to idle assets, primarily in certain North American and European locations. The fair value was determined using salvage value.
The deconsolidation of a joint venture during the three months ended March 31, 2022 included the removal of property, plant
and equipment with gross carrying value of $29,590 and accumulated depreciation of $11,625, which is reflected in the balance sheet as of September 30, 2023.
In the first quarter of 2022, the Company closed on a sale-leaseback transaction related to one of its European facilities. The sale-leaseback was effective and control transferred to the Company on April 1, 2022. During the nine months ended September 30, 2023, the Company recorded a gain on the sale transaction of $0. The transaction included the removal of property, plant and equipment with a gross
carrying value of $16,890 and accumulated depreciation of $4,013, which is reflected in the balance sheet as of September 30, 2023.i
Property, plant and equipment consists of the following:
(Exact name of registrant as specified in its charter)
______________________________
iDelaware
i20-1945088
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i40300 Traditions Drive
iNorthville, iMichigani48168
(Address of principal executive offices)
(Zip Code)
(i248) i596-5900
(Registrant’s
telephone number, including area code)
______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock, par value $0.001 per share
iCPS
iNew York Stock Exchange
iPreferred
Stock Purchase Rights
i_
iNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
iAccelerated filer
☒
Non-accelerated
filer
☐
Smaller reporting company
i☒
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Common
stock, $0.001 par value, 190,000,000 shares authorized; 19,263,288 shares issued and 17,197,479 shares outstanding as of September 30, 2023, and 19,173,838 shares issued and 17,108,029 outstanding as of December 31, 2022
i17
i17
Additional
paid-in capital
i510,122
i507,498
Retained
deficit
(i336,664)
(i189,831)
Accumulated
other comprehensive loss
(i222,659)
(i209,971)
Total
Cooper-Standard Holdings Inc. equity
(i49,184)
i107,713
Noncontrolling
interests
(i8,192)
(i6,521)
Total equity
(i57,376)
i101,192
Total
liabilities and equity
$
i2,029,000
$
i1,963,529
The
accompanying notes are an integral part of these financial statements.
5
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(Dollar amounts in thousands except share amounts)
The
accompanying notes are an integral part of these financial statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
1. iOverview
i
Basis
of Presentation
Cooper-Standard Holdings Inc. (together with its consolidated subsidiaries, the “Company” or “Cooper Standard”), through its wholly-owned subsidiary, Cooper-Standard Automotive Inc. (“CSA U.S.”), is a leading manufacturer of sealing and fluid handling (consisting of fuel and brake delivery and fluid transfer) systems. The Company’s products are primarily for use in passenger vehicles and light trucks that are manufactured by global automotive original equipment manufacturers (“OEMs”) and replacement markets. The Company conducts substantially all of its activities through its subsidiaries.
The
accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”), as filed with the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These financial statements include all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of the financial position and results
of operations of the Company. The operating results for the interim period ended September 30, 2023 are not necessarily indicative of results for the full year. In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
i
Recently
Adopted Accounting Pronouncements
The Company adopted the following Accounting Standard Update (“ASU”) during the nine months ended September 30, 2023, which did not have a material impact on its condensed consolidated financial statements.
Standard
Description
Effective
Date
ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations
Requires enhanced disclosures about a buyer’s use of supplier finance programs. Supplier finance programs may also be referred to as reverse factoring, payables finance, or structured payables arrangements.
In
the second quarter of 2023, the Company signed a share purchase and assignment agreement to sell its European technical rubber products business. In the third quarter of 2023, the Company closed the transaction and received cash proceeds in the amount of $i15,009. Upon finalization of the sale, during the three months ended September 30,
2023, the Company recorded a loss of $i443, included in the condensed consolidated statements of operations. The loss included the write off of goodwill with a carrying amount of $i1,300.
2023
Joint Venture Divestiture
Management approved a plan to sell the Company’s entire controlling equity interest of a joint venture in the Asia Pacific region, and the sale was completed in the third quarter of 2023. As a result of the sale, during the three months ended September 30, 2023, the Company recorded a gain of $i109,
included in the condensed consolidated statements of operations.
2022 Joint Venture Deconsolidation
In the first quarter of 2022, a joint venture in the Asia Pacific region that was previously consolidated with a noncontrolling interest amended the governing document underlying the joint venture. The amendment to the agreement did not change the Company’s i51% ownership. However, as a result of the amendment and effective as of January
1, 2022, the joint venture was deconsolidated and accounted for as an investment under the equity method. The Company remeasured the retained investment using the income approach method and performed a discounted cash flow analysis of the projected free cash flows of the joint venture. As a result of the deconsolidation, during the nine months ended September 30, 2022, the Company recorded a loss of $i2,257,
included in other (expense) income, net in the condensed consolidated statements of operations. The deconsolidation included the removal of property, plant and equipment with gross carrying value of $i29,590 and accumulated depreciation of $i11,625,
along with the removal of intangible assets (primarily land use rights) with a net carrying value of $i5,258.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
2022
Sale-Leaseback
In the first quarter of 2022, the Company signed a sale-leaseback agreement on one of its European facilities. The Company closed the transaction and received cash proceeds in the amount of $i50,008 during the nine months ended September 30, 2022. The sale-leaseback became
effective on April 1, 2022, and the Company recorded a gain on the sale transaction of $i33,391 during the nine months ended September 30, 2022.
3. iRevenue
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.
i
Revenue by customer
group for the three months ended September 30, 2023 was as follows:
North America
Europe
Asia
Pacific
South America
Corporate, Eliminations and Other
Consolidated
Passenger and Light Duty
$
i402,756
$
i141,677
$
i120,561
$
i34,348
$
i—
$
i699,342
Commercial
i4,094
i5,720
i56
i—
i1,788
i11,658
Other
i4,056
i153
i—
i—
i20,829
i25,038
Revenue
$
i410,906
$
i147,550
$
i120,617
$
i34,348
$
i22,617
$
i736,038
Revenue
by customer group for the nine months ended September 30, 2023 was as follows:
North America
Europe
Asia
Pacific
South America
Corporate, Eliminations and Other
Consolidated
Passenger and Light Duty
$
i1,119,679
$
i468,238
$
i326,222
$
i96,697
$
i—
$
i2,010,836
Commercial
i12,731
i18,729
i399
i6
i5,467
i37,332
Other
i12,433
i335
i3
i—
i81,297
i94,068
Revenue
$
i1,144,843
$
i487,302
$
i326,624
$
i96,703
$
i86,764
$
i2,142,236
Revenue
by customer group for the three months ended September 30, 2022 was as follows:
North America
Europe
Asia
Pacific
South America
Corporate, Eliminations and Other
Consolidated
Passenger and Light Duty
$
i343,012
$
i108,628
$
i129,167
$
i27,069
$
i—
$
i607,876
Commercial
i4,132
i4,957
i326
i4
i1,725
i11,144
Other
i3,867
i85
i—
i—
i34,181
i38,133
Revenue
$
i351,011
$
i113,670
$
i129,493
$
i27,073
$
i35,906
$
i657,153
Revenue
by customer group for the nine months ended September 30, 2022 was as follows:
North America
Europe
Asia
Pacific
South America
Corporate, Eliminations and Other
Consolidated
Passenger and Light Duty
$
i981,131
$
i354,689
$
i317,909
$
i74,838
$
i—
$
i1,728,567
Commercial
i11,855
i16,426
i1,114
i15
i5,047
i34,457
Other
i11,606
i256
i2
i—
i101,166
i113,030
Revenue
$
i1,004,592
$
i371,371
$
i319,025
$
i74,853
$
i106,213
$
i1,876,054
/
The
passenger and light duty customer group consists of sales to automotive OEMs and automotive suppliers, while the commercial customer group represents sales to OEMs of on- and off-highway commercial equipment and vehicles. The other customer group includes sales related to specialty and adjacent markets.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Substantially all of the Company’s revenues were generated from sealing and fluid handling (consisting of fuel and brake delivery and fluid
transfer) systems for use in passenger vehicles and light trucks manufactured by global OEMs.
A summary of the Company’s products is as follows:
Product Line
Description
Sealing Systems
Protect vehicle interiors from weather, dust and noise intrusion for improved driving experience; provide aesthetic and functional class-A exterior surface treatment
Fuel
and Brake Delivery Systems
Sense, deliver and control fluids to fuel and brake systems
Fluid Transfer Systems
Sense, deliver and control fluids and vapors for optimal powertrain & HVAC operation
Revenue by product line for the three months ended September 30, 2023 was as follows:
North
America
Europe
Asia Pacific
South America
Corporate, Eliminations and Other
Consolidated
Sealing systems
$
i150,963
$
i116,466
$
i78,283
$
i25,451
$
i—
$
i371,163
Fluid
handling:
Fuel and brake delivery systems
i138,897
i26,463
i23,387
i6,972
i—
i195,719
Fluid
transfer systems
i121,046
i4,621
i18,947
i1,925
i—
i146,539
Total
fluid handling
i259,943
i31,084
i42,334
i8,897
i—
i342,258
Other
i—
i—
i—
i—
i22,617
i22,617
Revenue
$
i410,906
$
i147,550
$
i120,617
$
i34,348
$
i22,617
$
i736,038
Revenue
by product line for the nine months ended September 30, 2023 was as follows:
North America
Europe
Asia
Pacific
South America
Corporate, Eliminations and Other
Consolidated
Sealing systems
$
i427,237
$
i389,097
$
i207,563
$
i73,004
$
i—
$
i1,096,901
Fluid
handling:
Fuel and brake delivery systems
i383,344
i85,067
i65,736
i17,906
i—
i552,053
Fluid
transfer systems
i334,262
i13,138
i53,325
i5,793
i—
i406,518
Total
fluid handling
717,606
98,205
119,061
23,699
—
958,571
Other
i—
i—
i—
i—
i86,764
i86,764
Revenue
$
i1,144,843
$
i487,302
$
i326,624
$
i96,703
$
i86,764
$
i2,142,236
Revenue
by product line for the three months ended September 30, 2022 was as follows:
North America
Europe
Asia
Pacific
South America
Corporate, Eliminations and Other
Consolidated
Sealing systems
$
i133,347
$
i91,078
$
i85,309
$
i21,654
$
i—
$
i331,388
Fluid
handling:
Fuel and brake delivery systems
i113,755
i19,572
i27,540
i3,715
i—
i164,582
Fluid
transfer systems
i103,909
i3,020
i16,644
i1,704
i—
i125,277
Total
fluid handling
i217,664
i22,592
i44,184
i5,419
i—
i289,859
Other
i—
i—
i—
i—
i35,906
i35,906
Revenue
$
i351,011
$
i113,670
$
i129,493
$
i27,073
$
i35,906
$
i657,153
10
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Revenue by product line for the nine months ended September 30, 2022 was as follows:
The amount of revenue recognized is usually based on the purchase order price and adjusted for variable consideration, including pricing concessions. The Company accrues for pricing concessions by reducing revenue as products are shipped or delivered. The accruals are based on historical experience, anticipated performance and management’s best judgment. The Company also generally has ongoing adjustments to customer pricing arrangements based on the content and cost of its products. Such pricing accruals are adjusted as they are settled with customers. Customer returns, which are infrequent, are usually related to quality or shipment issues and are recorded as a reduction of revenue. The
Company generally does not recognize significant return obligations due to their infrequent nature.
The Company’s contract assets consist of unbilled amounts associated with variable pricing arrangements in the Asia Pacific region. Once pricing is finalized, contract assets are transferred to accounts receivable. As a result, the timing of revenue recognition and billings, as well as changes in foreign exchange rates, will impact contract
assets on an ongoing basis. Contract assets were not materially impacted by any other factors during the nine months ended September 30, 2023.
i
The Company’s contract liabilities consist of advance payments received from customers. Net contract
assets (liabilities) consisted of the following:
The
Company, at times, enters into agreements that provide for lump sum payments to customers. These payment agreements are recorded as a reduction of revenue during the period the commitment is made, unless the payment is contractually recoverable. Amounts related to commitments of future payments to customers in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 were current liabilities of $i11,330 and $i9,325,
respectively, and long-term liabilities of $i4,218 and $i5,899, 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.
4. iRestructuring
On an ongoing basis, the Company evaluates its business and objectives to ensure that it is properly configured
and sized based on changing market conditions. Accordingly, the Company has implemented several restructuring initiatives, including closure or consolidation of facilities throughout the world and the reorganization of its operating structure.
