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11: R1 Document and Entity Information HTML 82K
12: R2 Condensed Consolidated Statements of Net Income HTML 102K
13: R3 Condensed Consolidated Statements of Comprehensive HTML 57K
Income
14: R4 Condensed Consolidated Balance Sheets HTML 136K
15: R5 Condensed Consolidated Balance Sheets HTML 50K
(Parenthetical)
16: R6 Condensed Consolidated Statement of Changes in HTML 89K
Equity
17: R7 Condensed Consolidated Statements of Cash Flows HTML 109K
18: R8 Condensed Consolidated Statements of Cash Flows HTML 42K
Reconciliation of Cash, Cash Equivalents and
Restricted Cash
19: R9 Overview HTML 35K
20: R10 New Accounting Pronouncements HTML 59K
21: R11 Acqusitions HTML 38K
22: R12 Divestiture HTML 51K
23: R13 Revenue HTML 229K
24: R14 Restructuring HTML 65K
25: R15 Inventories HTML 38K
26: R16 Leases HTML 89K
27: R17 Property, Plant and Equipment HTML 43K
28: R18 Goodwill and Intangibles HTML 55K
29: R19 Debt HTML 58K
30: R20 Fair Value Measurements and Financial Instruments HTML 92K
31: R21 Accounts Receivable Factoring HTML 47K
32: R22 Pension and Postretirement Benefits other than HTML 111K
Pensions
33: R23 Other Expense, Net HTML 50K
34: R24 Income Taxes HTML 47K
35: R25 Net Income Per Share Attributable to HTML 60K
Cooper-Standard Holdings Inc.
36: R26 Accumulated Other Comprehensive Income (Loss) HTML 99K
37: R27 Common Stock HTML 37K
38: R28 Share-Based Compensation HTML 48K
39: R29 Related Party Transactions HTML 46K
40: R30 Commitments and Contingencies HTML 33K
41: R31 Segment Reporting HTML 152K
42: R32 Overview (Policies) HTML 34K
43: R33 New Accounting Pronouncements (Policies) HTML 58K
44: R34 New Accounting Pronouncements (Tables) HTML 53K
45: R35 Divestiture (Tables) HTML 54K
46: R36 Revenue (Tables) HTML 219K
47: R37 Restructuring (Tables) HTML 68K
48: R38 Inventories (Tables) HTML 40K
49: R39 Leases (Tables) HTML 86K
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51: R41 Goodwill and Intangibles (Tables) HTML 58K
52: R42 Debt (Tables) HTML 43K
53: R43 Fair Value Measurements and Financial Instruments HTML 87K
(Tables)
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55: R45 Pension and Postretirement Benefits other than HTML 111K
Pensions (Tables)
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57: R47 Income Taxes (Tables) HTML 44K
58: R48 Net Income Per Share Attributable to HTML 60K
Cooper-Standard Holdings Inc. (Tables)
59: R49 Accumulated Other Comprehensive Income (Loss) HTML 99K
(Tables)
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61: R51 Related Party Transactions (Tables) HTML 44K
62: R52 Segment Reporting (Tables) HTML 152K
63: R53 New Accounting Pronouncements Impact of new HTML 75K
accounting pronouncement (Details)
64: R54 Acquisitions - Additional Information (Details) HTML 51K
65: R55 Divestiture (Details) HTML 105K
66: R56 Revenue Revenue by end customer (Details) HTML 64K
67: R57 Revenue Revenue by type (Details) HTML 80K
68: R58 Revenue Net contract assets (Liabilities) HTML 44K
(Details)
69: R59 Restructuring - Summary of Restructuring Expense HTML 42K
(Detail)
70: R60 Restructuring - Summary of Activity of HTML 50K
Restructuring (Detail)
71: R61 Inventories - Summary of Inventories (Detail) HTML 40K
72: R62 Leases Components of lease expense (Details) HTML 42K
73: R63 Leases Additional Lease Disclosure (Details) HTML 49K
74: R64 Leases Future minimum lease payments (Details) HTML 85K
75: R65 Property, Plant and Equipment (Details) HTML 49K
76: R66 Property, Plant and Equipment Additional HTML 32K
Information (Details)
77: R67 Goodwill and Intangibles - Carrying Amount of HTML 39K
Goodwill by Reportable Operating Segment (Detail)
78: R68 Goodwill and Intangibles - Intangible Assets and HTML 42K
Accumulated Amortization Balances (Detail)
79: R69 Debt - Outstanding Debt (Detail) HTML 49K
80: R70 Debt - Additional Information (Detail) HTML 74K
81: R71 Fair Value Measurements and Financial Instruments HTML 38K
- Fair Value Hierarchy Level for Company's
Liabilities Measured (Detail)
82: R72 Fair Value Measurements and Financial Instruments HTML 34K
- Fair Values of Debt Instruments (Details)
83: R73 Fair Value Measurements and Financial Instruments HTML 33K
- Additional Information (Detail)
84: R74 Fair Value Measurements and Financial Instruments HTML 38K
- Gains (losses) on Cash Flow Hedges Reported in
Accumulated Other Comprehensive Income (Loss)
(Details)
85: R75 Fair Value Measurements and Financial Instruments HTML 37K
- Reclassifications out of accumulated other
comprehensive income (Loss) (Details)
86: R76 Accounts Receivable Factoring Amounts outstanding HTML 31K
under receivable transfer agreements (Details)
87: R77 Accounts Receivable Factoring Receivables Factored HTML 33K
and Costs Incurred (Details)
88: R78 Accounts Receivable Factoring Additional Detail HTML 30K
(Details)
89: R79 Pension and Postretirement Benefits other than HTML 60K
Pensions - Net Periodic Benefit Cost of Defined
Benefit Plans and Other Postretirement Benefit
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Other Income Expense, Net (Detail)
91: R81 Income Taxes Effective Income Tax Rate (Details) HTML 40K
92: R82 Net Income Per Share Attributable to HTML 51K
Cooper-Standard Holdings Inc. - Basic and Diluted
Net Income Per Share Attributable (Detail)
93: R83 Accumulated Other Comprehensive Income (Loss) - HTML 53K
Changes in Accumulated Other Comprehensive Income
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94: R84 Accumulated Other Comprehensive Income (Loss) - HTML 78K
Changes in Accumulated Other Comprehensive Income
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Information (Detail)
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(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.)
i39550 Orchard Hill Place Drive
iNovi,
iMichigani48375
(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
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.
iLarge
accelerated filer
☒
Accelerated 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 ☒
As of July 26, 2019, there were i16,901,689
shares of the registrant’s common stock, $0.001 par value, outstanding.
7%
Cumulative participating convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding
i—
i—
Equity:
Common
stock, $0.001 par value, 190,000,000 shares authorized; 18,967,142 shares issued and 16,901,333 shares outstanding as of June 30, 2019, and 19,620,546 shares issued and 17,554,737 outstanding as of December 31, 2018
i17
i17
Additional
paid-in capital
i483,792
i501,511
Retained
earnings
i701,647
i576,025
Accumulated
other comprehensive loss
(i249,211
)
(i246,088
)
Total
Cooper-Standard Holdings Inc. equity
i936,245
i831,465
Noncontrolling
interests
i22,907
i28,037
Total
equity
i959,152
i859,502
Total
liabilities and equity
$
i2,704,834
$
i2,623,103
The
accompanying notes are an integral part of these financial statements.
5
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
(Dollar amounts in thousands except share amounts)
Total
cash, cash equivalents and restricted cash shown in the statement of cash flows
$
i313,843
$
i267,399
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, fuel and brake delivery, and fluid transfer systems. The Company’s products are primarily for use in passenger vehicles and light trucks that are manufactured by global automotive original equipment manufacturers (“OEMs”) and replacement markets. The Company conducts substantially all of its activities through its subsidiaries.
During
the first quarter of 2019 and in prior periods, the Company also operated an anti-vibration systems product line. On April 1, 2019, the Company completed the divestiture of its anti-vibration systems product line. See Note 4. "Divestiture".
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, 2018 (the “2018 Annual Report”), as filed with the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These financial statements include all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of the Company. The operating results for the interim period ended June 30, 2019 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.
