COOPER-STANDARD HOLDINGS INC. 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 endedDecember 31, 2019 filed with theU.S. Securities and Exchange Commission ("2019 Annual Report"), including Item 1A. "Risk Factors." The following should be read in conjunction with our 2019 Annual Report and the other information included herein. Our discussion of trends and conditions supplements and updates such discussion included in our 2019 Annual Report. References in this quarterly report on Form 10-Q (the "Report") to "we," "our," or the "Company" refer toCooper-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 83% of our sales in 2019 made directly to major OEMs. We operate our business along the following reportable segments:North America ,Europe ,Asia Pacific andSouth America . All other business activities are reported in Corporate, eliminations and other. During the first quarter of 2019 and in prior periods, we also operated an anti-vibration systems ("AVS") product line. OnApril 1, 2019 , we completed the divestiture of our AVS product line. 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. The global COVID-19 pandemic created an unusually high degree of economic disruption and uncertainty during the first nine months of 2020. Although most automotive manufacturing operations continued production during the third quarter, many industries remain significantly impacted by policies, regulations, risks and concerns surrounding the novel coronavirus, which is continuing to drive significant uncertainty for the broader economic outlook and for the automotive industry around the world. Economists at theInternational Monetary Fund (IMF) believe global economic activity is likely to remain subdued until perceived health risks abate. They are now expecting the global economy to contract by approximately 4.4% in 2020. InNorth America , economic conditions and consumer confidence have improved compared to the second quarter but continue to be negatively impacted by concerns over the COVID-19 pandemic and related government-imposed restrictions. Uncertainty related to the outcome of the presidential election inthe United States will also likely weigh on consumer confidence in the region through the fourth quarter of 2020.The United States government has taken historic measures to provide fiscal stimulus to the economy in an effort to sustain businesses, limit job losses and preempt deeper declines in consumer confidence during the pandemic. Further stimulus actions are being considered. Despite these efforts,IMF economists now expect economic contraction of approximately 4.7% for theNorth America region in 2020. In the European region, theIMF is projecting economic contraction of approximately 8.3% for 2020. Current and potential future impacts of the COVID-19 pandemic will continue to weigh on the economies of the region. Due to the pandemic, certain European governments mandated closures of broad segments of the economy in the first half of the year. Partial re-opening of the closed sectors has occurred at varying times and rates across the region. More recently, however, a resurgence of COVID-19 cases is causing some governments to consider further shutdown actions. While automotive manufacturers have resumed production, on-going health risks, geopolitical concerns and the implementation of new environmental regulations in the automotive industry will likely continue to impact vehicle demand and economic growth. In theAsia Pacific region, theIMF expectsChina's economic growth rate to slow to just 1.8% in 2020. The post-COVID-19 economic recovery in the country is continuing, driven, in part, by a new infrastructure initiative that is focused on 31 -------------------------------------------------------------------------------- accelerating the digital transformation of the country's industries. The retail sector has also been improving in the third quarter, pointing to improved consumer confidence. Finally, the manufacturers purchasing managers index (PMI) reached a nine-year high in September, suggesting a strong industrial growth environment through the remainder of the year. InSouth America , theIMF estimates that the Brazilian economy will contract by approximately 5.8% in 2020 as compared to 2019. Economic activity rebounded in the third quarter but not sufficiently to offset the sharp decline in the second quarter that was driven by the COVID-19 pandemic. The Brazilian government has extended certain economic assistance programs to the end of the year to help support consumers. This spending will add to the country's already high national debt level and could lead to lower consumer confidence and foreign investment in the region going forward. We remain cautious for the mid to long-term outlook given the long history of political instability and economic volatility in the region. 