The Company’s restructuring charges consist of severance, retention and outplacement services, and severance-related postemployment benefits (collectively, “employee separation costs”), along with other related exit costs and asset impairments related to restructuring activities (collectively, “other exit costs”). Employee separation costs are recorded based on existing union and employee contracts, statutory
requirements, completed negotiations and Company policy.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
i
Restructuring charges (reversals) by segment for the three and nine months ended September 30, 2023 and 2022
were as follows:
Goodwill
is tested for impairment by reporting unit annually or more frequently if events or circumstances indicate that an impairment may exist. There were no indicators of potential impairment during the nine months ended September 30, 2023. The write off of goodwill of $1,300 is related to the sale of the European technical rubber products business. Refer to Note. 2 “Divestitures and Deconsolidations” for further information.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
On January 27, 2023 (the “Settlement Date”), the Company, Cooper-Standard Automotive Inc. (the “Issuer”), a wholly-owned subsidiary of the Company, and certain other of the Company’s direct and indirect subsidiaries completed certain refinancing transactions (the “Refinancing Transactions”) consisting of: (i) the exchange (the “Exchange Offer”) of $i357,446
aggregate principal amount of the Issuer’s then existing 5.625% Senior Notes due 2026 (the “2026 Senior Notes”) (representing 89.36% of the aggregate principal amount outstanding of the 2026 Senior Notes) for $i357,446 aggregate principal amount of the Issuer’s newly issued 5.625% Cash Pay / 10.625% PIK Toggle Senior Secured Third Lien Notes due 2027 (the “Third Lien Notes”), (ii) the issuance by the Issuer (the “Concurrent Notes Offering”) of $i580,000
aggregate principal amount of 13.50% Cash Pay / PIK Toggle Senior Secured First Lien Notes due 2027 (the “First Lien Notes” and, together with the Third Lien Notes, the “New Notes”) to holders of 2026 Senior Notes or their designees who participated in the Exchange Offer, including to certain backstop commitment parties who committed to purchase the First Lien Notes not otherwise subscribed for, (iii) the related consent solicitation (the “Consent Solicitation”) to remove substantially all of the covenants, certain events of default and certain other provisions contained in the 2026 Senior Notes and the indenture governing the 2026 Senior Notes and to release and discharge the guarantee of the 2026 Senior Notes by the Company, (iv) the effectiveness of the Third Amendment
(as defined below) to the senior asset-based revolving credit facility (“ABL Facility”) and (v) the use of proceeds from the Concurrent Notes Offering, together with cash on hand, to prepay all amounts outstanding under the Term Loan Facility at par, plus any accrued and unpaid interest thereon, to redeem the Issuer’s existing 2024 Senior Secured Notes (as defined below), including the prepayment premium and any accrued and unpaid interest thereon, and to pay fees and expenses related to the Refinancing Transactions. As a result of the Refinancing Transactions, the Issuer extended the maturities of its indebtedness and reduced the amount of cash interest it is required to pay on such indebtedness for the next two years. The Company recognized a loss on the refinancing and extinguishment of debt of $i81,885
during the nine months ended September 30, 2023.
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Additionally, the Company incurred total fees of $i91,800
associated with the Refinancing Transactions, of which $i87,563 were paid during the nine months ended September 30, 2023 and $i4,237 were paid during 2022. The fees paid during the nine months ended September
30, 2023 are reflected as a financing outflow in the condensed consolidated statement of cash flows. Of the fees paid during the nine months ended September 30, 2023, $i73,376 was included in the loss on the refinancing and extinguishment of debt referenced above, $i13,187
is presented as a direct deduction from the principal balance in the condensed consolidated balance sheet, and $i1,000 related to amending the ABL Facility is recorded in other long-term assets in the condensed consolidated balance sheet.
New Notes
On the Settlement Date, the Issuer issued $i580,000
aggregate principal amount of First Lien Notes pursuant to an indenture, dated as of the Settlement Date (the “First Lien Notes Indenture”), by and among the Issuer, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (the “First Lien Collateral Agent”).
The First Lien Notes are senior secured obligations of the Issuer and are guaranteed by CS Intermediate Holdco 1 LLC (“Holdings”), each of the Issuer’s wholly owned domestic subsidiaries that guarantee certain other indebtedness, subject to certain exceptions (the “Domestic Guarantors”), and certain of the Issuer’s wholly
owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands and Romania (the “Foreign Guarantors”). The First Lien Notes are guaranteed by Holdings and the Domestic Guarantors on a senior secured basis and by the Foreign Guarantors on a senior unsecured basis. The guarantees of the subsidiaries organized in France are limited guarantees.
The First Lien Notes will mature on March 31, 2027. The First Lien Notes bear interest at the rate of 13.50% per annum, payable in cash; provided, however, that for the first four interest periods after the Settlement Date, the Issuer has the option, in its sole discretion, to pay up to 4.50% of such interest on the First Lien Notes, in such
amount as specified by the Issuer, by increasing the principal amount of the outstanding First Lien Notes or, in limited circumstances as described in the First Lien Notes Indenture, by issuing additional First Lien Notes. As of September 30, 2023, the aggregate principal amount of the First Lien Notes of $i588,646 recognized in the condensed consolidated balance sheet reflects the election that was made by the Company to
pay 4.50% of the first interest payment as payment-in-kind. The Company has also elected to pay 4.50% of the second interest payment as payment-in-kind. Interest on the First Lien Notes is payable semi-annually in arrears on June 15 and December 15 of each year, and commenced on June 15, 2023.
The Issuer may, at its option, redeem all or part of the First Lien Notes prior to maturity at the prices set forth in the First Lien Notes Indenture. Upon the occurrence of certain events constituting a Change of Control (as defined in the First Lien Notes Indenture), the Issuer will be required to make an offer to repurchase
all of the First Lien Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
As of September 30, 2023, the Company had $i8,814 of unamortized debt issuance costs and $i363
of unamortized original issue discount related to the First Lien Notes, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheet. Both the debt issuance costs and the original issue discount are amortized into interest expense over the term of the First Lien Notes.
The First Lien Notes Indenture contains certain customary covenants that limit the Issuer’s and its restricted subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness or issue certain preferred stock; incur liens on assets; pay dividends or make other distributions in respect of, or repurchase or redeem, its capital stock or make other restricted payments; prepay, redeem or repurchase certain debt;
make certain loans and investments; enter into agreements restricting certain subsidiaries’ ability to pay dividends; enter into transactions with affiliates; and sell certain assets or merge or consolidate with or into other companies. These covenants are subject to a number of important limitations and exceptions. The First Lien Notes Indenture also provides for customary events of default, which, if any occur, would permit or require the principal, premium, if any, interest and any other monetary obligations on all of the then outstanding First Lien Notes to be due and payable immediately.
On the Settlement Date, the Issuer issued $i357,446
aggregate principal amount of Third Lien Notes pursuant to an indenture, dated as of the Settlement Date (the “Third Lien Notes Indenture”), by and among the Issuer, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (the “Third Lien Collateral Agent”).
The Third Lien Notes are senior secured obligations of the Issuer and are guaranteed by Holdings, each of the Domestic Guarantors, and each of the Foreign Guarantors. The Third Lien Notes are guaranteed by Holdings and the Domestic Guarantors on a senior secured basis and by the Foreign Guarantors on a senior unsecured basis. The guarantees of the subsidiaries
organized in France are limited guarantees.
The Third Lien Notes will mature on May 15, 2027. The Third Lien Notes bear interest at the rate of 5.625% per annum, payable in cash; provided, however, that for the first four interest periods after the Settlement Date, the Issuer has the option, in
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
its sole discretion, to instead pay such interest at 10.625% per annum either by increasing the principal amount of the outstanding Third Lien
Notes or, in limited circumstances as described the Third Lien Notes Indenture, by issuing additional Third Lien Notes. As of September 30, 2023, the aggregate principal amount of the Third Lien Notes of $i378,184 recognized in the condensed consolidated balance sheet reflects the election that was made by the Company to fully pay the first interest payment on the Third Lien Notes as payment-in-kind. The
Company has also elected to pay the second interest payment as payment-in-kind. Interest on the Third Lien Notes is payable semi-annually in arrears on June 15 and December 15 of each year, and commenced on June 15, 2023.
The Issuer may, at its option, redeem all or part of the Third Lien Notes prior to maturity at the prices set forth in the Third Lien Notes Indenture. Upon the occurrence of certain events constituting a Change of Control (as defined in the Third Lien Notes Indenture), the Issuer will be required to make an offer to repurchase all of the Third Lien Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase
date.
Debt issuance costs related to the Third Lien Notes are amortized into interest expense over the term of the Third Lien Notes. As of September 30, 2023, the Company had $i5,459 of unamortized debt issuance costs related to the Third Lien Notes, which are presented as a direct deduction from the principal balance in the condensed consolidated balance
sheet.
The Third Lien Notes Indenture contains certain customary covenants that limit the Issuer’s and its restricted subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness or issue certain preferred stock; incur liens on assets; pay dividends or make other distributions in respect of, or repurchase or redeem, its capital stock or make other restricted payments; prepay, redeem or repurchase certain debt; make certain loans and investments; enter into agreements restricting certain subsidiaries’ ability to pay dividends; enter into transactions with affiliates; and sell certain assets or merge or consolidate with or into other
companies. These covenants are subject to a number of important limitations and exceptions. The Third Lien Notes Indenture also provides for customary events of default, which, if any occur, would permit or require the principal, premium, if any, interest and any other monetary obligations on all of the then outstanding Third Lien Notes to be due and payable immediately.
In connection with the issuance of the New Notes, the First Lien Collateral Agent, the Third Lien Collateral Agent, the collateral agent under the ABL Facility (the “ABL Facility Collateral Agent”), the Issuer, Holdings and the several other parties named therein entered into the First Lien and Third Lien Intercreditor Agreement, providing for the relative priorities of their respective security interests in the assets securing the First Lien Notes, the Third Lien
Notes and the ABL Facility, and certain other matters relating to the administration of security interests.
2026 Senior Notes
On November 2, 2016, the Issuer issued $i400,000 aggregate principal amount of 2026 Senior Notes. On the Settlement Date, in connection with the Refinancing Transactions, the Issuer completed the Exchange Offer and delivered $i357,446
aggregate principal amount of the exchanged 2026 Senior Notes to the trustee for cancellation. Following the completion of the Exchange Offer, $i42,554 aggregate principal amount of the 2026 Senior Notes remain outstanding.
Following receipt of the requisite consents in the Consent Solicitation, on January 20, 2023, the Issuer, the guarantors named therein and U.S. Bank Trust Company, National Association (successor in interest to U.S. Bank National Association), as trustee, entered into a supplemental indenture
to the indenture governing the 2026 Senior Notes, which became effective on the Settlement Date. The supplemental indenture provides for the elimination of substantially all of the covenants, certain events of default and certain other provisions contained in the 2026 Senior Notes and the indenture governing the 2026 Senior Notes and released and discharged the guarantee of the 2026 Senior Notes by the Company.
The 2026 Senior Notes are guaranteed by each of the Issuer’s wholly-owned existing or subsequently organized U.S. subsidiaries,
subject to certain exceptions, to the extent such subsidiary guarantees the ABL Facility. The Issuer may, at its option, redeem all or part of the 2026 Senior Notes at various points in time prior to maturity, as described in the indenture governing the 2026 Senior Notes. The 2026 Senior Notes will mature on November 15, 2026. Interest on the 2026 Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year.
The Company paid approximately $i7,055
of debt issuance costs in connection with the issuance of the 2026 Senior Notes. The debt issuance costs are being amortized into interest expense over the term of the 2026 Senior Notes. As of September 30, 2023 and December 31, 2022, the Company had $i235 and $i2,741
of unamortized debt issuance costs related to the 2026 Senior Notes, which is presented as a direct deduction from the principal balance in the condensed consolidated balance sheets.
2024 Senior Secured Notes
On May 29, 2020, the Issuer issued $i250,000 aggregate principal amount of its 13.000% Senior Secured Notes due 2024 (the “2024 Senior Secured Notes”), pursuant to an indenture, dated
as of May 29, 2020, by and among the Issuer, the other guarantors party thereto and U.S. Bank National Association, as trustee. The 2024 Senior Secured Notes would have matured
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
on June 1, 2024. Interest on the 2024 Senior Secured Notes was payable semi-annually in arrears in cash on June 1 and December 1 of each year. In the first quarter of 2023, in connection with the Refinancing Transactions, the Issuer redeemed all of the
outstanding 2024 Senior Secured Notes on the Settlement Date at the redemption price of 106.500% of the principal amount thereof, plus accrued and unpaid interest thereon.