2. iNew Accounting Pronouncements
i
Recently
Adopted Accounting Pronouncements
ASU 2016-02, Leases (Topic 842)
On January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) 842, Leases, and all related amendments using the modified retrospective method whereby the cumulative effect of adopting the standard was recognized in equity at the date of initial application. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The most prominent among the changes in the standard is the recognition of right-of-use assets and lease liabilities for all leases (except for short-term leases). The
Company made a policy election for all asset classes to exclude the balance sheet recognition of leases with a lease term, at lease commencement, of 12 months or less and no purchase option reasonably certain to be exercised. The standard also requires additional disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from lease transactions. The new standard resulted in a material increase in right-of-use assets and lease liabilities on the Company’s condensed consolidated balance sheet beginning in 2019 and had no impact on our condensed consolidated income statement or to cash provided by (used in) operating, financing or investing activities on our condensed consolidated cash flow statements.
The difference between the lease assets and lease liabilities was recorded
as an adjustment to the opening balance of retained earnings. iThe cumulative effects of the changes made to the Company’s condensed consolidated balance sheet as of January 1, 2019 were as follows:
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
The Company elected the package of practical expedients on existing leases as of the effective date which permits the Company to carry forward lease classification and not reassess existing contracts in order to determine if the contracts contain a lease. The
Company did not elect the hindsight practical expedient. Additionally, the Company elected the practical expedient to not reassess whether any expired or existing land easements contain leases.
Recently Issued Accounting Pronouncements
The Company considered the recently issued accounting pronouncement summarized as follows, which could have a material impact on its condensed consolidated financial statements or disclosures:
Standard
Description
Impact
Effective
Date
ASU 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Amends guidance on the measurement of all expected credit losses for financial instruments, including trade receivables, based on historical experience, current conditions and reasonable and supportable forecasts.
The Company is currently evaluating the impact of this guidance on its accounting policies and its consolidated financial statements.
In the third quarter of 2018, the Company acquired the assets and liabilities of Lauren Manufacturing and Lauren Plastics
(together, “Lauren”), extruders and molders of organic, silicone, thermoplastic and engineered polymer products with expertise in sealing solutions, to further expand the Company’s Industrial and Specialty Group and non-automotive and adjacent markets. The base purchase price of the acquisition was $i92,700. The results of operations of Lauren are included
in the Company’s condensed consolidated financial statements from the date of acquisition and reported within the North America segment. The pro forma effect of this acquisition would not have materially impacted the Company’s reported results for any periods presented, and as a result no pro forma information has been presented. This acquisition was accounted for as a business combination, resulting in the recognition of intangible assets of $i34,810
and tax deductible goodwill of $i26,080. Since completion of initial estimates in the third quarter of 2018, the Company has recorded insignificant measurement period adjustments to increase the provisional identifiable net assets acquired, which resulted in a decrease
to goodwill.
LS Mtron Automotive Parts Acquisition
In the fourth quarter of 2018, the Company acquired i80.1% of LS Mtron Ltd.’s automotive parts business, now named Cooper Standard Automotive and Industrial, Inc. The acquisition
adds jounce brake lines and charge air cooling technology to the Company’s automotive fluid transfer and fuel and brake delivery systems product lines and further expands core product offerings. The base purchase price was approximately $i25,750, subject to certain adjustments. The noncontrolling interest was determined to have a fair value of $i6,400.
The results of operations of Cooper Standard Automotive and Industrial, Inc., are included in the Company’s condensed consolidated financial statements from the date of acquisition and reported within the Asia Pacific segment. The pro forma effect of this acquisition would not have materially impacted the Company’s reported results for any periods presented, and as a result no pro forma information has been presented. This acquisition was accounted for as a business combination, with the total purchase price allocated on a preliminary basis which is subject to change as the Company continues its review of potential purchase price adjustments during the measurement period. The fair value of identifiable assets acquired
and liabilities assumed approximated the fair value of the consideration transferred. Since completion of initial estimates in the fourth quarter of 2018, the Company has recorded insignificant measurement period adjustments due to working capital adjustments, which resulted in an increase to the base purchase price.
Hutchings Automotive Products Acquisition
In the fourth quarter of 2018, the Company acquired the assets and liabilities of Hutchings Automotive Products, LLC (“Hutchings”), a North American supplier of high quality fluid carrying products for automotive powertrain and coolant systems applications. The base purchase price was approximately $i42,100,
subject to certain adjustments. The results of operations of Hutchings are included in the Company's condensed consolidated financial statements from the date of acquisition and reported within the North America segment. The pro forma effect of this acquisition would not have materially impacted the Company’s reported results for any periods presented, and as a result no pro forma information has been presented. This acquisition was accounted for as a business combination, resulting in the recognition of intangible assets of $i11,100
and tax deductible goodwill of $i5,200. The total purchase price was allocated on a preliminary basis which is subject to change as the Company continues its review of potential purchase price adjustments during the measurement period.
9
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
4. Divestiture
i
In the third quarter of 2018, management approved a plan to sell the anti-vibration systems (“AVS”) product line within its North America, Europe and Asia Pacific segments. The business and its associated assets and liabilities met the criteria for presentation
as held for sale as of September 1, 2018, and depreciation of long-lived assets ceased. The divestiture did not meet the criteria for presentation as a discontinued operation.
On November 2, 2018, the Company entered into a definitive agreement with an unaffiliated company to divest the AVS product line. On April 1, 2019, the Company completed its sale of the AVS product line to Continental AG. The total sale price of the transaction was $i265,500,
subject to certain adjustments. Cash proceeds received in the second quarter were $i243,362 after adjusting for certain liabilities assumed by the purchaser. The net cash proceeds after taxes, post-closing adjustments and transaction-related expenses and fees are expected to be approximately $i215,000
to $i220,000. The Company recognized a gain on the divestiture of $i189,910,
subject to post-closing adjustments. In addition, at closing, the Company and Continental AG entered into certain ancillary agreements providing for the transition of the AVS product line.
i
The major classes of assets and liabilities held for sale were as follows:
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
5. 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.
Revenue by customer group for the three months ended June 30, 2019 was as follows:
North
America
Europe
Asia Pacific
South America
Consolidated
Automotive
$
i368,953
$
i189,160
$
i118,509
$
i25,027
$
i701,649
Commercial
i5,927
i7,872
i17
i60
i13,876
Other
i29,983
i19,185
i77
i36
i49,281
Revenue
$
i404,863
$
i216,217
$
i118,603
$
i25,123
$
i764,806
Revenue
by customer group for the six months ended June 30, 2019 was as follows:
North America
Europe
Asia
Pacific
South America
Consolidated
Automotive
$
i805,819
$
i414,611
$
i245,907
$
i48,219
$
i1,514,556
Commercial
i12,266
i16,297
i17
i83
i28,663
Other
i61,485
i39,908
i174
i58
i101,625
Revenue
$
i879,570
$
i470,816
$
i246,098
$
i48,360
$
i1,644,844
Revenue
by customer group for the three months ended June 30, 2018 was as follows:
North America
Europe
Asia
Pacific
South America
Consolidated
Automotive
$
i465,384
$
i247,656
$
i147,993
$
i23,412
$
i884,445
Commercial
i5,746
i9,557
i1
i95
i15,399
Other
i6,478
i21,911
i—
i29
i28,418
Revenue
$
i477,608
$
i279,124
$
i147,994
$
i23,536
$
i928,262
Revenue
by customer group for the six months ended June 30, 2018 was as follows:
North America
Europe
Asia
Pacific
South America
Consolidated
Automotive
$
i954,121
$
i508,312
$
i297,162
$
i49,862
$
i1,809,457
Commercial
i11,099
i19,137
i7
i240
i30,483
Other
i11,566
i44,076
i—
i71
i55,713
Revenue
$
i976,786
$
i571,525
$
i297,169
$
i50,173
$
i1,895,653
The
automotive group consists of sales to automotive OEMs and automotive suppliers, while the commercial group represents sales to OEMs of on- and off-highway commercial equipment and vehicles. The other customer group includes sales related to specialty and adjacent markets.
Substantially all of the Company’s revenues were generated from sealing, fuel and brake delivery, fluid transfer and anti-vibration systems for use in passenger vehicles and light trucks manufactured by global OEMs. On April 1, 2019, the Company completed the divestiture of its anti-vibration systems product line. See Note 4. "Divestiture".