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 inNorth America ,Europe ,Asia Pacific andSouth America . Beginning in the first quarter of 2020, as a result of COVID-19, we experienced the shutdown of effectively all of our facilities inAsia Pacific coinciding with the shutdown of our customer facilities in that region. Facility shutdowns then occurred inMarch 2020 for a majority of our facilities inNorth America ,Europe andSouth America . Production resumed inAsia Pacific by the end of the first quarter of 2020, albeit at a lower capacity, and has steadily increased in production capacity throughout the year. For ourNorth America andEurope facilities, production resumed inMay 2020 at a lower capacity and has increased through the subsequent months. Finally, for ourSouth America facilities, production resumed in the second quarter, but has increased more slowly compared to the other regions. We are collaborating closely with our customers as production volume continues to increase and approach pre-COVID-19 levels, while also adhering to enhanced safety standards and measures to protect our employees. Light vehicle production in certain regions for the three and nine months endedSeptember 30, 2020 and 2019 was as follows: Three Months Ended September 30, Nine Months Ended September 30, (In millions of units) 2020(1) 2019(1) % Change 2020(1) 2019(1) % Change North America 4.0 4.0 0.5% 9.2 12.5 (26.5)% Europe 4.3 4.7 (7.7)% 11.3 16.0 (29.5)% Asia Pacific 10.9 11.0 (1.4)% 27.7 33.6 (17.8)% Greater China 6.4 5.8 10.6% 15.8 17.3 (8.8)% South America 0.7 0.9 (21.4)% 1.5 2.5 (40.9)% (1)Production data based onIHS Automotive ,October 2020 . The COVID-19 pandemic has emerged as the biggest risk factor facing the automotive industry. In the first half of the year, total vehicle production decreased substantially across the globe. Plant shutdowns have greatly slowed production and have been accompanied by decreased demand for vehicles, as new vehicle sales are highly dependent on strong consumer confidence and low unemployment. While the outlook for the fourth quarter of 2020 and the full year 2021 remains uncertain, the global economy has begun to rebound from the impacts of the pandemic. Lower unemployment rates, improving consumer confidence and lower than normal light vehicle inventory levels could all have a positive impact on light vehicle production going forward. 32 -------------------------------------------------------------------------------- Results of Operations Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 Change 2020 2019 Change (dollar amounts in thousands) Sales$ 683,200 $ 739,518 $ (56,318) $ 1,678,557 $ 2,382,211 $ (703,654) Cost of products sold 598,714 659,313 (60,599) 1,611,299 2,088,631 (477,332) Gross profit 84,486 80,205 4,281 67,258 293,580 (226,322) Selling, administration & engineering expenses 60,059 63,020 (2,961) 199,001 224,164
(25,163)
Gain on sale of business, net (2,314) 1,730 (4,044) (2,314) (188,180) 185,866 Amortization of intangibles 1,669 4,250 (2,581) 9,632 13,173 (3,541) Restructuring charges 6,186 5,572 614 23,236 29,214 (5,978) Impairment of assets held for sale - - - 86,470 - 86,470 Other impairment charges 100 1,958 (1,858) 1,240 4,146 (2,906) Operating profit (loss) 18,786 3,675 15,111 (250,007) 211,063 (461,070) Interest expense, net of interest income (17,985) (10,351) (7,634) (40,993) (33,858)
(7,135)
Equity in earnings (losses) of affiliates 738 1,515 (777) (842) 5,764 (6,606) Other income (expense), net 2,784 (514) 3,298 (5,357) (3,091) (2,266) Income (loss) before income taxes 4,323 (5,675) 9,998 (297,199) 179,878 (477,077) Income tax (benefit) expense (2,386) 745 (3,131) (55,485) 47,001 (102,486) Net income (loss) 6,709 (6,420) 13,129 (241,714) 132,877 (374,591) Net (income) loss attributable to noncontrolling interests (2,328) 1,543 (3,871) 1,288 2,036
(748)
Net income (loss) attributable to Cooper-Standard Holdings Inc.$ 4,381 $ (4,877) $ 9,258 $ (240,426) $ 134,913 $ (375,339) Three Months EndedSeptember 30, 2020 Compared with Three Months EndedSeptember 30, 2019 Sales Sales for the three months endedSeptember 30, 2020 decreased 7.6%, compared to the three months endedSeptember 30, 2019 . The decline was driven by the decrease in vehicle production volume and the divestiture of our European rubber fluid transfer and specialty sealing businesses and Indian operations. Three Months Ended September 30, Variance Due To: Foreign 2020 2019 Change Volume / Mix* Exchange Divestitures (dollar amounts in thousands) Total sales$ 683,200 $ 739,518 $ (56,318) $ (8,958) $ 2,234 $ (49,594)
* Net of customer price reductions
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Gross Profit
Three Months Ended September 30, Variance Due To:
Foreign Cost Increases /
2020 2019 Change Volume / Mix* Exchange (Decreases)**
(dollar amounts in thousands)
Cost of products sold $ 598,714 $ 659,313 $ (60,599) $ (806) $ 3,246 $ (63,039)
Gross profit 84,486 80,205 4,281 (8,152) (1,012) 13,445
Gross profit percentage
of sales 12.4 % 10.8 %
* Net of customer price reductions
** Includes the net impact of divestitures
Cost of products sold is primarily comprised of material, labor, manufacturing
overhead, freight, depreciation, warranty costs and other direct operating
expenses. The Company's material cost of products sold was approximately 49% and
50% of total cost of products sold for the three months ended September 30, 2020
and 2019, respectively. The change in the cost of products sold was driven by
vehicle volume and mix, the divestiture of our European rubber fluid transfer
and specialty sealing businesses and Indian operations, continuous improvement
and lean manufacturing, material cost reductions, commodity price fluctuations,
foreign exchange and wage inflation.