The Company paid approximately $i6,431 of debt issuance costs in connection with the issuance of the 2024 Senior Secured Notes. Additionally, the 2024 Senior Secured Notes were issued at a discount of $5,000. As of December 31, 2022, the
Company had $i3,021 of unamortized debt issuance costs and $i2,508 of unamortized original issue discount related to the 2024 Senior Secured Notes, which were presented as direct deductions from the principal balance in the condensed
consolidated balance sheet. Both the debt issuance costs and the original issue discount were amortized into interest expense over the term of the 2024 Senior Secured Notes.
ABL Facility
On November 2, 2016, Holdings, Cooper-Standard Automotive Inc. (the “U.S. Borrower”), Cooper-Standard Automotive Canada Limited (the “Canadian Borrower”), Cooper-Standard Automotive International Holdings B.V. (the “Dutch Borrower”, and, together with the U.S. Borrower and the Canadian Borrower, the “Borrowers”) and certain subsidiaries of the U.S. Borrower, entered into a third amendment and restatement of the ABL Facility. In March 2020, the Borrowers entered into Amendment No. 1 to the Third Amended and Restated Loan Agreement
(“the First Amendment”). As a result of the First Amendment, the ABL Facility maturity was extended to March 2025 and the aggregate revolving loan commitment was reduced to $i180,000. In May 2020, the Borrowers entered into Amendment No. 2 to the Third Amended and Restated Loan Agreement (the “Second Amendment”), which Second Amendment modified certain covenants under the ABL Facility. In December 2022, the Borrowers entered into Amendment No. 3 to the Third Amended and Restated Loan Agreement (the “Third Amendment”), which became effective on the Settlement
Date. The Third Amendment provides for the ABL Facility to be amended to:
•permit the U.S. Borrower to issue the New Notes in the Concurrent Notes Offering and Exchange Offer, including the granting of liens, subject to the restrictions set forth in the ABL Facility;
•provide for certain of the U.S. Borrower’s wholly-owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands, Romania and certain other jurisdictions specified from time to time to become guarantors under the ABL Facility;
•authorize the ABL Facility Collateral Agent to enter into an intercreditor agreement with the collateral trustees for the New Notes; and
•remove
the Dutch Borrower as a borrower under the ABL Facility.
The aggregate revolving loan availability includes a $i100,000 letter of credit sub-facility and a $i25,000 swing line sub-facility. The ABL Facility also provides for an uncommitted $i100,000
incremental loan facility, for a potential total ABL Facility of $i280,000 (if requested by the Borrowers and the lenders agree to fund such increase). No consent of any lender (other than those participating in the increase) is required to effect any such increase. The Company’s borrowing base as of September 30, 2023 was $i180,000
and the monthly fixed charge coverage ratio was at a level that provided the Company full access to the borrowing base. Net of $i5,476 of outstanding letters of credit, and $i120,000
of outstanding borrowings, the Company effectively had $54,524 available for borrowing under its ABL Facility as of September 30, 2023.
As of September 30, 2023, there was $i120,000 outstanding under the ABL Facility which is recorded in short-term debt in the condensed consolidated balance sheet. This amount was subsequently repaid
on November 3, 2023.
Maturity. Any borrowings then outstanding under our ABL Facility will mature, and the commitments of the lenders under our ABL Facility will terminate, on March 24, 2025.
Borrowing Base. As of the Settlement Date, the loan and letter of credit availability under the ABL Facility is subject to a borrowing base, which at any time is limited to the lesser of: (A) the maximum facility amount (subject to certain adjustments) and (B) (i) up to 85% of eligible accounts receivable; plus (ii) the lesser of 70% of eligible inventory or 85% of the appraised net orderly liquidation value of eligible inventory; plus (iii) up to the lesser of $30,000 and 85% of eligible tooling accounts receivable; minus reserves established by the
ABL Facility Collateral Agent. The accounts receivable portion of the borrowing base is subject to certain formulaic limitations (including concentration limits). The inventory portion of the borrowing base is limited to eligible inventory, as determined by the ABL Facility Collateral Agent. The borrowing base is also subject to certain reserves, which are established by the ABL Facility Collateral Agent (which may include changes to the advance rates indicated above). Loan availability under the ABL Facility is apportioned as follows: $i160,000 to the U.S. Borrower and $i20,000
to the Canadian Borrower.
Guarantees; Security. The obligations of the U.S. Borrower and the Canadian Borrower under the ABL Facility, as well as certain cash management arrangements and interest rate, foreign currency or commodity swaps entered into by the such
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Borrowers and their subsidiaries, and certain credit lines entered into by non-U.S. subsidiaries,
in each case with the lenders and their affiliates (collectively, “Additional ABL Secured Obligations”) are guaranteed on a senior secured basis by Holdings and its U.S. subsidiaries (with certain exceptions) and certain wholly-owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands, Romania and certain other jurisdictions specified from time to time, and the obligations of the Canadian Borrower under the ABL Facility and Additional ABL Secured Obligations of the Canadian Borrower and its Canadian subsidiaries are, in addition, guaranteed on a senior secured basis by the Canadian subsidiaries
of the Canadian Borrower. The obligations under the ABL Facility and related guarantees are secured by (1) a first priority lien on all of each Borrower’s and each U.S. and Canadian guarantor’s existing and future personal property consisting of certain accounts receivable, inventory, documents, instruments, chattel paper, deposit accounts and securities accounts and certain related assets and proceeds of the foregoing, with various enumerated exceptions, including that: (i) the collateral owned by Canadian Borrower or any of its Canadian subsidiaries that are Guarantors only secure the obligations of Canadian Borrower and such subsidiaries arising under the ABL Facility and Additional ABL Secured Obligations (ii) no liens have been granted on any assets or properties of any non-U.S. subsidiaries
of the Company (other than the Canadian Borrower and Canadian Guarantors, as otherwise specified above) in connection with the ABL Facility, (2) a second priority lien on all the capital stock in restricted subsidiaries directly held by the U.S. Borrower and each of the U.S. guarantors, and equipment of the U.S. Borrower and the U.S.-domiciled guarantors and all other material personal property of the U.S. Borrower and the U.S.-domiciled guarantors and (3) a 65% pledge of the equity interest in the first-tier foreign subsidiaries of the U.S. Guarantors.
Interest. Borrowings under the ABL Facility bear interest at a rate equal to, at the
Borrowers’ option:
•in the case of borrowings by the U.S. Borrower, the forward-looking secured overnight funding rate for the applicable interest period (“Term SOFR”) (including a credit spread adjustment of 0.11448% or 0.26161%, depending on the applicable interest period) or the base rate plus, in each case, an applicable margin; or
•in the case of borrowings by the Canadian Borrower, bankers’ acceptance (“BA”) rate, Canadian prime rate or Canadian base rate plus, in each case, an applicable margin.
The applicable margin may vary between 2.00% and 2.50% with respect to the Term SOFR or Canadian BA rate-based borrowings and between 1.00% and 1.50% with respect to U.S. base rate, Canadian prime rate and Canadian base rate borrowings. The applicable margin is subject, in each
case, to quarterly pricing adjustments (based on average facility availability).
Fees. The Borrowers are required to pay a fee in respect of committed but unutilized commitments. The ABL Facility also requires the payment of customary agency and administrative fees.
Voluntary Prepayments. The Borrowers are able to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans, in each case, in whole or in part, at any time without premium or penalty (other than customary breakage and related reemployment costs with respect to repayments of SOFR-based borrowings).
Covenants; Events of Default. The ABL Facility includes affirmative and negative covenants that will impose substantial restrictions on the
Company’s financial and business operations, including its ability to incur and secure debt, make investments, sell assets, pay dividends or make acquisitions. The ABL Facility also includes a requirement to maintain a monthly fixed charge coverage ratio of no less than 1.0 to 1.0 when availability under the ABL Facility is less than specified levels. As of September 30, 2023, availability under the ABL Facility was at a level that did not trigger this requirement. The ABL Facility also contains various events of default that are customary for comparable facilities.
Debt Issuance Costs. As of September 30, 2023 and December 31, 2022, the
Company had $i1,047 and $i535, respectively, of unamortized debt issuance costs related to the ABL Facility recorded in other long-term assets in the condensed consolidated balance sheets.
Term Loan Facility
On
November 2, 2016, Cooper-Standard Automotive Inc., as borrower, entered into Amendment No. 1 to its senior term loan facility (the “Term Loan Facility”), which provided for loans in an aggregate principal amount of $i340,000. Subject to certain conditions, the Term Loan Facility, without the consent of the then-existing lenders (but subject to the receipt of commitments), could have been expanded (or a new term loan or revolving facility added) by an amount that would not cause the consolidated secured net debt ratio to exceed 2.25 to 1.00 plus $i400,000
plus any voluntary prepayments (including revolving facility and ABL Facility to the extent commitments are reduced) not funded from proceeds of long-term indebtedness.
On May 2, 2017, the Company entered into Amendment No. 2 to the Term Loan Facility to modify the interest rate. Subsequently, on March 6, 2018, the Company entered into Amendment No. 3 to the Term Loan Facility to further modify the interest rate. In accordance with this amendment, borrowings under the Term Loan Facility bore interest, at the Company’s
17
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
option, at either (1) with respect to Eurodollar rate loans, the greater of the applicable Eurodollar rate and 0.75% plus 2.00% per annum, or (2) with respect to base rate loans, the base rate, (which is the highest of the then current federal funds rate plus 0.50%, the prime rate most recently announced by the administrative agent under the term loan, and the one-month Eurodollar rate plus 1.0%) plus 1.0% per annum.
Maturity. The Term Loan Facility would have matured on iNovember
2, 2023.
Voluntary Prepayments. In connection with the Refinancing Transactions, Cooper-Standard Automotive Inc. repaid the Term Loan Facility in full on the Settlement Date and the Term Loan Facility was terminated.
Debt Issuance Costs. As of December 31, 2022, the Company had $i494 of unamortized debt issuance costs and $i319
of unamortized original issue discount related to the Term Loan Facility. Both the debt issuance costs and the original issue discount were amortized into interest expense over the term of the Term Loan Facility.
Debt Covenants
The Company was in compliance with all applicable covenants of the New Notes, the 2026 Senior Notes, and ABL Facility as of September 30, 2023.
Other Financing
Finance leases and other. Other borrowings as of September 30, 2023 and December 31, 2022 reflect finance leases and other borrowings
under local bank lines classified in debt payable within ione year in the condensed consolidated balance sheets.
Receivable factoring. As a part of its working capital management, the Company sells certain receivables through a single third-party financial institution (the “Factor”) in a pan-European program. The amount sold varies each month based on the amount of underlying receivables and cash flow needs of the Company. These are permitted transactions
under the Company’s credit agreements governing the ABL Facility and the indentures governing the New Notes and 2026 Secured Notes. The European factoring facility allows the Company to factor up to €60 million of its Euro-denominated accounts receivable, accelerating access to cash and reducing credit risk. The factoring facility extends indefinitely after December 31, 2023 unless the Company or the Factor provides a three-month notice to terminate.
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 sheets. iAmounts outstanding under receivable transfer agreements entered into by various locations as of the period end were as follows:
As
of September 30, 2023 and December 31, 2022, cash collections on behalf of the Factor that have yet to be remitted were $i6,302 and $i3,772, respectively, and are reflected in
other current assets as restricted cash in the condensed consolidated balance sheets.
18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
8. iFair Value Measurements
and Financial Instruments
Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy is utilized, which prioritizes the inputs used in measuring fair value as follows:
Level 1:
Observable inputs such as quoted prices
in active markets;
Level 2:
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Items Measured at Fair Value on a Recurring Basis
Estimates of the fair value of foreign currency derivative instruments are determined using exchange traded prices and rates. The Company also considers the risk of non-performance in the estimation of fair value and includes an adjustment
for non-performance risk in the measure of fair value of derivative instruments. In certain instances where market data is not available, the Company uses management judgment to develop assumptions that are used to determine fair value. iFair value measurements and the fair value hierarchy level for the Company’s assets and liabilities measured or disclosed at fair value on a recurring
basis as of September 30, 2023 and December 31, 2022 were as follows:
Items Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, the
Company measures certain assets and liabilities at fair value on a nonrecurring basis, which are not included in the table above. As these nonrecurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy.