11
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
A summary of the Company’s products is as follows:
Product Line
Description
Sealing Systems
Protect
vehicle interiors from weather, dust and noise intrusion for improved driving experience; provide aesthetic and functional class-A exterior surface treatment
Fuel & Brake Delivery Systems
Sense, deliver and control fluids to fuel and brake systems
Fluid Transfer Systems
Sense, deliver and control fluids and vapors for optimal powertrain & HVAC
The amount of revenue recognized is usually based on the purchase order price and adjusted for variable consideration, including pricing concessions. The Company accrues for pricing concessions by reducing revenue as products are shipped or delivered. The accruals are based on historical experience, anticipated performance and management’s best judgment. The Company
also generally has ongoing adjustments to customer pricing arrangements based on the content and cost of its products. Such pricing accruals are adjusted as they are settled with customers. Customer returns are usually related to quality or shipment issues and are recorded as a reduction of revenue. The Company generally does not recognize significant return obligations due to their infrequent nature.
The Company’s contract assets consist of unbilled amounts associated with variable pricing arrangements in its
Asia Pacific region. Once pricing is finalized, contract assets are transferred to accounts receivable. As a result, the timing of revenue recognition and billings, as well as changes in foreign exchange rates, will impact contract assets on an ongoing basis. Changes during the six months ended June 30, 2019 were not materially impacted by any other factors.
The Company’s contract liabilities consist of advance payments received and due from customers. iNet
contract assets (liabilities) consisted of the following:
The
Company provides assurance-type warranties to its customers. Such warranties provide customers with assurance that the related product will function as intended and complies with any agreed-upon specifications, and are recognized in costs of products sold.
6. 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”), other related exit costs and asset impairments related to restructuring activities.
13
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
i
Restructuring expense by segment for the three and six months ended June 30, 2019 and 2018 was as follows:
On January 1, 2019, the Company adopted ASC 842, Leases, and all related amendments using the modified retrospective method. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets, current operating
lease liabilities and long-term operating lease liabilities on the Company’s condensed consolidated balance sheet as of June 30, 2019. Finance leases are included in property, plant and equipment, net, debt payable within one year, and long-term debt on the Company’s condensed consolidated balance sheets.
Lease right-of-use assets are recognized at commencement date based upon the present value of the remaining future minimum lease payments over the lease term. The Company’s lease terms include options to renew or terminate the lease when it is reasonably certain that it will
exercise the option. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based upon information available at the commencement date to determine the present value of future lease payments. The Company applies the portfolio approach for the incremental borrowing rate on its leases based upon similar lease terms and payments. The lease right-of-use asset also includes lease payments made in advance of lease commencement and excludes lease incentives. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The
Company has lease agreements with lease and non-lease components. For real estate leases, these components are accounted for separately, while for equipment leases commencing on or after January 1, 2019, the Company accounts for the lease and non-lease components as a single lease component.
Variable lease expense includes payments based upon changes in a rate or index, such as consumer price indexes, as well as usage of the leased asset. Short-term lease expense includes leases with terms, at lease commencement, of 12 months or less and no purchase option reasonably certain to be exercised. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
14
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
The Company primarily has operating and finance leases for certain manufacturing facilities, corporate offices and certain equipment. The Company’s leases have remaining lease terms of less than one year to 15 years, some of which may include one or more options to extend the leases for up to five years for each renewal.
Cash paid for amounts included in the measurement of lease liabilities:
Operating
cash flows for operating leases
$
i17,071
Operating cash flows for finance leases
i759
Financing
cash flows for finance leases
i442
Non-cash right-of-use assets obtained in exchange for lease obligations:
Operating
leases
i2,807
Finance leases
i9,476
Weighted
Average Remaining Lease Term (in years)
Operating leases
i5.6
Finance leases
i11.9
Weighted
Average Discount Rate
Operating leases
i4.7
%
Finance leases
i9.7
%
/
15
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
i
Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows:
Year
Operating
Leases
Finance Leases
Remainder of 2019
$
i15,654
$
i1,425
2020
i25,196
i2,895
2021
i17,301
i2,703
2022
i13,458
i2,542
2023
i11,429
i2,309
Thereafter
i26,970
i21,600
Total
future minimum lease payments
i110,008
i33,474
Less
imputed interest
(i14,176
)
(i13,728
)
Total
$
i95,832
$
i19,746
Amounts
recognized in the condensed consolidated balance sheet as of June 30, 2019
Operating lease right-of-use assets, net
$
i94,646
$
—
Debt
payable within one year
—
i1,593
Current
operating lease liabilities
i25,730
—
Long-term
debt
—
i18,153
Long-term
operating lease liabilities
i70,102
—
/
As
of June 30, 2019, assets recorded under finance leases, net of accumulated depreciation were $i20,849. As of June 30, 2019, the Company had additional operating leases, primarily for real estate, that have not yet commenced with undiscounted lease payments of approximately
$i57,624. These operating leases will commence between 2019 and 2020 with lease terms up to 15 years.
9. iProperty,
Plant and Equipment
i
Property, plant and equipment consists of the following:
Due
to the continuing adverse financial results in certain Asia Pacific locations, the Company took an impairment charge related to machinery and equipment of $i2,188 during the second quarter of 2019. The fair value of buildings and machinery and equipment was determined using market value and estimated orderly liquidation value, respectively, which was deemed the highest and best use of the assets.
16
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
10. iGoodwill and Intangible Assets
Goodwill
The balance of goodwill relates to the North America reporting unit. iChanges
in the carrying amount of goodwill by reportable operating segment for the six months ended June 30, 2019 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 six
months ended June 30, 2019.
In November 2016, the Company issued $i400,000 aggregate principal amount of its i5.625%
Senior Notes due 2026 (the “Senior Notes”). The Senior Notes mature on iNovember 15, 2026. Interest on the Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year.
Debt issuance costs related to the Senior Notes are amortized into interest expense over the term of the Senior Notes. As of June 30, 2019
and December 31, 2018, the Company had $i5,244 and $i5,601
of unamortized debt issuance costs, respectively, related to the Senior Notes, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheets.
17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Term Loan Facility
Also in November 2016, the Company entered into Amendment No. 1 to its senior term loan facility (“Term Loan Facility”), which provides for loans in an aggregate principal amount of $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), may be expanded (or a new term loan or revolving facility added) iby an amount that will not cause the consolidated secured net debt ratio to exceed 2.25 to 1.00 plus $400,000 plus any voluntary prepayments, including the ABL Facility (as defined below) to the extent commitments are reduced, not funded from proceeds of long-term indebtedness. The Term Loan Facility matures on iNovember
2, 2023, unless earlier terminated.
On May 2, 2017, the Company entered into Amendment No. 2 to the Term Loan Facility to modify the interest rate. Subsequently, on March 6, 2018, the Company entered into Amendment No. 3 to the Term Loan Facility to further modify the interest rate. In accordance with this amendment, borrowings under the Term Loan Facility bear interest, at the Company’s option, at ieither
(1) with respect to Eurodollar rate loans, the greater of the applicable Eurodollar rate and 0.75% plus 2.0% per annum, or (2) with respect to base rate loans, the base rate, (which is the highest of the then current federal funds rate plus 0.5%, the prime rate most recently announced by the administrative agent under the term loan, and the one-month Eurodollar rate plus 1.0%) plus 1.0% per annum. As a result of Amendment No. 3, the Company recognized a loss on refinancing and extinguishment of debt of $i770
in the twelve months ended December 31, 2018, which was due to the partial write off of new and unamortized debt issuance costs and unamortized original issue discount.
As of June 30, 2019 and December 31, 2018, the Company had $i2,570
and $i2,866 of unamortized debt issuance costs, respectively, and $i1,657
and $i1,849 of unamortized original issue discount, respectively, related to the Term Loan Facility, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheets. Both the debt issuance costs and the original issue discount are amortized into interest expense over the term of the Term Loan Facility.
ABL Facility
In November 2016, the
Company entered into a $i210,000 Third Amended and Restated Loan Agreement of its senior asset-based revolving credit facility (“ABL Facility”).