Gross profit for the three months ended September 30, 2020 increased $4.3
million or 5.3% compared to the three months ended September 30, 2019 . The
increase was driven by net favorable operational performance, restructuring
savings and material cost reductions. These items were partially offset by wage
inflation, employee incentives and foreign exchange.
Selling, Administration and Engineering Expense. Selling, administration and
engineering expense includes administrative expenses as well as product
engineering and design and development costs. Sales, administration and
engineering expense for the three months ended September 30, 2020 was 8.8% of
sales compared to 8.5% for the three months ended September 30, 2019 . The
increase in rate was driven by the decline in total sales. Selling,
administration and engineering expenses were lower by $3.0 million . The decrease
in amount was primarily due to savings generated from salaried headcount
initiatives including net divestitures and lower travel expenses, partially
offset by general inflation and higher variable employee compensation expenses.
Gain on Sale of Business, Net. The gain on sale of business of $2.3 million for
the three months ended September 30, 2020 related to the net effect of our 2020
divestitures, which included the European fluid transfer and specialty sealing
business, Indian operations, the deconsolidation of a joint venture in our Asia
Pacific region, and the finalized adjustments related to the sale of our AVS
product line. The gain on sale of business for the three months ended September
30, 2019 included a $1.7 million adjustment, decreasing the amount of the gain
recognized on the sale of the AVS business in the second quarter of 2019,
primarily due to working capital adjustments.
Amortization of Intangibles. Intangible amortization for the three months ended
September 30, 2020 decreased $2.6 million compared to the three months ended
September 30, 2019 . The decrease was primarily driven by a customer relationship
intangible asset in the North America region that was fully amortized during the
second quarter of 2020.
Restructuring. Restructuring charges for the three months ended September 30,
2020 increased $0.6 million compared to the three months ended September 30,
2019 . The increase was driven by higher restructuring charges in North America ,
primarily related to plant closures.
Impairment Charges. Non-cash impairment charges for the three months ended
September 30, 2020 decreased $1.9 million compared to the three months ended
September 30, 2019 , primarily related to tooling machinery and equipment charges
due to the termination of certain customer programs in the Asia Pacific region
in the third quarter of 2019.
Interest Expense, Net. Net interest expense for the three months ended September
30, 2020 increased $7.6 million compared to the three months ended September 30,
2019 , primarily due to higher outstanding debt balances including our recently
issued Senior Secured Notes.
Other Income (Expense), Net. Other income for the three months ended September
30, 2020 increased $3.3 million compared to the three months ended September 30,
2019 , primarily due to higher foreign currency gains.
Income Tax (Benefit) Expense. Income tax benefit for the three months ended
September 30, 2020 was $2.4 million on earnings before income taxes of $4.3
million . This compares to an income tax expense of $0.7 million on losses before
income taxes of $5.7 million for the three months ended September 30, 2019 . The
effective tax rate for the three months ended September 30, 2020 compared to the
three months ended September 30, 2019 differed primarily due to the geographic
mix of
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pre-tax losses, the inability to record a tax benefit for pre-tax losses in
certain foreign jurisdictions, as well as benefits recorded as a result of the
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") net operating
loss ("NOL") carry back provision that allows NOLs generated to be carried back
up to five years at the tax rates in effect during those periods, rather than
carried forward at current federal tax rates of 21%. We have included a
$19.8 million benefit in the estimated annual effective tax rate for this CARES
Act provision which was used to calculate the income tax benefit recorded in the
three months ended September 30, 2020 .