During the three months ended September 30, 2023, the Company did inot record any impairment charges. During the nine months ended September
30, 2023, the Company recorded impairment charges of $i654, primarily related to certain assets in Asia Pacific. During the three and nine months ended September 30, 2022, the Company recorded impairment charges of $i379
and $i837, respectively, primarily due to idle assets in Europe and North America. The fair value was determined using salvage value.
In addition, during the nine months ended September 30, 2022, the Company recorded a loss on the deconsolidation of a joint venture in the Asia Pacific region of $2,257, included in other income (expense), net in the condensed consolidated statements of operations. Refer to Note. 2 “Divestitures and Deconsolidations” for further
information.
Items Not Carried at Fair Value
i
Fair values of the Company’s New Notes, 2026 Senior Notes, 2024 Senior Secured Notes and Term Loan Facility were as follows:
(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.
19
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
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 change in fair value of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”) in the condensed consolidated balance sheets, to the extent that the hedges are effective, and reclassified into earnings when the underlying hedged transaction is realized. The realized gains and losses are recorded on the same line as the hedged transaction in the condensed consolidated statements of operations.
The Company is exposed to credit risk in the event of nonperformance by its counterparties on its derivative financial instruments. The Company
mitigates this credit risk exposure by entering into agreements directly with major financial institutions with high credit standards that are expected to fully satisfy their obligations under the contracts.
Cash Flow Hedges
Forward Foreign Exchange Contracts. The Company uses forward contracts to mitigate the potential volatility to earnings and cash flows arising from changes in currency exchange rates that impact the
Company’s foreign currency transactions. The principal currencies hedged by the Company include various European currencies, the Canadian Dollar, and the Mexican Peso. As of September 30, 2023 and December 31, 2022, the notional amount of these contracts was $i33,684 and $i135,285,
respectively, and consisted of hedges of cash flow transactions extending out to December 2023.
i
Pretax amounts related to the Company’s cash flow hedges that were recognized in other comprehensive income (loss) (“OCI”) were as follows:
Amortization
of prior service credit and actuarial (gain) loss
(i1,827)
(i63)
(i1,182)
i125
Net
periodic benefit (income) cost
$
(i1,173)
$
i642
$
(i696)
$
i794
/
The
service cost component of net periodic benefit cost (income) 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 cost (income) are included in other (expense) income, net in the condensed consolidated statements of operations for all periods presented.
21
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
On October 11, 2022, the
Company’s Board of Directors approved a resolution to merge certain of the Company’s U.S. defined benefit pension plans, and terminate the resulting merged plan (“U.S. Pension Plan”) effective December 31, 2022. The termination of the U.S. Pension Plan is expected to take up to ieighteen months to complete. As part of the termination process, the Company expects to settle benefit
obligations under the U.S. Pension Plan through a combination of lump sum payments to eligible plan participants and the purchase of a group annuity contract, under which future benefit obligations and administration will be transferred to a third-party insurance company. Such settlements will be funded primarily from plan assets. Ultimate settlement of benefit obligations is dependent upon the participants’ elections. As of September 30, 2023 and December 31, 2022, the U.S. Pension Plan was underfunded under U.S. generally accepted accounting principles by $5,953 and $5,759, respectively.
10. iOther
(Expense) Income, Net
i
The components of other (expense) income, net were as follows:
Components
of net periodic cost other than service cost
(i1,767)
(i434)
(i5,277)
(i1,429)
Factoring
costs
(i652)
(i156)
(i1,725)
(i395)
Miscellaneous
income
i139
i87
i608
i514
Other
(expense) income, net
$
(i3,816)
$
i146
$
(i10,381)
$
(i2,574)
/
(1)Loss
attributable to deconsolidation of a joint venture in the Asia Pacific region, which required adjustment to fair value.
11. iIncome 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.
i
Income tax expense, income (loss) before income taxes and the corresponding effective tax rate for the three and nine months ended September 30, 2023 and 2022
were as follows:
The
effective tax rate for the three and nine months ended September 30, 2023 varied from the effective tax rate for the three and nine months ended September 30, 2022 primarily due to the geographic mix of pre-tax income and losses, and the inability to record a tax expense for pre-tax income and a benefit for pre-tax losses in the U.S. and certain foreign jurisdictions due to valuation allowances, and other permanent items. The three and nine months ended September 30, 2022 also included discrete impacts of the gain on sale transaction in Europe and other tax reserve changes.
The income tax rate for the three and nine months ended September 30, 2023 and 2022 varied from the U.S. statutory
rate primarily due to the inability to record a tax expense for pre-tax income and a tax benefit for pre-tax losses in the U.S. and certain foreign jurisdictions due to valuation allowances, tax credits, the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate, and other permanent items.
During the nine months ended September 30, 2022, the Company received $54,273 in cash payments from the United States Internal Revenue Service for tax refunds related to net operating loss carrybacks.
22
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar
amounts in thousands except per share and share amounts)
The Company’s current and future provision for income taxes is impacted by changes in valuation allowances in the U.S. and certain foreign jurisdictions. The Company’s future provision for income taxes will include no tax benefit with respect to losses incurred and, except for certain jurisdictions, no tax expense with respect to income generated in these countries until the respective valuation allowances are eliminated. Accordingly, income taxes are impacted by changes in valuation allowances and the mix of earnings among jurisdictions. The Company evaluates the realizability of its deferred tax assets on
a quarterly basis. In completing this evaluation, the Company considers all available evidence in order to determine, based on the weight of the evidence, if a valuation allowance for its deferred tax assets is necessary. Such evidence includes historical results, future reversals of existing taxable temporary differences and expectations for future taxable income (exclusive of the reversal of temporary differences and carryforwards), as well as the implementation of feasible and prudent tax planning strategies. If, based on the weight of the evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized, a valuation allowance is recorded. If operating results improve or decline on a continual basis in a particular jurisdiction, the
Company’s decision regarding the need for a valuation allowance could change, resulting in either the initial recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments, which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities.
The Company, or one of its subsidiaries, files income tax returns in the United States and other foreign jurisdictions.
During the examination of our 2015-2018 U.S. federal income tax filings, the IRS asserted that income earned by a Netherlands subsidiary from its Mexican branch operations should be categorized as foreign based company sales income under Section 954(d) of the Internal Revenue Code and should be recognized currently as taxable income on our 2015-2018 U.S. federal income tax filings. As a result of this assertion, the IRS issued a Notice of Proposed Adjustment (“NOPA”). The Company believes the proposed adjustment is without merit and has begun the process of contesting the matter. Currently, the protest for the 2015-2018 tax years has been submitted to the IRS’s administrative appeals office. The Company believes, after consultation with tax and legal counsel, that it is more likely than not
that it will ultimately be successful in defending its position. As such, the Company has not recorded any impact of the IRS’s proposed adjustment in its condensed consolidated financial statements as of and for the three and nine months ended September 30, 2023. In the event the Company is not successful in defending its position, the potential income tax expense impact, including interest, related to tax years 2015 through September 30, 2023 is less than $15,000. The Company intends to vigorously contest the conclusions reached in the NOPA through the IRS’s administrative appeals process, and, if necessary, through
litigation.
On August 16, 2022, the U.S. enacted the Inflation Reduction Action of 2022, which, among other things, implements a 15% minimum tax on financial statement income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. The provisions were effective in the first quarter of 2023 and did not have a significant impact on the Company’s condensed consolidated financial statements.
Numerous countries have agreed to a statement in support of the Organization for Economic Co-operation and Development (“OECD”) model rules that propose a global minimum tax rate of 15%, and European Union member states have agreed to implement the global minimum tax. Certain countries, including
European Union member states, have enacted or are expected to enact legislation to be effective as early as 2024, with widespread implementation of a global minimum tax expected by 2025. As the legislation becomes effective in countries in which the Company does business, its provision for income taxes could be impacted. The Company will continue to monitor pending legislation and implementation by individual countries and evaluate the potential impact on its business in future periods.
23
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
12. iNet Income (Loss) Per Share Attributable to Cooper-Standard Holdings Inc.
Basic net income (loss) per share attributable to Cooper-Standard Holdings Inc. was computed by dividing net income (loss) attributable to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share attributable
to Cooper-Standard Holdings Inc. was computed using the treasury stock method by dividing diluted net income (loss) available to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding, including the dilutive effect of common stock equivalents, using the average share price during the period.
i
Information used to compute basic and diluted net income (loss) per share attributable to Cooper-Standard Holdings Inc. was as follows:
Net
income (loss) available to Cooper-Standard Holdings Inc. common stockholders
$
i11,363
$
(i32,686)
$
(i146,833)
$
(i127,293)
Basic
weighted average shares of common stock outstanding
i17,427,082
i17,218,165
i17,331,199
i17,181,534
Dilutive
effect of common stock equivalents
i133,139
i—
i—
i—
Diluted
weighted average shares of common stock outstanding
i17,560,221
i17,218,165
i17,331,199
i17,181,534
Basic
net income (loss) per share attributable to Cooper-Standard Holdings Inc.
$
i0.65
$
(i1.90)
$
(i8.47)
$
(i7.41)
Diluted
net income (loss) per share attributable to Cooper-Standard Holdings Inc.
$
i0.65
$
(i1.90)
$
(i8.47)
$
(i7.41)
/
Securities
excluded from the calculation of diluted loss per share were approximately i52,000 for the three months ended September 30, 2022, and i66,000
and i52,000 for the nine months ended September 30, 2023 and 2022, respectively, because the inclusion of such securities in the calculation would have been anti-dilutive. There were ino
anti-dilutive securities during the three months ended September 30, 2023.
24
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
13. iAccumulated
Other Comprehensive Loss
i
Changes in accumulated other comprehensive loss by component, net of related tax, were as follows:
Amounts
reclassified from accumulated other comprehensive loss
i—
i—
i—
(i294)
Balance
at end of period
$
(i167,946)
$
(i167,045)
$
(i167,946)
$
(i167,045)
Benefit
plan liabilities
Balance at beginning of period
$
(i60,009)
$
(i62,256)
$
(i60,251)
$
(i65,303)
Other
comprehensive (loss) income before reclassifications (net of tax expense (benefit) of $i68, $i70,
$i39, and $(i174),
respectively)
(i114)
i2,227
(i188)
i4,765
Amounts
reclassified from accumulated other comprehensive loss
i159
(2)
i171
(3)
i475
(4)
i680
(5)
Balance
at end of period
$
(i59,964)
$
(i59,858)
$
(i59,964)
$
(i59,858)
Fair
value change of derivatives
Balance at beginning of period
$
i10,072
$
i278
$
i8,303
$
(i1,130)
Other
comprehensive (loss) income before reclassifications (net of tax (benefit) expense of $(i72), $i419,
$i220, and $i500, respectively)
(i741)
i2,749
i9,209
i4,564
Amounts
reclassified from accumulated other comprehensive loss (net of tax expense of $i241, $i159, $i639,
and $i314, respectively)
(i4,080)
(i327)
(i12,261)
(i734)
Balance
at end of period
$
i5,251
$
i2,700
$
i5,251
$
i2,700
Accumulated
other comprehensive loss, ending balance
$
(i222,659)
$
(i224,203)
$
(i222,659)
$
(i224,203)
(1)Includes
other comprehensive loss related to intra-entity foreign currency balances that are of a long-term investment nature of $(i6,413) and $(i24,098)
for the three months ended September 30, 2023 and 2022, respectively, and $(i8,257) and $(i28,333)
for the nine months ended September 30, 2023 and 2022, respectively.
(2)Includes the effect of the amortization of actuarial losses of $i149 and amortization of prior service cost of $i6,
net of tax of $i4.
(3)Includes the effect of the amortization of actuarial losses of $i138
and amortization of prior service cost of $i37, net of tax of $i4.
(4)Includes the effect of the amortization of actuarial losses of $i443 and amortization of prior service cost of $i18,
net of tax of $i14.
(5)Includes the effect of the amortization of actuarial losses of $i562
and amortization of prior service cost of $i130, net of tax of $i12.
/
14.
iCommon 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 $i150,000
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 September
30, 2023, the Company had approximately $i98,720 of repurchase authorization remaining under the 2018 Program. The Company did not make any repurchases under the 2018 Program during the nine months ended September 30, 2023 or 2022.
25
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
15. iCommitments and Contingencies
The Company is periodically involved in claims, litigation and various legal matters that arise in the ordinary course of business. The
Company accrues for litigation exposure when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified. As of September 30, 2023, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for claims, litigation and various legal matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company’s financial condition, results of operations or cash flows could be adversely affected in any particular period by the unfavorable resolution of one or
more of these proceedings or matters.