The ABL Facility provides for an aggregate revolving loan availability of up to $i210,000,
subject to borrowing base availability, including 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 $i310,000,
if requested by the borrowers under the ABL Facility and the lenders agree to fund such increase. No consent of any lender is required to effect any such increase, except for those participating in the increase. As of June 30, 2019, there were no obligations outstanding drawn under the ABL Facility, and subject to borrowing base availability, the Company had $i168,240
in availability, less outstanding letters of credit of $i9,392.
Any borrowings under our ABL Facility will mature, and the commitments of the lenders under our ABL Facility will terminate, on iNovember
2, 2021.
As of June 30, 2019 and December 31, 2018, the Company had $i835 and $i1,015,
respectively, of unamortized debt issuance costs related to the ABL Facility, which are presented in other assets in the condensed consolidated balance sheets.
Debt Covenants
The Company was in compliance with all covenants of the Senior Notes, Term Loan Facility and ABL Facility as of June 30, 2019.
Other
Other borrowings as of June 30, 2019 and December 31, 2018 reflect borrowings under local bank lines classified in debt
payable within one year on the condensed consolidated balance sheet.
18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
12. 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 and interest rate derivative instruments are determined using exchange traded prices and rates. The Company
also considers the risk of non-performance in the estimation of fair value and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. In certain instances where market data is not available, the Company uses management judgment to develop assumptions that are used to determine fair value. 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 June 30, 2019 and December 31, 2018 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. For further information on assets and liabilities measured at fair value on a nonrecurring basis see Note 3. "Acquisitions" and Note 9. "Property, Plant and Equipment".
Items
Not Carried at Fair Value
i
Fair values of the Company’s Senior 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.
Derivative Instruments and Hedging Activities
The Company is exposed to fluctuations in foreign currency exchange rates, interest rates and commodity prices. The Company enters into derivative instruments primarily to hedge portions of its forecasted foreign currency denominated cash flows and
designates these derivative instruments as cash flow hedges in order to qualify for hedge accounting.
The Company formally documents its hedge relationships, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the cash flow hedges. The Company also formally assesses whether a cash flow hedge is highly effective in offsetting changes in the cash flows of the hedged item. Derivatives are recorded at fair value in other current assets, other assets, accrued liabilities and other long-term liabilities. For a cash flow hedge, the effective portion of the change in fair value of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”)
in the condensed consolidated balance sheet and reclassified into earnings when the underlying hedged transaction is realized. The realized gains and losses are recorded on the same line as the hedged transaction in the condensed consolidated statements of net income.
19
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
The Company is exposed to credit risk in the event of nonperformance by its counterparties on its derivative financial instruments. The
Company mitigates this credit risk exposure by entering into agreements directly with major financial institutions with high credit standards that are expected to fully satisfy their obligations under the contracts.
Cash Flow Hedges
Forward Foreign Exchange Contracts - The Company uses forward contracts to mitigate the potential volatility to earnings and cash flow arising from changes in currency exchange rates that impact the
Company’s foreign currency transactions. The principal currencies hedged by the Company include various European currencies, the Canadian Dollar, the Mexican Peso, and the Brazilian Real. As of June 30, 2019 and December 31, 2018, the notional amount of these contracts was $i77,941
and $i154,237, respectively, and consisted of hedges of transactions up to March 2020.
Interest rate swaps - The Company has historically used interest rate swap contracts
to manage cash flow variability associated with its variable rate Term Loan Facility. The interest rate swap contract, which fixes the interest payments of variable rate debt instruments, is used to manage exposure to fluctuations in interest rates. As of June 30, 2019, there were no interest rate swap contracts outstanding.
i
Pretax
amounts related to the Company’s cash flow hedges that were recognized in other comprehensive income (loss) (“OCI”) were as follows:
As a part of its working capital management, the Company sells certain receivables through a single third-party financial institution in a pan-European program (the “Factor”). The amount sold varies each month based on the amount of underlying receivables and cash flow needs of the Company. These are permitted transactions
under the Company’s credit agreements governing the ABL Facility and Term Loan Facility and the indenture governing the Senior Notes. Costs incurred on the sale of receivables are recorded in other expense, net in the condensed consolidated statements of net income. The sale of receivables under this contract is considered an off-balance sheet arrangement to the Company and is accounted for as a true sale and is excluded from accounts receivable in the condensed consolidated balance sheet. iAmounts
outstanding under receivable transfer
20
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
agreements entered into by various locations as of the period end were as follows:
The
Company continues to service sold receivables and acts as collection agent for the Factor. As of June 30, 2019 and December 31, 2018, cash collections on behalf of the Factor that have yet to be remitted were $i7,706 and $i14,542,
respectively, and are reflected in cash and cash equivalents in the condensed consolidated balance sheet.
14. iPension and Postretirement Benefits Other Than Pensions
i
The
components of net periodic benefit (income) cost for the Company’s defined benefit plans and other postretirement benefit plans were as follows:
Amortization
of prior service credit and actuarial gain
(i1,308
)
i131
(i836
)
i154
Other
i—
i—
i2
i—
Net
periodic benefit (income) cost
$
(i781
)
$
i721
$
(i80
)
$
i800
The
service cost component of net periodic benefit (income) cost is included in cost of products sold and selling, administrative and engineering expenses in the condensed consolidated statements of net income. All other components of net periodic benefit (income) cost are included in other expense, net in the condensed consolidated statements of net income for all periods presented.
15. iOther Expense, Net
i
The
components of other expense, net were as follows:
Components
of net periodic benefit cost other than service cost
(i551
)
(i196
)
(i968
)
(i433
)
Losses
on sales of receivables
(i148
)
(i392
)
(i473
)
(i717
)
Miscellaneous
income
i90
i152
i320
i583
Other
expense, net
$
(i1,781
)
$
(i557
)
$
(i2,577
)
$
(i2,276
)
/
16.
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 before income taxes and the corresponding effective tax rate for the three and six months ended June 30, 2019 and 2018 were as follows:
The
effective tax rate for the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018 was higher primarily due to the geographic mix of increased pre-tax earnings as a result of the sale of the AVS product line and the inability to record a tax benefit for pre-tax losses in certain foreign jurisdictions. The income tax rate for the three and six months ended June 30, 2019 and 2018 varies from the U.S. statutory rate
primarily due to the inability to record a tax benefit for pre-tax losses in certain foreign jurisdictions to the extent not offset by other categories of income, tax credits, the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate, and other permanent items. Further, the Company’s current and future provision for income taxes is impacted by the initial recognition of and changes in valuation allowances in certain countries. The Company intends to maintain these valuation allowances until it is more likely than not that the deferred tax assets will be realized.
22
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
17. iNet Income Per Share Attributable to Cooper-Standard Holdings Inc.
Basic net income per share attributable to Cooper-Standard Holdings Inc. was computed by dividing net income attributable to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding
during the period. Diluted net income per share attributable to Cooper-Standard Holdings Inc. was computed using the treasury stock method by dividing diluted net income available to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding, including the dilutive effect of common stock equivalents, using the average share price during the period.
i
Information used to compute basic and diluted net income per share attributable to Cooper-Standard Holdings Inc. was as follows:
Other
comprehensive (loss) income before reclassifications
(i3,225
)
(2)
i2,365
(2)
(i2,348
)
(2)
i1,790
(2)
Amounts
reclassified from accumulated other comprehensive loss
i278
(3)
i586
(4)
i788
(5)
(i6,101
)
(6)
Balance
at end of period
$
(i105,935
)
$
(i105,060
)
$
(i105,935
)
$
(i105,060
)
Fair
value change of derivatives
Balance at beginning of period
$
i795
$
i2,145
$
(i458
)
$
(i1,397
)
Other
comprehensive income (loss) before reclassifications
i1,438
(7)
(i3,080
)
(7)
i2,928
(7)
i902
(7)
Amounts
reclassified from accumulated other comprehensive loss
(i610
)
(8)
(i142
)
(8)
(i847
)
(8)
(i582
)
(8)
Balance
at end of period
$
i1,623
$
(i1,077
)
$
i1,623
$
(i1,077
)
Accumulated
other comprehensive loss, ending balance
$
(i249,211
)
$
(i226,523
)
$
(i249,211
)
$
(i226,523
)
(1)
Includes
other comprehensive income (loss) related to intra-entity foreign currency balances that are of a long-term investment nature of $(i848) and $(i7,953)
for the three months ended June 30, 2019 and 2018, respectively, and $i1,966 and $(i10,240)
for the six months ended June 30, 2019 and 2018, respectively.