Nine Months Ended September 30, 2020 Compared with Nine Months Ended September
30, 2019
Sales
Sales for the nine months ended September 30, 2020 decreased 29.5%, compared to
the nine months ended September 30, 2019 . The decline was mainly driven by the
decrease in vehicle production volume due to government imposed global shutdowns
related to the COVID-19 pandemic, net divestitures, foreign exchange and
customer price reductions.
Nine Months Ended September 30, Variance Due To:
Foreign
2020 2019 Change Volume / Mix* Exchange Divestitures
(dollar amounts in thousands)
Total sales $ 1,678,557 $ 2,382,211 $ (703,654) $ (557,327) $ (18,003) $ (128,324)
* Net of customer price reductions
Gross Profit
Nine Months Ended September 30, Variance Due To:
Foreign Cost Increases /
2020 2019 Change Volume / Mix* Exchange (Decreases)**
(dollar amounts in thousands)
Cost of products sold $ 1,611,299 $ 2,088,631 $ (477,332) $ (311,037) $ (15,548) $ (150,747)
Gross profit 67,258 293,580 (226,322) (246,290) (2,455) 22,423
Gross profit percentage
of sales 4.0 % 12.3 %
* Net of customer price reductions
** Includes the net impact of divestitures
Cost of products sold is primarily comprised of material, labor, manufacturing
overhead, freight, depreciation, warranty costs and other direct operating
expenses. The Company's material cost of products sold was approximately 45% and
51% of total cost of products sold for the nine months ended September 30, 2020
and 2019, respectively. The change in the cost of products sold was driven by
government imposed global shutdowns related to the COVID-19 pandemic, the sale
of our AVS product line, the divestiture of our European rubber fluid transfer
and specialty sealing businesses and Indian operations, continuous improvement
and lean manufacturing, material cost reductions, commodity price fluctuations,
foreign exchange, and wage inflation.
Gross profit for the nine months ended September 30, 2020 decreased 77.1%
compared to the nine months ended September 30, 2019 . The decrease was driven by
the decline in vehicle production volume due to government imposed global
shutdowns related to the COVID-19 pandemic, customer price reductions, employee
incentives and wage inflation. These items were partially offset by net
favorable operational performance, restructuring savings, foreign exchange and
material cost reductions.
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 nine months ended September 30, 2020 was 11.9% of
sales compared to 9.4% for the nine months ended September 30, 2019 . This
increase in rate was primarily due to the significant decline in total sales.
The decrease in amount was primarily due to savings generated from salaried
headcount initiatives, net divestitures and lower travel expenses, partially
offset by general inflation and higher variable employee compensation expenses.
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Gain on Sale of Business, Net. The gain on sale of business of $2.3 million for
the nine months ended September 30, 2020 related to the net effect of our 2020
divestitures, which included certain European businesses and our Indian
operations, the deconsolidation of a joint venture in our Asia Pacific region,
and the finalized adjustments related to the sale of our AVS product line. The
gain on sale of business of $188.2 million for the nine months ended September
30, 2019 related to the sale of our AVS product line within our North America ,
Europe and Asia Pacific segments.
Amortization of Intangibles. Intangible amortization for the nine months ended
September 30, 2020 decreased $3.5 million compared to the nine months ended
September 30, 2019 . The decrease was primarily driven by a customer relationship
intangible asset in the North America region that was fully amortized during the
second quarter of 2020.
Restructuring. Restructuring charges for the nine months ended September 30,
2020 decreased $6.0 million compared to the nine months ended September 30,
2019 . The decrease was a result of lower restructuring charges in Europe , Asia
Pacific and Corporate and other.
Impairment Charges. Non-cash impairment charges for the nine months ended
September 30, 2020 increased $83.6 million compared to the nine months ended
September 30, 2019 . The increase primarily related to reducing the carrying
value of the divested assets to fair value less costs to sell. Fair value was
determined using a market approach, estimated based on expected proceeds.
Interest Expense, Net. Net interest expense for the nine months ended September
30, 2020 increased $7.1 million compared to the nine months ended September 30,
2019 , primarily due to higher outstanding debt balances including our recently
issued Senior Secured Notes.
Other Expense, Net. Other expense for the nine months ended September 30, 2020
increased $2.3 million compared to the nine months ended September 30, 2019 ,
primarily due to higher foreign currency losses, partially offset by lower
benefit related costs.