In addition, the Company conducts and monitors environmental investigations and remedial actions at certain locations. As of September 30, 2023 and December 31, 2022, the Company had approximately $i10,788 and $i10,817,
respectively, reserved in accrued liabilities and other liabilities in the condensed consolidated balance sheets on an undiscounted basis. 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 have a material adverse effect on the Company’s financial condition, such costs may be material to the Company’s financial statements in the future.
16. iSegment
Reporting
The Company’s automotive business is organized in the following reportable segments: North America, Europe, Asia Pacific and South America. All other business activities are reported in Corporate, eliminations and other. The Company’s principal products within each of the reportable segments are sealing, fuel and brake delivery, and fluid transfer systems.
The Company uses segment adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. The results of each segment include certain allocations for general, administrative and
other shared costs. Segment adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
i
Certain financial information on the Company’s reportable segments was as follows:
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Our historical results may not indicate, and should not be relied upon as an indication of, our future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. See “Forward-Looking Statements” below for a discussion of risks associated with reliance on forward-looking statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are
not limited to, those discussed below and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (“2022 Annual Report”), including Item 1A. “Risk Factors.” The following should be read in conjunction with our 2022 Annual Report and the other information included herein. Our discussion of trends and conditions supplements and updates such discussion included in our 2022 Annual Report. References in this quarterly report on Form 10-Q (the “Report”) to “we,”“our,” or the “Company” refer to Cooper-Standard Holdings Inc., together with its consolidated subsidiaries.
Executive
Overview
Our Business
We design, manufacture and sell sealing, fuel and brake delivery, and fluid transfer systems for use primarily in passenger vehicles and light trucks manufactured by global automotive original equipment manufacturers (“OEMs”). We are primarily a “Tier 1” supplier, with approximately 82% of our sales in 2022 made directly to major OEMs. We operate our automotive business along the following reportable segments: North America, Europe, Asia Pacific and South America. All other business activities are reported in Corporate, eliminations and other.
Recent Trends and Conditions
General Economic Conditions and Outlook
The global automotive industry is susceptible to uncertain economic conditions that could adversely impact
new vehicle demand and production. Business conditions may vary significantly from period to period or region to region. In 2022, global automotive production continued to be negatively impacted by broad supply chain challenges, labor market disruptions and other lingering impacts of the COVID-19 pandemic. In 2023, relative to 2022, supply chain disruptions have improved and light vehicle production rates have largely stabilized. New vehicle inventory has increased in key markets but remains significantly below historic, pre-pandemic average levels. The relatively low light vehicle inventory levels are expected to support further increases in global light vehicle production through 2025. Global consumer demand for new vehicles has largely remained resilient despite the headwinds of rising interest rates, energy market volatility, persistent inflation and ongoing geopolitical tension.
In North America, U.S. consumer confidence
in the third quarter 2023 reached its highest level in more than a year. Key drivers of the improvement in consumer sentiment are easing inflation, expectations for stabilizing interest rates, and the resolution of the government’s debt ceiling crisis. These changing dynamics have eased concerns over the likelihood of a major economic recession in the near term. A continuing strong labor market, resilience in the services sector and government spending related to infrastructure are expected to drive continued but more modest economic growth during the remainder of 2023. Economists at the International Monetary Fund (IMF) are expecting the economies of the United States, Canada and Mexico to grow by 2.1 percent, 1.3 percent and 3.2 percent, respectively, in 2023 with more modest growth expected in the United States and Mexico in 2024.
In Europe, current consumer and business indicators suggest an economic recovery is continuing.
Key labor markets have remained strong, with the region recently experiencing record low unemployment levels. Concerns over a potential energy crisis are fading and consumer expenditures have stabilized. Increasing demand in the consumer services sector is now supportive of economic growth, and inflation appears to be moderating. However, industrial demand and output have leveled off as pandemic-related backlogs have been depleted, and the European Central Bank is expected to withdraw compensatory support related to energy and inflation in 2024.In this uncertain environment, economists at the IMF are currently expecting the economy in the Eurozone region to grow by approximately 0.7 percent in 2023, improving to 1.2 percent in 2024.
In the Asia Pacific region, China’s economy experienced a sharp rebound during the first quarter of 2023 following the removal of COVID-related restrictions.
Year-over-year growth continued in the second quarter, primarily due to the weak prior year comparable data which was adversely impacted by the pandemic. Underlying economic momentum slowed in the third quarter, however, due to subdued consumer sentiment and continued weakness in the property sector. In addition, demand for
28
Chinese exports has softened due to continuing geopolitical tensions among key trading partners. While considerable uncertainty remains in various, important economic sectors, the nation’s leaders have pledged to provide additional monetary and fiscal support as necessary to ensure key economic targets are achieved. Economists at the IMF are expecting the Chinese economy to grow 5.0 percent in 2023, but slowing to 4.2 percent in 2024.
In
South America, the Brazilian economy has experienced better than expected economic growth in 2023, driven mainly by surging agricultural output to meet increasing demand from China, resilience of the service sector and increased consumption which has been bolstered by fiscal stimulus. Higher interest rates put in place in 2022 have been effective in controlling inflation, and the unemployment rate has fallen to levels not seen since 2015. In June, the Brazilian Senate approved a revised fiscal framework which looks to balance fiscal prudence while still providing flexibility for additional social spending. In view of this, economists at the IMF are now estimating the Brazilian economy will grow 3.1 percent in 2023, but slowing to 1.5 percent in 2024. We remain cautious for the economic outlook in this market given the long history of political instability and economic volatility in the region.
Production
Levels
Our business is directly affected by the automotive light vehicle production rates in North America, Europe, Asia Pacific and South America. Historically, production levels have been viewed as cyclical and largely dependent upon factors such as consumer demand, inventory levels, consumer confidence and other economic and competitive trends. In recent years, however, global light vehicle production, inventory and consumer demand all experienced extreme dislocations from historic norms due to the global COVID-19 pandemic and related restrictions on production and consumer activity. Post-pandemic, global light vehicle production continued to be negatively impacted by widespread supply chain disruptions, limiting the global automotive OEM’s ability to rebuild inventory and meet pent-up consumer demand. Since the second half of 2022, the supply chain disruptions have lessened, enabling modest increases in production and inventory
levels, primarily in high demand, high margin market segments. The ramp-up of global light vehicle production continued in the third quarter of 2023 in North America and Europe. For the first nine months of 2023, all regions reported year-over-year increases in light vehicle production.
Light vehicle production in certain regions for the three and nine months ended September 30, 2023 and 2022 was as follows:
Three
Months Ended September 30,
Nine Months Ended September 30,
(in millions of units)
2023(1)
2022(1)
% Change
2023(1)
2022(1)
% Change
North
America
4.0
3.6
9.3%
12.0
10.7
11.3%
Europe
3.9
3.6
6.3%
13.1
11.5
14.0%
Asia
Pacific
13.0
12.8
1.7%
36.8
34.3
7.3%
Greater China
7.4
7.4
(0.3)%
20.0
19.1
4.8%
South
America
0.8
0.8
(0.3)%
2.2
2.1
5.9%
(1)Production data based on S&P Global (formerly IHS Markit), October 2023.
Despite the strong production in the third quarter and first nine months of 2023, vehicle production and inventory levels remain well below pre-pandemic historical averages. In addition,
labor unions in North America initiated limited, targeted strikes against certain OEM production and distribution facilities beginning in mid-September 2023. While tentative agreements have been reached between these OEMs and labor unions, those agreements have not yet been ratified and the OEMs are slowly ramping up production. It is difficult to forecast the full extent to which these actions will impact light vehicle production for the remainder of 2023. Current industry forecasts suggest global light vehicle production will continue to increase modestly each year through at least 2025. Actual production may vary from forecasted levels due to a number of factors, however, including, but not limited to, the extent and duration of work stoppages related to union contract negotiations with the OEMs in North America.
Raw
Materials
Our business is susceptible to inflationary pressures with respect to raw materials. Abrupt changes in the market prices or availability of certain key raw materials may result in operational and profitability challenges for the Company and the industry as a whole. Following the pandemic, market prices for key raw materials, such as steel, aluminum, and oil-derived commodities, experienced a period of extreme volatility, which led to significant cost increases for our business in 2021 and 2022. In response, we worked with our customers throughout 2022 to implement or expand index-based commercial agreements that have enabled us to partially recover incremental material costs incurred and significantly reduced our exposure and risk related to commodity price fluctuations going forward. Global commodity markets and pricing have stabilized
to a large degree in 2023, and material cost impacts on our results for the nine months ended September 30, 2023 were relatively small.
29
General Inflation and Recovery Strategy
With continued inflationary pressures on wages, energy, transportation and other general costs, in order to remain competitive, we are working with our customers on an ongoing basis to offset the costs associated with this inflation. We are actively negotiating pricing adjustments on current business and considering the impact of inflationary and other costs in our quotes for new business. Most of the customer negotiations for inflation recovery and sustainable pricing were completed by the end
of the third quarter, while the few remaining are expected to be concluded in the fourth quarter 2023.
*
Net of customer price adjustments, including recoveries.
Sales for the three months ended September 30, 2023 increased 12.0%, compared to the three months ended September 30, 2022. The increase in sales was driven by volume and mix, mainly higher vehicle production volume due to the stabilization of the supply environment, net customer price adjustments including recovery of cost increases, and favorable foreign exchange. This increase was partially offset by the divestitures of our European technical rubber products business and a joint
30
venture in the Asia Pacific region. See Note 2. “Divestitures
and Deconsolidations” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for additional information.
Gross Profit
Three
Months Ended September 30,
Variance Due To:
2023
2022
Change
Volume / Mix*
Foreign Exchange
Cost Increases/(Decreases)**
(dollar amounts in thousands)
Cost of products sold
$
629,504
$
618,594
$
10,910
$
13,488
$
12,319
$
(14,897)
Gross
profit
106,534
38,559
67,975
68,304
(6,394)
6,065
Gross profit percentage of sales
14.5
%
5.9
%
*
Net of customer price adjustments, including recoveries.
** Net of divestitures.
Cost of products sold is primarily comprised of material, labor, manufacturing overhead, freight, depreciation and other direct operating expenses. The Company’s material portion of cost of products sold was approximately 51% and 52% of total cost of products sold for the three months ended September 30, 2023 and 2022, respectively. The change in cost of products sold was impacted by higher volume and mix, net of recovery of cost increases, higher inflation of labor and overhead, higher energy costs and unfavorable foreign exchange. These costs were partially offset by manufacturing
and purchasing savings through lean initiatives, favorable commodity costs and the divestitures of our European technical rubber products business and a joint venture in the Asia Pacific region.
Gross profit for the three months ended September 30, 2023 increased $68.0 million compared to the three months ended September 30, 2022. The change was driven by volume and mix, net of customer price adjustments including recovery of cost increases, manufacturing and purchasing savings through lean initiatives and favorable commodity costs, partially offset by labor, overhead and energy inflation and unfavorable foreign exchange.
Selling, Administration and Engineering Expenses. Selling, administration and engineering expenses include administrative expenses as well as
product engineering and design and development costs. Selling, administration and engineering expenses for both the three months ended September 30, 2023 and 2022 was 6.8% of sales.
Loss on Sale of Business, Net. Loss on sale of business, net for the three months ended September 30, 2023 was $0.3 million, due to the net effect of our 2023 divestitures, which included the sale of our European technical rubber products business and the sale of our entire controlling equity interest of a joint venture in the Asia Pacific region.
Amortization of Intangibles. Intangibles amortization for the three months ended September 30, 2023 was comparable
to the three months ended September 30, 2022.
Restructuring Charges. Restructuring charges for the three months ended September 30, 2023 increased $0.3 million compared to the three months ended September 30, 2022. The increase was primarily driven by higher restructuring charges in Europe, partially offset by a reversal of restructuring charges in Asia Pacific that were recognized in prior periods.
Impairment Charges. Non-cash impairment charges for the three months ended September 30, 2023 decreased $0.4 million compared to the three months ended September 30, 2022, primarily due to impairments
of certain assets in Asia Pacific in the prior year period.
Interest Expense, Net. Net interest expense for the three months ended September 30, 2023 increased $13.1 million compared to the three months ended September 30, 2022, primarily due to an increase in interest rates on the new debt subsequent to the Refinancing Transactions (as further described in Liquidity and Capital Resources).