(2)
Net of tax (benefit) expense of $(i918)
and $i8,530 for the three months ended June 30, 2019 and 2018, respectively, and $(i907)
and $i8,725 for the six months ended June 30, 2019 and 2018, respectively. Includes other comprehensive loss of $i3,224
for each of the three and six months ended June 30, 2019 related to benefit plan liability remeasurement due to the divestiture of the Company’s AVS product line. See Note 4. "Divestiture".
(3)
Includes the effect of the amortization of actuarial losses of $i970,
offset by the amortization of prior service credits of $i34, net settlement gain of $i65
and curtailment gain of $i204, net of tax of $i389.
The settlement and curtailment relate to the divestiture of the Company’s AVS product line. See Note 4. "Divestiture" and Note 14. "Pension and Postretirement Benefits Other Than Pensions".
(4)
Includes the amortization of actuarial losses of $i961,
offset by prior service credits of $i81, net of tax of $i234.
See Note 14. "Pension and Postretirement Benefits Other Than Pensions".
(5)
Includes the effect of the amortization of actuarial losses of $i1,743,
offset by the amortization of prior service credits of $i113, net settlement gain of $i65
and curtailment gain of $i204, net of tax of $i573.
The settlement and curtailment relate to the divestiture of the Company’s AVS product line. See Note 4. "Divestiture" and Note 14. "Pension and Postretirement Benefits Other Than Pensions".
(6)
Includes the effect of the adoption of ASU 2018-02 of $i8,569
and the amortization of prior service credits of $i159, offset by curtailment loss of $i1,188
and the amortization of actuarial losses of $i1,986, net of tax of $i487.
See Note 14. "Pension and Postretirement Benefits Other Than Pensions".
(7)
Net of tax expense (benefit) of $i429 and $(i580)
for the three months ended June 30, 2019 and 2018, respectively, and $i882 and $i701
for the six months ended June 30, 2019 and 2018, respectively. See Note 12. "Fair Value Measurements and Financial Instruments".
/
(8)
Net of tax expense of $i217
and $i21 for the three months ended June 30, 2019 and 2018, respectively, and $i305
and $i134 for the six months ended June 30, 2019 and 2018, respectively. Includes the effect of the adoption of ASU 2018-02 of $i70
for the six months ended June 30, 2018. See Note 12. "Fair Value Measurements and Financial Instruments".
24
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
19. 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 June
30, 2019, the Company had approximately $i98,720 of repurchase authorization remaining under the 2018 Program.
2019 Repurchases
In May 2019, the
Company entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase the Company’s common stock pursuant to the 2018 Program. Under the ASR agreement, the Company made an up-front payment of $i30,000 and received an initial delivery of
i626,305 shares of its common stock in the second quarter of 2019. The total number of shares to be ultimately delivered, and therefore the average price paid per share, will be determined at the end of the repurchase period based on the volume weighted average price of the Company’s common stock during that period. The ASR is expected to be completed no later than the third quarter of
2019.
In addition to the repurchase under the ASR agreement, during the six months ended June 30, 2019, the Company repurchased i85,000 shares at an average purchase price of $i69.85
per share, excluding commissions, for a total cost of $i5,937.
2018 Repurchases
In June 2018, the Company entered into an ASR agreement with a third-party financial institution to repurchase the Company’s common
stock. Under this ASR agreement, the Company made an up-front payment of $i35,000 and received an initial delivery of i207,193
shares in the second quarter of 2018. The ASR was completed in the third quarter of 2018 when the Company received an additional i51,092 shares. A total of i258,285
shares were repurchased at a weighted average purchase price of $i135.51 per share.
In addition to the repurchase under this ASR agreement, during the six months ended June 30, 2018, the Company repurchased i69,503
shares of its common stock at an average purchase price of $i122.64 per share, excluding commissions, for a total cost of $i8,524.
20. iShare-Based Compensation
The Company’s long-term incentive plans allow for the grant of various types of share-based awards to key employees and directors of the
Company and its affiliates. The Company generally awards grants on an annual basis.
In February 2019, the Company granted Restricted Stock Units (“RSUs”), Performance Units (“PUs”) and stock options. The RSUs cliff vest after three years, the PUs cliff vest at the end of their three-year performance period, and the stock options vest ratably over three years. The number of PUs that will vest depends on the Company’s achievement of target performance goals related to the Company’s return on invested capital (“ROIC”) and total shareholder return, which may range
from i0% to i200%
of the target award amount.
(1)
Relates to transactions with Nishikawa Cooper LLC (“NISCO”)
(2) Relates to transactions with NISCO and Polyrub Cooper Standard FTS Private Limited
(3) From NISCO and Nishikawa Tachaplalert Cooper Ltd.
/
Amounts receivable from NISCO as of June 30, 2019 were $i6,030.
Amounts receivable from NISCO and Sujan Cooper Standard AVS Private Limited as of December 31, 2018 were $i6,066. On April 1, 2019, the Company sold its equity interest in Sujan Cooper Standard AVS Private Limited in connection with the divestiture of its AVS product line. See
Note 4. "Divestiture".
22. 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 June 30, 2019, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for claims, litigation and various legal matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company’s financial condition, results of operations or cash flows could be adversely affected in any particular period
by the unfavorable resolution of one or more of these proceedings or matters.
In addition, the Company conducts and monitors environmental investigations and remedial actions at certain locations. As of June 30, 2019 and December 31, 2018, the undiscounted reserve for environmental investigation and remediation was approximately $i5,433
and $i4,668, respectively. While the Company’s costs to defend and settle known claims arising under environmental laws have not been material in the past and are not currently estimated to be material, such costs may be material in the future.
26
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
23. iSegment Reporting
The Company has determined that it operates in ifour
reportable segments: North America, Europe, Asia Pacific and South America. The Company’s principal products within each of these segments are sealing, fuel and brake delivery, and fluid transfer systems. During the first quarter of 2019 and in prior periods, the Company also operated an anti-vibration systems product line. On April 1, 2019, the Company completed the divestiture of the AVS product line.
Effective January 1, 2019, the Company changed the measurement of its operating segments
to segment adjusted EBITDA. 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, 2018 filed with the U.S. Securities and Exchange Commission (“2018 Annual Report”) see Item 1A. “Risk Factors.” The following should be read in conjunction with our 2018 Annual Report and the other information included herein. Our discussion of trends and conditions supplements and updates such discussion included in our 2018 Annual Report. References in this quarterly report on Form 10-Q (the “Report”) to “we,”“our,” or the “Company” refer to Cooper-Standard Holdings Inc., together with its consolidated subsidiaries.
Executive
Overview
Our Business
We design, manufacture and sell sealing, fuel and brake delivery, and fluid transfer systems for use primarily in passenger vehicles and light trucks manufactured by global automotive original equipment manufacturers (“OEMs”). We are primarily a “Tier 1” supplier, with approximately 85% of our sales in 2018 made directly to major OEMs. We operate our business along four segments: North America, Europe, Asia Pacific and South America.
During the first quarter of 2019 and in prior periods, the Company also operated an anti-vibration systems business. On April 1, 2019, we completed the divestiture of the anti-vibration systems business.
Recent
Trends and Conditions
General Economic Conditions and Outlook
The global automotive industry is susceptible to uncertain economic conditions that could adversely impact new vehicle demand and production. Business conditions may vary significantly from period to period or region to region.
In North America, general economic conditions have been strong and relatively stable since 2018. Led by the United States, economic growth in the region is expected to continue through 2019, albeit at a more modest rate than last year. Consumer confidence and employment levels remain healthy. Continued uncertainty regarding global trade relationships and Federal Reserve interest rate policies, among other factors, could dampen economic momentum, while positive developments in these areas could be a positive catalyst. Modest economic growth is also expected
to continue in Canada and Mexico in 2019. The mix of vehicles produced and sold in North America continues to shift away from passenger cars in favor of crossover utility vehicles and light trucks.
In Europe, economic momentum slowed in the second half of 2018, which has carried over into the first half of 2019. Geopolitical concerns, the implementation of new environmental regulations in the automotive industry and the slowing of economic conditions within key trading partner countries have weighed on consumer confidence and industrial investment. The continuation of global trade tensions, financial pressures within some of the key European Union member countries and Britain’s pending separation from the European Union (“Brexit”) will continue to create a high level of uncertainty and challenge the regional economic outlook for 2019.
In Asia Pacific, China economic growth
is lower than 2018 as rising debt, higher interest rates, inflation and uncertainty are pressuring domestic consumption, while continuing tension within U.S.-China trade relationships is impacting exports. The Chinese government has announced a series of tax cuts and increased planned investment in infrastructure projects in order to stimulate the economy.
In South America, the Brazilian economy has slowed, with GDP contracting slightly in the first quarter 2019. Exports, capital investment and private consumption have all been trending lower. We remain cautious for the mid to long-term outlook given the long history of political instability and economic volatility in the region.
29
Raw
Materials
Our business is susceptible to inflationary pressures with respect to raw materials which may place operational and profitability burdens on the entire supply chain. Costs related to raw materials, such as steel, aluminum, and oil and oil-derived commodities, continue to be volatile. In addition, we continue to expect commodity cost volatility to have an impact on future earnings and operating cash flows. As such, on an ongoing basis, we work with our customers and suppliers to mitigate both inflationary pressures and our material-related cost exposures.
Production Levels
Our business is directly affected by the automotive vehicle production rates in North America, Europe, Asia Pacific and South America. New vehicle demand is driven by macroeconomic and other factors, such as interest rates, manufacturer and dealer sales incentives,
fuel prices, consumer confidence, employment levels, income growth trends and government and tax incentives. The industry could face uncertainties that may adversely impact consumer demand for vehicles as well as the future production environment.
Light vehicle production in certain regions for the three and six months ended June 30, 2019 and 2018 was as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(In millions of units)
2019(1)
2018(1)
% Change
2019(1)
2018(1)
%
Change
North America
4.3
4.4
(2.1)%
8.5
8.7
(2.5)%
Europe
5.6
6.0
(6.6)%
11.2
11.9
(5.6)%
Asia
Pacific(2)
11.1
12.2
(8.9)%
22.8
24.7
(7.5)%
South
America
0.9
0.9
(1.7)%
1.6
1.7
(3.1)%
(1)
Production
data based on IHS Automotive, July 2019.
(2)
Includes Greater China units of 5.6 million and 6.7 million for the three months ended June 30, 2019 and 2018, respectively, and 11.7 million and 13.5 million for the six months ended June 30, 2019
and 2018, respectively.
In North America, second quarter total vehicle production declined compared to the second quarter of 2018. Continuing recent trends in consumer demand, production of passenger cars declined while production of sport utility vehicles and crossover vehicles increased. We expect these trends to continue in North America throughout 2019.
European and Asia Pacific light vehicle production declined significantly as well, reflecting geopolitical instability, including uncertainty around tariffs and global trade relations in both regions and Brexit uncertainty in Europe. Accordingly, we remain cautious on the impact through the remainder of the year.
Sales for the three months ended June 30, 2019decreased17.6%, compared to the three months ended June 30, 2018.
Three
Months Ended June 30,
Variance Due To:
2019
2018
Change
Volume / Mix*
Foreign
Exchange
Acquisitions / Divestiture, Net
(dollar amounts in thousands)
Total sales
$
764,806
$
928,262
$
(163,456
)
$
(100,258
)
$
(25,606
)
$
(37,592
)
*
Net of customer price reductions
Gross Profit
Three Months Ended June 30,
Variance
Due To:
2019
2018
Change
Volume / Mix*
Foreign Exchange
Cost Increases /
(Decreases)**
(dollar amounts in thousands)
Cost of products sold
$
666,828
$
776,897
$
(110,069
)
$
(46,922
)
$
(18,281
)
$
(44,866
)
Gross
profit
97,978
151,365
(53,387
)
(53,336
)
(7,325
)
7,274
Gross
profit percentage of sales
12.8
%
16.3
%
*
Net of customer price reductions
** Includes the net impact of acquisitions and divestiture
Cost of products sold is primarily comprised of material, labor, manufacturing overhead, freight, depreciation, warranty costs and other direct operating expenses. The Company’s material cost of products sold was approximately 50% of total cost of products sold for the three months ended June 30, 2019 and 51% of total cost of products sold for the three months ended June 30, 2018. Cost of products sold was driven by continuous
improvement and lean manufacturing, the sale of our anti-vibration systems (“AVS”) product line, restructuring savings, and material cost reductions. These items were partially offset by vehicle production volume and mix, commodity price fluctuations, foreign exchange, tariffs and wage inflation.
Gross profit for the three months ended June 30, 2019decreased53.4 million or 35.3% compared to the three months ended June 30, 2018. The decrease was driven by vehicle production volume and mix, commodity price inflation and foreign exchange pressures, tariffs, and wage inflation. These items were
partially offset by net favorable operational performance and acquisitions.
Selling, Administration and Engineering Expense. Selling, administration and engineering expense includes administrative expenses as well as product engineering and design and development costs. Sales, administration and engineering expense for the three months ended June 30, 2019 was 9.7% of sales compared to 8.2% for the three months ended June 30, 2018. The increase in rate was primarily due to lower sales. The decrease in expense was driven by savings generated from salaried employee initiatives and the sale of our anti-vibration systems (“AVS”)
product line, partially offset by additional costs for newly acquired businesses, higher compensation-related expenses and general inflation.
Gain on Sale of Business. Gain on sale of business of $189.9 million for the three months ended June 30, 2019related to the sale of our anti-vibration systems (“AVS”) product line within our North America, Europe and Asia Pacific segments.We completed the sale to Continental AG on April 1, 2019.
Restructuring. Restructuring charges for the three months ended June
30, 2019decreased$4.1 million compared to the three months ended June 30, 2018. The decrease was driven by lower restructuring charges in North America and Europe as certain salaried employee initiatives were completed, partially offset by Asia Pacific mainly due to footprint rationalization.
Impairment Charges. Non-cash impairment charges of $2.2 million for the three months ended June 30, 2019 related to machinery and equipment were recorded due to the continuing adverse financial results in certain Asia Pacific locations.
Interest
Expense, Net. Net interest expense for the three months ended June 30, 2019increased$1.6 million compared to the three months ended June 30, 2018, primarily due to higher outstanding debt balances.
Other Expense, Net.Other expense for the three months ended June 30, 2019 increased $1.2 million compared to the three months ended June 30, 2018
primarily due to higher foreign currency losses.
32
Income Tax Expense. Income tax expense for the three months ended June 30, 2019 was $44.2 million on earnings before income taxes of $189.0 million. This compares to income tax expense of $9.1 million on earnings before income taxes of $52.3 million for the same period of 2018. The effective tax rate for the three months ended June
30, 2019 compared to the three months ended June 30, 2018 differed primarily due to the geographic mix of increased pre-tax earnings as a result of the sale of the AVS product line and the inability to record a tax benefit for pre-tax losses in certain foreign jurisdictions.
Sales for the six months ended June 30, 2019decreased13.2%, compared to the six months ended June 30, 2018.
Six Months Ended June 30,
Variance
Due To:
2019
2018
Change
Volume / Mix*
Foreign Exchange
Acquisitions / Divestiture,
Net
(dollar amounts in thousands)
Total sales
$
1,644,844
$
1,895,653
$
(250,809
)
$
(206,148
)
$
(62,146
)
$
17,485
*
Net of customer price reductions
Gross Profit
Six Months Ended June 30,
Variance
Due To:
2019
2018
Change
Volume / Mix*
Foreign Exchange
Cost Increases
/ (Decreases)**
(dollar amounts in thousands)
Cost of products sold
$
1,429,318
$
1,573,408
$
(144,090
)
$
(95,641
)
$
(51,916
)
$
3,467
Gross
profit
215,526
322,245
(106,719
)
(110,507
)
(10,230
)
14,018
Gross
profit percentage of sales
13.1
%
17.0
%
*
Net of customer price reductions
** Includes the net impact of acquisitions and divestiture
Cost of products sold is primarily comprised of material, labor, manufacturing overhead, freight, depreciation, warranty costs and other direct operating expenses. The Company’s material cost of products sold was approximately 51% of total cost of products sold for each of the six months ended June 30, 2019 and 2018. Cost of products sold was driven by continuous improvement and lean manufacturing, the sale of our anti-vibration systems (“AVS”) product line, restructuring
savings, and material cost reductions. These items were partially offset by vehicle production volume and mix, commodity price fluctuations, foreign exchange, tariffs and wage inflation.