Other (Expense) Income, Net. Other expense, net, for the three months ended September 30, 2023 increased $4.0 million compared to the three months ended September 30, 2022, primarily due to the unfavorable impact of foreign currency exchange and increased
net periodic benefit cost other than service cost.
Income Tax Expense (Benefit). Income tax expense for the three months ended September 30, 2023 was $4.3 million on earnings before income taxes of $15.7 million compared to an income tax benefit of $0.8 million on losses before income taxes of $34.1 million for the three months ended September 30, 2022. The effective tax rate for the three months ended September 30, 2023 differed from the effective tax rate for the three months ended September 30, 2022 primarily due to the geographic mix of pre-tax losses, the inability to record a tax expense for pre-tax earnings and tax benefit for pre-tax losses in the U.S. and certain foreign jurisdictions due to valuation
allowances, and other permanent items.
*
Net of customer price adjustments, including recoveries.
Sales for the nine months ended September 30, 2023 increased 14.2%, compared to the nine months ended September 30, 2022. The increase in sales was driven by volume and mix, mainly higher vehicle production volume due to the stabilization of the supply environment, elimination of prior year COVID-19 related restrictions in China and net customer price adjustments including recovery of cost increases. This increase was partially offset by the negative impact of foreign exchange and the divestitures of our European technical rubber products business and a joint venture in the Asia Pacific region. See Note 2. “Divestitures and Deconsolidations” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this
Report for additional information.
Gross Profit
Nine Months
Ended September 30,
Variance Due To:
2023
2022
Change
Volume / Mix*
Foreign Exchange
Cost Increases/(Decreases)**
(dollar amounts in thousands)
Cost of products sold
$
1,916,160
$
1,800,577
$
115,583
$
127,813
$
1,247
$
(13,477)
Gross
profit
226,076
75,477
150,599
162,898
(16,944)
4,645
Gross profit percentage of sales
10.6
%
4.0
%
*
Net of customer price adjustments, including recoveries.
** Net of divestitures.
Cost of products sold is primarily comprised of material, labor, manufacturing overhead, freight, depreciation, warranty costs and other direct operating expenses. The Company’s material portion of cost of products sold was approximately 52% and 51% of total cost of products sold for the nine months ended September 30, 2023 and 2022, respectively. The change in cost of products sold was impacted by higher volume and mix, net of recovery of cost increases, higher inflation of labor and overhead, higher energy costs and the negative impact of foreign exchange. These costs were partially offset by manufacturing and purchasing savings
through lean initiatives, favorable commodity costs and the divestitures of our European technical rubber products business and a joint venture in the Asia Pacific region.
Gross profit for the nine months ended September 30, 2023 increased 199.5%, compared to the nine months ended September 30, 2022. The change was driven by volume and mix, net of customer price adjustments including recovery of cost increases, manufacturing and purchasing savings through lean initiatives and favorable commodity costs, partially offset by labor, overhead and energy inflation and unfavorable foreign exchange.
Selling, Administration and Engineering Expenses. Selling, administration and engineering expenses include administrative expenses as well as product engineering and design
and development costs. Selling, administration and engineering expenses for the nine months ended September 30, 2023 was 7.3% of sales compared to 7.9% for the nine months ended September 30, 2022. The decrease was primarily due to salaried headcount initiative savings and foreign exchange, partially offset by higher compensation-related costs.
Loss on Sale of Business, Net. Loss on sale of business, net for the nine months ended September 30, 2023 was $0.3 million, due to the net effect of our 2023 divestitures, which included the sale of our European technical rubber products business and the sale of our entire controlling equity interest of a joint venture in the Asia Pacific region.
Gain
on Sale of Fixed Assets, Net. The gain on sale of fixed assets for the nine months ended September 30, 2022 was attributable to the gain on the sale-leaseback of a European facility of $33.4 million.
32
Amortization of Intangibles. Intangibles amortization for the nine months ended September 30, 2023 was comparable to the nine months ended September 30, 2022.
Restructuring Charges. Restructuring charges for the nine months ended September 30, 2023 decreased
$0.1 million compared to the nine months ended September 30, 2022. The decrease was primarily driven by lower restructuring charges in Europe and a reversal of restructuring charges in Asia Pacific that were recognized in prior periods, partially offset by higher restructuring charges in North America.
Impairment Charges. Impairment charges for the nine months ended September 30, 2023 decreased $0.2 million, compared to the nine months ended September 30, 2022. The decrease was driven by lower impairment charges in Europe and North America, partially offset by the impairment of certain assets in Asia Pacific in the current year period.
Interest Expense, Net. Net interest expense for the nine
months ended September 30, 2023 increased $40.7 million compared to the nine months ended September 30, 2022, primarily due to an increase in interest rates on the new debt subsequent to the Refinancing Transactions (as further described in Liquidity and Capital Resources).
Loss on Refinancing and Extinguishment of Debt. Loss on refinancing and extinguishment of debt for the nine months ended September 30, 2023 was $81.9 million, which resulted from certain fees and the partial write off of new and unamortized debt issuance costs and unamortized original issue discount related to the Refinancing Transactions.
Other Expense, Net. Other expense, net for the nine months ended September
30, 2023 increased $7.8 million compared to the nine months ended September 30, 2022, primarily due to the unfavorable impact of foreign currency exchange and increased net periodic benefit cost other than service cost, partially offset by a loss on deconsolidation in the prior year period.
Income Tax Expense. Income tax expense for the nine months ended September 30, 2023 was $9.5 million on losses before income taxes of $138.7 million compared to income tax expense of $1.8 million on losses before income taxes of $127.3 million for the nine months ended September 30, 2022. The effective tax rate for the nine months ended September 30, 2023 differed primarily from the effective tax rate for the nine
months ended September 30, 2022 due to the geographic mix of pre-tax losses, the inability to record a tax benefit for pre-tax losses in the U.S. and certain foreign jurisdictions due to valuation allowances, and other permanent items which included discrete tax impacts of the gain on asset sale transaction in Europe and other tax reserve changes during the nine months ended September 30, 2022.
33
Segment Results of Operations
Our business is organized into the following reportable segments: North America,
Europe, Asia Pacific and South America. All other business activities are reported in Corporate, eliminations and other. The Company uses segment adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. We have defined adjusted EBITDA as net income before interest, taxes, depreciation, amortization, restructuring expense, and special items.
The following tables present sales and segment adjusted EBITDA for each of the reportable segments.
*
Net of customer price adjustments, including recoveries.
•Volume and mix, net of customer price adjustments including recoveries, was mainly driven by vehicle production volume increases due to the stabilization of the supply environment.
•The net impact of foreign currency exchange was primarily related to the Euro and Chinese Renminbi.
Segment adjusted EBITDA
Three
Months Ended September 30,
Variance Due To:
2023
2022
Change
Volume/ Mix*
Foreign Exchange
Cost (Increases)/ Decreases**
(dollar amounts in thousands)
Segment
adjusted EBITDA
North America
$
60,215
$
19,401
$
40,814
$
49,830
$
(9,490)
$
474
Europe
10,057
(10,905)
20,962
18,578
1,705
679
Asia
Pacific
8,770
7,523
1,247
(419)
(1,462)
3,128
South America
2,639
766
1,873
1,426
601
(154)
Total
Automotive
81,681
16,785
64,896
69,415
(8,646)
4,127
Corporate, eliminations and other
(2,578)
3,720
(6,298)
(1,111)
(678)
(4,509)
Consolidated
adjusted EBITDA
$
79,103
$
20,505
$
58,598
$
68,304
$
(9,324)
$
(382)
*
Net of customer price adjustments, including recoveries.
** Net of divestitures.
•Volume and mix, net of customer price adjustments including recoveries, was driven by vehicle production volume increases due to the stabilization of the supply environment.
•The net impact of foreign currency exchange was primarily related to the Mexican Peso, Polish Zloty and Euro.
*
Net of customer price adjustments, including recoveries.
•Volume and mix, net of customer price adjustments including recoveries, was mainly driven by vehicle production volume increases due to the stabilization of the supply environment and elimination of prior year COVID-19 related restrictions in China.
•The net impact of foreign currency exchange was primarily related to the Chinese Renminbi, Euro and Canadian Dollar.
Segment adjusted EBITDA
Nine
Months Ended September 30,
Variance Due To:
2023
2022
Change
Volume/ Mix*
Foreign Exchange
Cost (Increases)/ Decreases**
(dollar amounts in thousands)
Segment
adjusted EBITDA
North America
$
109,938
$
52,338
$
57,600
$
81,260
$
(21,464)
$
(2,196)
Europe
13,922
(40,878)
54,800
65,057
(1,532)
(8,725)
Asia
Pacific
17,654
(1,018)
18,672
9,065
(1,127)
10,734
South America
7,942
(941)
8,883
6,937
1,936
10
Total
Automotive
149,456
9,501
139,955
162,319
(22,187)
(177)
Corporate, eliminations and other
(9,957)
775
(10,732)
579
(776)
(10,535)
Consolidated
adjusted EBITDA
$
139,499
$
10,276
$
129,223
$
162,898
$
(22,963)
$
(10,712)
*Net of customer price adjustments, including recoveries.
** Net of divestitures.
•Volume and mix, net of customer price adjustments including recoveries, was mainly driven by vehicle production volume increases due to the stabilization of the supply environment and elimination of prior year COVID-19 related restrictions in China.
•The net impact of foreign currency exchange was primarily related to Mexican Peso.
◦Manufacturing and purchasing savings through lean initiatives; and
◦Increased compensation-related expenses.
Liquidity and Capital Resources
Short and Long-Term Liquidity Considerations and Risks
The sources to fund our ongoing working capital, capital expenditures, debt service and other funding requirements are a combination of cash flows from operations, cash on hand, borrowings under our senior asset-based revolving credit facility (“ABL Facility”) and receivables factoring. The
Company utilizes intercompany loans and equity contributions to fund its worldwide operations. There may be country-specific regulations which may restrict or result in increased costs in the repatriation of these funds. See Note 7. “Debt and Other Financing” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for additional information.
We continue to actively preserve cash and enhance liquidity, including decreasing our capital expenditures as a percent of sales. We continuously monitor and forecast our liquidity situation in light of automotive industry, customer and economic factors, and take the necessary actions to preserve our liquidity and evaluate other financial alternatives that may be available to us should the need arise. Our ability to fund our working capital needs, debt payments and other obligations, and to comply with the financial covenants, including
borrowing base limitations, under our ABL Facility, depend on our future operating performance and cash flows and many factors outside of our control, including the costs of raw materials, the state of the overall automotive industry and financial and economic conditions, including work stoppages related to union contract negotiations with OEMs in North America and the continued impact of COVID-19, and other factors. Based on those actions and current projections of light vehicle production and customer demand for our products, we believe that our cash flows from operations, cash on hand, borrowings under our ABL Facility and receivables factoring will enable us to meet our ongoing working capital requirements, capital expenditures, debt service and other funding requirements for the foreseeable future, despite the challenges facing the industry. Nonetheless,
the Company opted to access the ABL Facility in the third quarter as a precautionary measure in view of market uncertainty related to then anticipated OEM labor negotiations and the potential for interruption of light vehicle production. In the fourth quarter, tentative agreements were reached in the OEM labor negotiations, leading the Company to repay the amounts outstanding under the ABL Facility.