Gross profit for the six months ended June 30, 2019decreased33.1% compared to the six months ended June 30, 2018. The decrease was driven by vehicle production volume and mix, commodity price inflation and foreign exchange pressures, tariffs and wage inflation. These items were partially offset by net favorable operational performance and acquisitions.
Selling, Administration and Engineering Expense. Selling,
administration and engineering expense includes administrative expenses as well as product engineering and design and development costs. Sales, administration and engineering expense for the six months ended June 30, 2019 was 9.8% of sales compared to 8.3% for the six months ended June 30, 2018. This increase was primarily due to additional costs for newly acquired businesses, divestiture-related expenses for our AVS business and general inflation, partially offset by savings from salaried employee initiatives.
Gain on Sale of Business. Gain on sale of business of $189.9 million
for the six months ended June 30, 2019 related to the sale of our AVS product line within our North America, Europe and Asia Pacific segments.We completed the sale to Continental AG on April 1, 2019.
Restructuring. Restructuring charges for the six months ended June 30, 2019increased$6.5 million compared to the six months ended June 30, 2018. The increase was driven by higher restructuring charges in North America primarily related
to salaried employee initiatives and in Asia Pacific mainly due to footprint rationalization.
Impairment Charges. Non-cash impairment charges of $2.2 million for the six months ended June 30, 2019 related to machinery and equipment were recorded due to the continuing adverse financial results in certain Asia Pacific locations.
Interest Expense, Net. Net interest expense for the six months ended June 30, 2019increased$3.7 million compared to the six months ended June
30, 2018, primarily due to higher outstanding debt balances.
33
Other Expense, Net.Other expense for the six months ended June 30, 2019increased$0.3 million compared to the six months ended June 30, 2018 primarily due to higher benefit related costs.
Income Tax Expense. Income tax expense for the six
months ended June 30, 2019 was $46.6 million on earnings before income taxes of $187.7 million. This compares to income tax expense of $21.0 million on earnings before income taxes of $121.6 million for the same period of 2018. The effective tax rate for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 differed primarily due to the geographic mix of increased pre-tax earnings as a result of the sale of the AVS product line and the inability to record
a tax benefit for pre-tax losses in certain foreign jurisdictions.
Segment Results of Operations
The Company operates in four reportable segments: North America, Europe, Asia Pacific and South America. Consistent with how management assesses performance of the segments, effective January 1, 2019, we changed the measurement of our segments to adjusted EBITDA. We have defined adjusted EBITDA as net income before interest, taxes, depreciation, amortization, restructuring expense, and special items. The results of each segment include certain allocations for general, administrative, interest,
and other shared costs.
The following tables present sales and segment adjusted EBITDA for each of the reportable segments.
The impact of foreign currency exchange primarily relates to the Euro, Chinese Renminbi, Brazilian Real and the Canadian Dollar.
Segment adjusted EBITDA
Three
Months Ended June 30,
Variance Due To:
2019
2018
Change
Volume / Mix*
Foreign
Exchange
Cost (Increases) / Decreases
Acquisitions / Divestiture, Net
(dollar amounts in thousands)
Segment adjusted EBITDA
North
America
$
54,867
$
82,672
$
(27,805
)
$
(25,927
)
$
(583
)
$
2,286
$
(3,581
)
Europe
6,082
16,292
(10,210
)
(11,611
)
(1,185
)
2,498
88
Asia
Pacific
(1,586
)
11,304
(12,890
)
(17,096
)
(1,452
)
5,821
(163
)
South
America
(1,284)
(2,361)
1,077
1,298
206
(427
)
—
Consolidated
adjusted EBITDA
$
58,079
$
107,907
$
(49,828
)
$
(53,336
)
$
(3,014
)
$
10,178
$
(3,656
)
*
Net of customer price reductions
•
The impact of foreign currency exchange is primarily driven by the Chinese Renminbi, Euro, Canadian Dollar, Mexican Peso, Polish Zloty and Czech Koruna.
•
The Cost (Increases) / Decreases category above includes:
◦
The
increase in commodity cost pressure, general inflation and tariffs;
34
◦
Launch related activity for engineering, prototypes and tooling; and
◦
Net operational efficiencies of $26.5 million primarily driven by our North America, Europe and Asia Pacific segments.
The impact of foreign currency exchange primarily relates to the Euro, Chinese Renminbi, Brazilian Real, Mexican Peso and the Canadian Dollar.
Segment adjusted EBITDA
Six
Months Ended June 30,
Variance Due To:
2019
2018
Change
Volume / Mix*
Foreign
Exchange
Cost (Increases) / Decreases
Acquisitions / Divestiture, Net
(dollar amounts in thousands)
Segment adjusted EBITDA
North
America
$
112,431
$
169,448
$
(57,017
)
$
(55,423
)
$
(3,214
)
$
518
$
1,102
Europe
15,523
39,260
(23,737
)
(21,910
)
(3,115
)
1,534
(246
)
Asia
Pacific
(819
)
24,794
(25,613
)
(35,004
)
(197
)
8,699
889
South
America
(2,670
)
(2,958
)
288
1,830
(118
)
(1,424
)
—
Consolidated
adjusted EBITDA
$
124,465
$
230,544
$
(106,079
)
$
(110,507
)
$
(6,644
)
$
9,327
$
1,745
*
Net of customer price reductions
•
The impact of foreign currency exchange is primarily driven by the Chinese Renminbi, Euro, Canadian Dollar and Mexican Peso, partially offset by the Brazilian Real, Polish Zloty and Czech Koruna.
•
The Cost (Increases) / Decreases category above includes:
◦
The
increase in commodity cost pressure, general inflation, and tariffs;
◦
Launch related activity for engineering, prototypes and tooling; and
◦
Net operational efficiencies of $51.5 million primarily driven by our North America, Europe and Asia Pacific segments.
Liquidity and Capital Resources
Short
and Long-Term Liquidity Considerations and Risks
We intend to fund our ongoing working capital, capital expenditures, debt service and other funding requirements through a combination of cash flows from operations, cash on hand, borrowings under our senior asset-based revolving credit facility
35
(“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 11. "Debt"
to the unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Report for additional information.
Based on our current and anticipated levels of operations and the conditions in our markets and industry, we believe that our cash flows from operations, cash on hand, borrowings under our ABL Facility and receivables factoring will enable us to meet our ongoing working capital, capital expenditures, debt service and other funding requirements for the next twelve months. However, 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 and other factors.
Cash Flows
Operating Activities. Net cash used in operations was $9.0 million for the six months ended June 30, 2019, compared to net cash provided by operations of $98.3 million for the six months ended June 30, 2018. The outflow was primarily due to decreased cash earnings and timing of customer payments, partially offset by changes in accrued liabilities.
Investing Activities. Net cash provided by investing activities
was $149.5 million for the six months ended June 30, 2019, compared to net cash used in investing activities of $113.0 million for the six months ended June 30, 2018. Cash provided by investing activities consisted primarily of gross proceeds of $243.4 million from the sale of our AVS product line, partially offset by capital spending of $95.5 million for the six months ended June 30, 2019. We anticipate that we will spend approximately $175 million to $185 million on capital expenditures in 2019.
Financing Activities. Net cash used in financing activities totaled $91.2 million for the six months ended June 30, 2019, compared to net cash used in financing activities of $59.4 million for the six months ended June 30, 2018. The change was primarily due to the repayment of our revolving credit facility and local borrowing lines. Cash used for stock repurchases was $36.6 million and $43.5 million for the six months ended June
30, 2019 and 2018, respectively.
Share Repurchase Program
In June 2018, our Board of Directors approved a new 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 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 June 30, 2019, we had approximately $98.7 million of repurchase authorization remaining under the 2018 Program.
2019 Repurchases
In May 2019, we entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase our common stock pursuant to the 2018 Program. Under the ASR agreement, we made an up-front payment of $30.0 million and received an initial delivery of 626,305 shares of our common stock in the
second quarter of 2019. The total number of shares to be ultimately delivered, and therefore the average price paid per share, will be determined at the end of the repurchase period based on the volume weighted average price of our common stock during that period. The ASR is expected to be completed no later than the third quarter of 2019.
In addition to the repurchase under the ASR agreement, during the six months ended June 30, 2019, we utilized $5.9 million of cash on hand to repurchase 85,000 shares of common stock.
2018 Repurchases
In June 2018, we entered into an accelerated repurchase (“ASR”) agreement with a third-party financial institution
to repurchase our common stock. Under this ASR agreement, we made an up-front payment of $35.0 million and received an initial delivery of 207,193 shares in the second quarter of 2018. The ASR was completed in the third quarter of 2018 when we received an additional 51,092 shares. A total of 258,285 shares were repurchased at a weighted average purchase price of $135.51 per share.
36
In addition to the repurchase under this ASR agreement, during the six months ended June 30, 2018,
we repurchased 69,503 shares of our common stock at an average purchase price of $122.64 per share, excluding commissions, for a total cost of $8.5 million.
Non-GAAP Financial Measures
In evaluating our business, management considers EBITDA and Adjusted EBITDA to be key indicators of our operating performance. Our management also uses EBITDA and Adjusted EBITDA:
•
because similar measures are
utilized in the calculation of the financial covenants and ratios contained in our financing arrangements;
•
in developing our internal budgets and forecasts;
•
as a significant factor in evaluating our management for compensation purposes;
•
in evaluating potential acquisitions;
•
in
comparing our current operating results with corresponding historical periods and with the operational performance of other companies in our industry; and
•
in presentations to the members of our board of directors to enable our board of directors to have the same measurement basis of operating performance as is used by management in their assessments of performance and in forecasting and budgeting for our company.
In addition, we believe EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts and other interested parties in evaluating our performance. We
define Adjusted EBITDA as net income (loss) plus income tax expense (benefit), interest expense, net of interest income, depreciation and amortization or EBITDA, as adjusted for items that management does not consider to be reflective of our core operating performance. These adjustments include, but are not limited to, restructuring costs, impairment charges, non-cash fair value adjustments and acquisition-related costs.
EBITDA and Adjusted EBITDA are not financial measurements recognized under U.S. GAAP, and when analyzing our operating performance, investors should use EBITDA and Adjusted EBITDA as a supplement to, and not as alternatives for, net income (loss), operating income, or any other performance measure derived in accordance with U.S. GAAP, nor as an alternative to cash flow from operating activities as a measure of our liquidity. EBITDA and Adjusted EBITDA have limitations as analytical tools, and they should not
be considered in isolation or as substitutes for analysis of our results of operations as reported under U.S. GAAP. These limitations include:
•
they do not reflect our cash expenditures or future requirements for capital expenditure or contractual commitments;
•
they do not reflect changes in, or cash requirements for, our working capital needs;
•
they
do not reflect interest expense or cash requirements necessary to service interest or principal payments under our ABL Facility, Term Loan Facility and Senior Notes;
•
they do not reflect certain tax payments that may represent a reduction in cash available to us;
•
although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and
•
other
companies, including companies in our industry, may calculate these measures differently and, as the number of differences in the way companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases.
In addition, in evaluating Adjusted EBITDA, it should be noted that in the future, we may incur expenses similar to the adjustments in the below presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by special items.
37
The following table provides a reconciliation of EBITDA and Adjusted EBITDA from net income, which is the most comparable financial measure
in accordance with U.S. GAAP:
Net income attributable to Cooper-Standard Holdings Inc.
$
145,296
$
41,877
$
141,836
$
98,669
Income
tax expense
44,239
9,130
46,570
21,021
Interest expense, net of interest income
11,575
9,973
23,507
19,773
Depreciation
and amortization
37,868
36,914
74,473
73,173
EBITDA
$
238,978
$
97,894
$
286,386
$
212,636
Gain
on sale of business (1)
(189,910
)
—
(189,910
)
—
Restructuring charges
5,927
10,013
23,642
17,138
Impairment
charges (2)
2,188
—
2,188
—
Project costs (3)
405
—
1,668
—
Lease
termination costs (4)
491
—
491
—
Loss on refinancing and extinguishment of debt (5)
—
—
—
770
Adjusted
EBITDA
$
58,079
$
107,907
$
124,465
$
230,544
(1)
Gain
on sale of AVS product line. See Note 4. "Divestiture."
(2)
Non-cash impairment charges related to fixed assets.
(3)
Project costs recorded in selling, administration and engineering expense related to acquisitions and divestiture.
(4)
Lease
termination costs no longer recorded as Restructuring charges in accordance with ASC 842. See Note 2. "New Accounting Pronouncements."
(5)
Loss on refinancing and extinguishment of debt related to the applicable amendment of the Term Loan Facility entered into during such period.
38
Contingencies and Environmental Matters
The
information concerning contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters, contained in Note 22. "Commitments and Contingencies" to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, is incorporated herein by reference.
Recently Issued Accounting Pronouncements
See Note 2. "New Accounting Pronouncements" to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
Critical
Accounting Estimates
There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2019.
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: 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 us entering new markets; 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; 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 proceedings, claims or investigations against us; work stoppages or other labor disruptions; the ability of our intellectual property to withstand legal challenges; cyber-attacks, other disruptions in, or the inability to implement upgrades to, our information technology systems; the possible volatility of our annual effective tax rate; changes in our assumptions as a result of IRS issuing guidance on the Tax Cuts and Jobs Act; the possibility of future
impairment charges to our goodwill and long-lived assets; and our dependence on our subsidiaries for cash to satisfy our obligations.
You should not place undue reliance on these forward-looking statements. Our forward-looking statements speak only as of the date of this quarterly report on Form 10-Q, and we undertake no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except where we are expressly required to do so by law.
This quarterly report on Form 10-Q also contains estimates and other information that is based on industry publications, surveys, and forecasts. This information involves a number of assumptions and limitations, and we have not independently verified the accuracy or completeness
of the information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the quantitative and qualitative information about the Company’s market risk from those previously disclosed in the Company’s 2018 Annual Report.
39
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 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 June
30, 2019 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.
40
PART II — OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities
By the Issuer and Affiliated Purchasers
The Company is authorized to purchase, in the aggregate, up to $150 million of our outstanding common stock under our common stock repurchase program, which was effective in November 2018. As of June 30, 2019, we had approximately $98.7 million of repurchase authorization remaining under our ongoing common stock share repurchase program as discussed in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Share Repurchase Program,” and Note 19. "Common Stock" to the unaudited condensed consolidated financial statements
included in Part 1, Item 1 of this Report.
In May 2019, the Company entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase the Company’s common stock pursuant to its common stock repurchase program. Pursuant to the ASR agreement, the Company made an up-front payment of $30 million, from cash on hand, to the financial institution and received an initial delivery of 626,305 shares in the second quarter of 2019. The total number of shares to be ultimately delivered, and therefore the average price paid per share, will be determined at the end of the repurchase
period based on the volume weighted average price of the Company’s common stock during that period. The ASR is expected to be completed no later than the third quarter of 2019.
A summary of our shares of common stock repurchased during the three months ended June 30, 2019 is shown below:
Period
Total
Number of Shares Purchased(1)
Average Price Paid per Share(2)
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)(3)
Includes
shares repurchased by the Company to satisfy employee tax withholding requirements due upon the vesting of restricted stock awards.
(2)
Excluding commissions.
(3)
Includes the $30 million up-front payment made under the ASR Agreement.
(4)
Under
the ASR agreement, the Company paid $30 million and received an initial delivery of 626,305 shares of its common stock in the second quarter of 2019. The average price paid per share reflected in the table for the ASR transaction was based upon the fair market value for the shares on the date the ASR agreement was executed. The total number of shares to be ultimately delivered, and therefore the average price paid per share, will be determined at the end of the repurchase period based on the volume weighted average price of the Company’s common stock during that period. See Note 19. "Common Stock" to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
Submitted
electronically with this Report in accordance with the provisions of Regulation S-T.
42
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.