Refinancing Transactions
On January 27, 2023 (the “Settlement Date”), the Company, Cooper-Standard Automotive Inc. (the “Issuer”), a wholly-owned subsidiary of the
Company, and certain other of the Company’s direct and indirect subsidiaries completed certain refinancing transactions (the “Refinancing Transactions”) consisting of: (i) the exchange (the “Exchange Offer”) of $357.4 million aggregate principal amount of the Issuer’s then existing 5.625% Senior Notes due 2026 (the “2026 Senior Notes”) (representing 89.36% of the aggregate principal amount outstanding of the 2026 Senior Notes) for $357.4 million aggregate principal amount of the Issuer’s newly issued 5.625% Cash Pay / 10.625% PIK Toggle Senior Secured Third Lien Notes due 2027 (the “Third Lien Notes”), (ii) the issuance by the Issuer (the “Concurrent Notes Offering”) of $580.0 million aggregate principal amount of 13.50% Cash Pay / PIK Toggle Senior Secured
First Lien Notes due 2027 (the “First Lien Notes” and, together with the Third Lien Notes, the “New Notes”) to holders of 2026 Senior Notes or their designees who participated in the Exchange Offer, including to certain backstop commitment parties who committed to purchase the First Lien Notes not otherwise subscribed for, (iii) the related consent solicitation (the “Consent Solicitation”) to remove substantially all of the covenants, certain events of default and certain other provisions contained in the 2026 Senior Notes and the indenture governing the 2026 Senior Notes and to release and discharge the guarantee of the 2026 Senior Notes by the Company, (iv) the effectiveness of the Third Amendment (as defined below) to the senior asset-based revolving credit facility (“ABL
Facility”) and (v) the use of proceeds from the Concurrent Notes Offering, together with cash on hand, to prepay all amounts outstanding under the Term Loan Facility at par, plus any accrued and unpaid interest thereon, to redeem the Issuer’s existing 2024 Senior Secured Notes (as defined below), including the prepayment premium and any accrued and unpaid interest thereon, and to pay fees and expenses related to the Refinancing Transactions. As a result of the Refinancing Transactions, the Issuer extended the maturities of its indebtedness and reduced the amount of cash interest it is required to pay on such indebtedness for the next two years. The Company recognized a loss on the refinancing and extinguishment of debt of $81.9 million during the nine months ended September 30, 2023. Additionally, the
Company incurred total fees of $91.8 million associated with the Refinancing Transactions, of which $87.6 million were paid during the nine months ended September 30, 2023 and $4.2 million were paid during 2022. The fees paid during the nine months ended September 30, 2023 are reflected as a financing outflow in the condensed consolidated statement of cash flows. Of the fees paid during the nine months ended September 30, 2023,
36
$73.4 million was included in the loss on the refinancing and extinguishment of debt referenced above, $13.2 million is presented as a direct deduction from the principal balance in
the condensed consolidated balance sheet, and $1.0 million related to amending the ABL Facility is recorded in other long-term assets in the condensed consolidated balance sheet.
New Notes
On the Settlement Date, the Issuer issued $580.0 million aggregate principal amount of First Lien Notes pursuant to an indenture, dated as of the Settlement Date (the “First Lien Notes Indenture”), by and among the Issuer, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (the “First Lien Collateral Agent”).
The First Lien Notes will mature on March 31, 2027.
The First Lien Notes bear interest at the rate of 13.50% per annum, payable in cash; provided, however, that for the first four interest periods after the Settlement Date, the Issuer has the option, in its sole discretion, to pay up to 4.50% of such interest on the First Lien Notes, in such amount as specified by the Issuer, by increasing the principal amount of the outstanding First Lien Notes or, in limited circumstances as described in the First Lien Notes Indenture, by issuing additional First Lien Notes. As of September 30, 2023, the aggregate principal amount of the First Lien Notes of $588.6 million recognized in the condensed consolidated balance sheet reflects the election that was made by the Company to pay 4.50% of the first interest
payment as payment-in-kind. The Company has also elected to pay 4.50% of the second interest payment as payment-in-kind. Interest on the First Lien Notes is payable semi-annually in arrears on June 15 and December 15 of each year, and commenced on June 15, 2023.
As of September 30, 2023, the Company had $8.8 million of unamortized debt issuance costs and $0.4 million of unamortized original issue discount related to the First Lien Notes, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheet. Both the debt issuance costs and the original issue discount are amortized into interest expense over the term
of the First Lien Notes.
On the Settlement Date, the Issuer issued $357.4 million aggregate principal amount of Third Lien Notes pursuant to an indenture, dated as of the Settlement Date (the “Third Lien Notes Indenture”), by and among the Issuer, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (the “Third Lien Collateral Agent”).
The Third Lien Notes will mature on May 15, 2027. The Third Lien Notes bear interest at the rate of 5.625% per annum, payable in cash; provided, however, that for the first four interest periods after the Settlement Date, the Issuer has the option, in
its sole discretion, to instead pay such interest at 10.625% per annum either by increasing the principal amount of the outstanding Third Lien Notes or, in limited circumstances as described the Third Lien Notes Indenture, by issuing additional Third Lien Notes. As of September 30, 2023, the aggregate principal amount of the Third Lien Notes of $378.2 million recognized in the condensed consolidated balance sheet reflects the election that was made by the Company to fully pay the first interest payment on the Third Lien Notes as payment-in-kind. The Company has also elected to pay the second interest payment as payment-in-kind. Interest on the Third Lien Notes
is payable semi-annually in arrears on June 15 and December 15 of each year, and commenced on June 15, 2023.
Debt issuance costs related to the Third Lien Notes are amortized into interest expense over the term of the Third Lien Notes. As of September 30, 2023, the Company had $5.5 million of unamortized debt issuance costs related to the Third Lien Notes, which are presented as a direct deduction from the principal balance in the condensed consolidated balance sheet.
In connection with the issuance of the New Notes, the First Lien Collateral Agent, the Third Lien Collateral Agent, the collateral agent under the ABL Facility (the “ABL Facility Collateral Agent”), the Issuer, Holdings and the
several other parties named therein entered into the First Lien and Third Lien Intercreditor Agreement, providing for the relative priorities of their respective security interests in the assets securing the First Lien Notes, the Third Lien Notes and the ABL Facility, and certain other matters relating to the administration of security interests.
For additional information regarding the guarantees, covenants and events of default with respect to the New Notes, see Note 7. “Debt and Other Financing” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
2026 Senior Notes
On November 2, 2016, the Issuer issued $400.0 million aggregate principal amount of 2026 Senior Notes. On the Settlement Date, in connection with the Refinancing Transactions,
the Issuer completed the Exchange Offer and delivered $357.4 million aggregate principal amount of the exchanged 2026 Senior Notes to the trustee for cancellation. Following the completion of the Exchange Offer, $42.6 million aggregate principal amount of the 2026 Senior Notes remain outstanding.
The 2026 Senior Notes are guaranteed by each of the Issuer’s wholly-owned existing or subsequently organized U.S. subsidiaries, subject to certain exceptions, to the extent such subsidiary guarantees the ABL Facility. The Issuer may, at its option, redeem all or part of the 2026 Senior Notes at various points in time prior to maturity, as described in the indenture
37
governing
the 2026 Senior Notes. The 2026 Senior Notes will mature on November 15, 2026. Interest on the 2026 Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year.
The Company paid approximately $7.1 million of debt issuance costs in connection with the issuance of the 2026 Senior Notes. The debt issuance costs are being amortized into interest expense over the term of the 2026 Senior Notes. As of September 30, 2023 and December 31, 2022, the Company had $0.2 million and $2.7 million of unamortized debt issuance costs related to the 2026 Senior Notes, which is presented as
a direct deduction from the principal balance in the condensed consolidated balance sheets.
2024 Senior Secured Notes
On May 29, 2020, the Issuer issued $250.0 million aggregate principal amount of its 13.000% Senior Secured Notes due 2024 (the “2024 Senior Secured Notes”), pursuant to an indenture, dated as of May 29, 2020, by and among the Issuer, the other guarantors party thereto and U.S. Bank National Association, as trustee. In the first quarter of 2023, in connection with the Refinancing Transactions, the Issuer redeemed all of the outstanding 2024 Senior Secured Notes on the Settlement Date at the redemption price of 106.500% of the principal amount thereof, plus accrued and unpaid
interest thereon.
The Company paid approximately $6.4 million of debt issuance costs in connection with the issuance of the 2024 Senior Secured Notes. Additionally, the 2024 Senior Secured Notes were issued at a discount of $5.0 million. As of December 31, 2022, the Company had $3.0 million of unamortized debt issuance costs and $2.5 million of unamortized original issue discount related to the 2024 Senior Secured Notes, which were presented as direct deductions from the principal balance in the condensed consolidated balance sheet. Both the debt issuance costs and the original issue discount were amortized into interest expense over the term of the 2024 Senior Secured Notes.
ABL
Facility
On November 2, 2016, Holdings, Cooper-Standard Automotive Inc. (the “U.S. Borrower”), Cooper-Standard Automotive Canada Limited (the “Canadian Borrower”), Cooper-Standard Automotive International Holdings B.V. (the “Dutch Borrower”, and, together with the U.S. Borrower and the Canadian Borrower, the “Borrowers”) and certain subsidiaries of the U.S. Borrower, entered into a third amendment and restatement of the ABL Facility. In March 2020, the Borrowers entered into Amendment No. 1 to the Third Amended and Restated Loan Agreement (“the First Amendment”). As a result of the First Amendment, the ABL Facility maturity was extended to March 2025 and the aggregate revolving loan commitment was reduced to $180.0 million. In May 2020, the Borrowers
entered into Amendment No. 2 to the Third Amended and Restated Loan Agreement (the “Second Amendment”), which Second Amendment modified certain covenants under the ABL Facility. In December 2022, the Borrowers entered into Amendment No. 3 to the Third Amended and Restated Loan Agreement (the “Third Amendment”), which became effective on the Settlement Date. The Third Amendment provides for the ABL Facility to be amended to:
•permit the U.S. Borrower to issue the New Notes in the Concurrent Notes Offering and Exchange Offer, including the granting of liens, subject to the restrictions set forth in the ABL Facility;
•provide for certain of the U.S. Borrower’s wholly-owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands,
Romania and certain other jurisdictions specified from time to time to become guarantors under the ABL Facility;
•authorize the ABL Facility Collateral Agent to enter into an intercreditor agreement with the collateral trustees for the New Notes; and
•remove the Dutch Borrower as a borrower under the ABL Facility.
The aggregate revolving loan availability includes a $100.0 million letter of credit sub-facility and a $25.0 million swing line sub-facility. The ABL Facility also provides for an uncommitted $100.0 million incremental loan facility, for a potential total ABL Facility of $280.0 million (if requested by the Borrowers and the lenders agree to fund such increase). No consent of any lender (other than those participating in the increase) is required to effect any such increase.The Company’s borrowing base as of September 30, 2023 was $180.0 million and the monthly fixed charge coverage ratio was at a level that provided the Company full access to the borrowing base. Net of $5.5 million of outstanding letters of credit, and $120.0 million of outstanding borrowings, the Company effectively had $54.5 million available for borrowing under its ABL Facility as of September 30, 2023.
As of September 30, 2023, there was $120.0 million outstanding under the ABL Facility which is recorded in short-term
debt in the condensed consolidated balance sheet. The Company opted to access the ABL Facility in the third quarter as a precautionary measure in view of market uncertainty related to then anticipated OEM labor negotiations and the potential for interruption of light vehicle production. This amount was subsequently repaid on November 3, 2023.
38
Maturity. Any borrowings under our ABL Facility will mature, and the commitments of the lenders under our ABL Facility will terminate, on March 24, 2025.
Borrowing Base.
As of the Settlement Date, the loan and letter of credit availability under the ABL Facility is subject to a borrowing base, which at any time is limited to the lesser of: (A) the maximum facility amount (subject to certain adjustments) and (B) (i) up to 85% of eligible accounts receivable; plus (ii) the lesser of 70% of eligible inventory or 85% of the appraised net orderly liquidation value of eligible inventory; plus (iii) up to the lesser of $30.0 million and 85% of eligible tooling accounts receivable; minus reserves established by the ABL Facility Collateral Agent. The accounts receivable portion of the borrowing base is subject to certain formulaic limitations (including concentration limits). The inventory portion of the borrowing base is limited to eligible inventory, as determined by the ABL Facility Collateral Agent. The borrowing base is also subject to certain reserves, which are established by the ABL Facility Collateral Agent (which may include changes
to the advance rates indicated above). Loan availability under the ABL Facility is apportioned as follows: $160.0 million to the U.S. Borrower and $20.0 million to the Canadian Borrower.
Interest. Borrowings under the ABL Facility bear interest at a rate equal to, at the Borrowers’ option:
•in the case of borrowings by the U.S. Borrower, the forward-looking secured overnight funding rate for the applicable interest period (“Term SOFR”) (including a credit spread adjustment of 0.11448% or 0.26161%, depending on the applicable interest period) or the base rate plus, in each case, an applicable margin; or
•in the case of borrowings by the Canadian Borrower, bankers’ acceptance (“BA”) rate, Canadian prime rate or Canadian base rate plus, in each case, an applicable
margin.
The applicable margin may vary between 2.00% and 2.50% with respect to the Term SOFR or Canadian BA rate-based borrowings and between 1.00% and 1.50% with respect to U.S. base rate, Canadian prime rate and Canadian base rate borrowings. The applicable margin is subject, in each case, to quarterly pricing adjustments (based on average facility availability).
Fees. The Borrowers are required to pay a fee in respect of committed but unutilized commitments. The ABL Facility also requires the payment of customary agency and administrative fees.
Voluntary Prepayments. The Borrowers are able to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans, in each case, in whole or in part, at any time without premium or penalty (other
than customary breakage and related reemployment costs with respect to repayments of SOFR-based borrowings).
Debt Issuance Costs. As of September 30, 2023 and December 31, 2022, the Company had $1.0 million and $0.5 million, respectively, of unamortized debt issuance costs related to the ABL Facility recorded in other long-term assets in the condensed consolidated balance sheets.
For additional information regarding the guarantees, covenants and events of default with respect to the ABL Facility, see Note 7. “Debt and Other Financing” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
Term
Loan Facility
On November 2, 2016, Cooper-Standard Automotive Inc., as borrower, entered into Amendment No. 1 to its senior term loan facility (the “Term Loan Facility”), which provided for loans in an aggregate principal amount of $340.0 million. In connection with the Refinancing Transactions, Cooper-Standard Automotive Inc. repaid the Term Loan Facility in full on the Settlement Date and the Term Loan Facility was terminated.
As of December 31, 2022, the Company had $0.5 million of unamortized debt issuance costs and $0.3 million of unamortized original issue discount related to the Term Loan Facility. Both the debt issuance costs and the original issue discount were amortized into interest
expense over the term of the Term Loan Facility.
For a further description of the Term Loan Facility, see Note 7. “Debt and Other Financing” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
Cash Flows
Operating Activities. Net cash provided by operations was $37.6 million for the nine months ended September 30, 2023, compared to net cash used in operations of $10.4 million for the nine months ended September 30, 2022. The net change was primarily due to improved operating performance offset by changes in working capital balances, including the receipt of $54.3 million in cash payments from the United States Internal Revenue Service
for tax refunds related to net operating loss carrybacks during the nine months ended September 30, 2022.
39
Investing Activities. Net cash used in investing activities was $47.5 million for the nine months ended September 30, 2023, compared to net cash used in investing activities of $5.4 million for the nine months ended September 30, 2022. The net change was primarily related to proceeds of $50.0 million related to the sale-leaseback of a certain European facility which were received in the nine months ended September 30, 2022, compared
with net proceeds of $15.4 million related to our 2023 divestitures which were received in the nine months ended September 30, 2023. We expect to continue initiatives to reduce overall capital spending and anticipate that we will spend approximately $70 - $80 million on capital expenditures in 2023.
Financing Activities. Net cash provided by financing activities totaled $39.4 million for the nine months ended September 30, 2023, compared to net cash used in financing activities of $6.1 million for the nine months ended September 30, 2022. The net change was primarily due to $120.0 million of borrowings drawn on our revolving credit facility, partially offset by the impact of the Refinancing Transactions.
Share
Repurchase Program
In June 2018, our Board of Directors approved a common stock repurchase program (the “2018 Program”) authorizing us to repurchase, in the aggregate, up to $150.0 million of our outstanding common stock. Under the 2018 Program, repurchases may be made on the open market, through private transactions, accelerated share repurchases, round lot or block transactions on the New York Stock Exchange or otherwise, as determined by us and in accordance with prevailing market conditions and federal securities laws and regulations. We expect to fund any future repurchases from cash on hand and future cash flows from operations. The specific timing and amount of any future repurchase will vary based on market and business conditions, changes in tax laws (including the Inflation Reduction Act) and other factors. We are not obligated to acquire a particular amount of securities, and the 2018 Program may be discontinued
at any time at our discretion. As of September 30, 2023, we had approximately $98.7 million of repurchase authorization remaining under the 2018 Program. We did not make any repurchases under the 2018 Program during the nine months ended September 30, 2023 or 2022.
Non-GAAP Financial Measures
In evaluating our business, management considers EBITDA and Adjusted EBITDA to be key indicators of our operating performance. Our management also uses EBITDA and Adjusted EBITDA:
•because similar measures are utilized in the calculation of the financial covenants and ratios contained in our financing arrangements;
•in
developing our internal budgets and forecasts;
•as a significant factor in evaluating our management for compensation purposes;
•in evaluating potential acquisitions;
•in comparing our current operating results with corresponding historical periods and with the operational performance of other companies in our industry; and
•in presentations to the members of our board of directors to enable our board of directors to have the same measurement basis of operating performance as is used by management in their assessments of performance and in forecasting and budgeting for our company.
In
addition, we believe EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts and other interested parties in evaluating our performance. We define Adjusted EBITDA as net income (loss) plus income tax expense (benefit), interest expense, net of interest income, depreciation and amortization or EBITDA, as adjusted for items that management does not consider to be reflective of our core operating performance. These adjustments include, but are not limited to, restructuring costs, impairment charges, non-cash fair value adjustments and acquisition-related costs.
EBITDA and Adjusted EBITDA are not financial measurements recognized under U.S. GAAP, and when analyzing our operating performance, investors should use EBITDA and Adjusted EBITDA as a supplement to, and not as alternatives for, net income (loss), operating income, or any other performance measure derived in accordance with U.S.
GAAP, nor as an alternative to cash flow from operating activities as a measure of our liquidity. EBITDA and Adjusted EBITDA have limitations as analytical tools, and they should not be considered in isolation or as substitutes for analysis of our results of operations as reported under U.S. GAAP. These limitations include:
•they do not reflect our cash expenditures or future requirements for capital expenditure or contractual commitments;
•they do not reflect changes in, or cash requirements for, our working capital needs;
•they do not reflect interest expense or cash requirements necessary to service interest or principal payments under our ABL Facility, Term Loan Facility, New Notes, 2026 Senior Notes and 2024 Senior Secured Notes;
•they
do not reflect certain tax payments that may represent a reduction in cash available to us;
40
•although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and
•other companies, including companies in our industry, may calculate these measures differently and, as the number of differences in the way companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases.
In addition, in evaluating Adjusted
EBITDA, it should be noted that in the future, we may incur expenses similar to the adjustments in the below presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by special items.
The following table provides a reconciliation of EBITDA and Adjusted EBITDA from net income (loss), which is the most comparable financial measure in accordance with U.S. GAAP:
Net income (loss) attributable to Cooper-Standard Holdings Inc.
$
11,363
$
(32,686)
$
(146,833)
$
(127,293)
Income
tax expense (benefit)
4,338
(833)
9,461
1,824
Interest expense, net of interest income
33,803
20,747
98,057
57,378
Depreciation
and amortization
27,219
30,628
83,017
94,173
EBITDA
$
76,723
$
17,856
$
43,702
$
26,082
Restructuring
charges
2,046
1,701
12,924
13,014
Deconsolidation of joint venture (1)
—
—
—
2,257
Impairment
charges (2)
—
379
654
837
Loss on sale of businesses, net (3)
334
—
334
—
Gain
on sale of fixed assets, net (4)
—
—
—
(33,391)
Indirect
tax adjustments (5)
—
569
—
1,477
Loss on refinancing and extinguishment of debt (6)
—
—
81,885
—
Adjusted
EBITDA
$
79,103
$
20,505
$
139,499
$
10,276
(1)Loss attributable to deconsolidation of a joint venture in the Asia Pacific region, which required adjustment to fair value.
(2)Non-cash impairment charges in 2023 related to certain assets in Asia Pacific and North America, and non-cash impairment charges in 2022 related
to idle assets in Europe.
(3)Loss on sale of businesses related to divestitures in 2023.
(4)In the first quarter of 2022, the Company signed a sale-leaseback agreement on one of its European facilities, and a gain was recognized in the second quarter of 2022.
(5)Impact of indirect tax adjustments in 2022.
(6)Loss on refinancing and extinguishment of debt relating to the Refinancing Transactions.
41
Contingencies
and Environmental Matters
The information concerning contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters, contained in Note 15. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, is incorporated herein by reference.
Critical Accounting Estimates
There have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2023.
Forward-Looking
Statements
This quarterly report on Form 10-Q includes “forward-looking statements” within the meaning of U.S. federal securities laws, and we intend that such forward-looking statements be subject to the safe harbor created thereby. Our use of words “estimate,”“expect,”“anticipate,”“project,”“plan,”“intend,”“believe,”“outlook”, “guidance”, “forecast,” or future or conditional verbs, such as “will,”“should,”“could,”“would,” or “may,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you that these expectations,
beliefs and projections will be achieved. Forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties that may cause actual results or achievements to be materially different from the future results or achievements expressed or implied by the forward-looking statements. Among other items, such factors may include: volatility or decline of the Company’s stock price, or absence of stock price appreciation; impacts, including commodity cost increases and disruptions related to the war in Ukraine and the Middle East; our ability to achieve commercial recoveries and to offset the adverse impact of higher commodity and other costs through pricing and other negotiations with our customers; work stoppages or other labor disruptions with our employees or our customers’ employees; prolonged or material contractions in automotive
sales and production volumes; our inability to realize sales represented by awarded business; escalating pricing pressures; loss of large customers or significant platforms; our ability to successfully compete in the automotive parts industry; availability and increasing volatility in costs of manufactured components and raw materials; disruption in our supply base; competitive threats and commercial risks associated with our diversification strategy through our Advanced Technology Group; possible variability of our working capital requirements; risks associated with our international operations, including changes in laws, regulations, and policies governing the terms of foreign trade such as increased trade restrictions and tariffs; foreign currency exchange rate fluctuations; our ability to control the operations of our joint ventures for our sole benefit; our substantial amount of indebtedness and variable rates of interest; our ability to obtain adequate financing
sources in the future; operating and financial restrictions imposed on us under our debt instruments; the underfunding of our pension plans; significant changes in discount rates and the actual return on pension assets; effectiveness of continuous improvement programs and other cost savings plans; manufacturing facility closings or consolidation; our ability to execute new program launches; our ability to meet customers’ needs for new and improved products; the possibility that our acquisitions and divestitures may not be successful; product liability, warranty and recall claims brought against us; laws and regulations, including environmental, health and safety laws and regulations; legal and regulatory proceedings, claims or investigations against us; the impact, and expected continued impact, of the COVID-19 outbreak on our financial condition and results of operations; significant risks to our liquidity presented by the COVID-19 pandemic risk; the ability of our
intellectual property to withstand legal challenges; cyber-attacks, data privacy concerns, other disruptions in, or the inability to implement upgrades to, our information technology systems; the possible volatility of our annual effective tax rate; the possibility of a failure to maintain effective controls and procedures; the possibility of future impairment charges to our goodwill and long-lived assets; our ability to identify, attract, develop and retain a skilled, engaged and diverse workforce; our ability to procure insurance at reasonable rates; and our dependence on our subsidiaries for cash to satisfy our obligations.
You should not place undue reliance on these forward-looking statements. Our forward-looking statements speak only as of the date of this quarterly report on Form 10-Q, and we undertake no obligation to publicly
update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except where we are expressly required to do so by law.
This quarterly report on Form 10-Q also contains estimates and other information that is based on industry publications, surveys, and forecasts. This information involves a number of assumptions and limitations, and we have not independently verified the accuracy or completeness of the information.
42
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There
have been no material changes to the quantitative and qualitative information about the Company’s market risk from those previously disclosed in the Company’s 2022 Annual Report.
43
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The
Company has evaluated, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Based on that evaluation,
the Company’s Chief Executive Officer along with the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this Report.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to affect, the
Company’s internal control over financial reporting.
44
PART II — OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
(c) Purchases of Equity Securities By the Issuer and Affiliated Purchasers
The Company is authorized to purchase,
in the aggregate, up to $150 million of our outstanding common stock under our common stock repurchase program, which was effective in November 2018. As of September 30, 2023, we had approximately $98.7 million of repurchase authorization remaining under our common stock share repurchase program as discussed in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Share Repurchase Program,” and Note 14. “Common Stock” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
A summary of our shares of common stock repurchased during the three months ended September 30, 2023 is shown below:
Period
Total
Number of Shares Purchased(1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (in millions)
(1)Represents
shares repurchased by the Company to satisfy employee tax withholding requirements due upon the vesting of restricted stock awards.
45
Item 5.Other Information
Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2023, iiiinone///
of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended), adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933, as amended).
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline XBRL document
Cover Page Interactive Data File, formatted in Inline XBRL
*
Filed
with this Report.
**
Furnished with this Report.
***
Submitted electronically with this Report in accordance with the provisions of Regulation S-T.
†
Management contract or compensatory plan or arrangement.
47
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