Income Tax (Benefit) Expense. Income tax benefit for the nine months ended
September 30, 2020 was $55.5 million on losses before income taxes of $297.2
million . This compares to income tax expense of $47.0 million on earnings before
income taxes of $179.9 million for the nine months ended September 30, 2019 . The
effective tax rate for the nine months ended September 30, 2020 compared to the
nine months ended September 30, 2019 differed primarily due to the geographic
mix of pre-tax losses driven by the impairment charge on divested entities, the
inability to record a tax benefit for pre-tax losses in certain foreign
jurisdictions, as well as benefits recorded as a result of the CARES Act net
operating loss carry back provision. We have included a $19.8 million benefit in
the estimated annual effective tax rate for this CARES Act provision which was
used to calculate the income tax benefit recorded in the nine months ended
September 30, 2020 . Additionally, a discrete expense of $13.4 million for the
initial recognition of valuation allowances against net deferred tax assets in
certain foreign jurisdictions was recorded in the nine months ended September
30, 2020 .
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Segment Results of Operations
Our business is organized into the following reportable segments: North America ,
Europe , Asia Pacific and South America . All other business activities are
reported in Corporate, eliminations and other. The Company uses Segment adjusted
EBITDA as the measure of earnings to assess the performance of each segment and
determine the resources to be allocated to the segments. We have defined
adjusted EBITDA as net income before interest, taxes, depreciation,
amortization, restructuring expense, and special items.
The following tables present sales and segment adjusted EBITDA for each of the
reportable segments.
Three Months Ended September 30, 2020 Compared with Three Months Ended September
30, 2019
Sales
Three Months Ended September 30, Variance Due To:
Foreign
2020 2019 Change Volume/ Mix* Exchange Divestitures
(dollar amounts in thousands)
Sales to external customers
North America $ 359,007 $ 372,104 $ (13,097) $ (11,812) $ (1,285) $ -
Europe 146,029 187,438 (41,409) (13,526) 7,448 (35,331)
Asia Pacific 131,063 123,139 7,924 20,377 1,810 (14,263)
South America 17,580 25,220 (7,640) (1,448) (6,192) -
Total Automotive 653,679 707,901 (54,222) (6,409) 1,781 (49,594)
Corporate, eliminations and
other 29,521 31,617 (2,096) (2,549) 453 -
Consolidated $ 683,200 $ 739,518 $ (56,318) $ (8,958) $ 2,234 $ (49,594)
* Net of customer price reductions
•Volume and mix, net of customer price reductions, is driven by the regional mix
of vehicles in Europe , North America and China .
•The impact of foreign currency exchange primarily relates to the Euro and
Brazilian Real.
Segment adjusted EBITDA
Three Months Ended September 30, Variance Due To:
Foreign Cost (Increases)/
2020 2019 Change Volume/ Mix* Exchange Decreases Divestitures
(dollar amounts in thousands)
Segment adjusted EBITDA
North America $ 58,115 $ 59,819 $ (1,704) $ (7,544) $ 562 $ 6,062 $ (784)
Europe (1,466) 6,269 (7,735) (5,960) (375) (1,488) 88
Asia Pacific 12,246 (12,080) 24,326 6,321 1,726 14,480 1,799
South America (2,680) (2,678) (2) 1,863 (1,781) (84) -
Total Automotive 66,215 51,330 14,885 (5,320) 132 18,970 1,103
Corporate, eliminations
and other (2,081) 2,491 (4,572) (2,832) 205 (3,775) 1,830
Consolidated adjusted
EBITDA $ 64,134 $ 53,821 $ 10,313 $ (8,152) $ 337 $ 15,195 $ 2,933
* Net of customer price reductions
•Volume and mix, net of customer price reductions, is driven by the regional mix
of vehicles in Europe , North America and China .
•The impact of foreign currency exchange is driven by the Chinese Renminbi,
Brazilian Real, Euro, Polish Zloty, and Czech Koruna.
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•The Cost (Increases) / Decreases category above includes:
•Reduction in compensation-related expenses due to salaried headcount
initiatives, purchasing savings through lean initiatives, and restructuring
savings;
•Wage and variable employee compensation increases;
•The non-recurrence of prior year one-time impact of commercial settlements in
Asia Pacific ;
•Net manufacturing efficiencies of $10 million , primarily driven by our North
America and Asia Pacific segments.
Nine Months Ended September 30, 2020 Compared with Nine Months Ended September
30, 2019
Sales
Nine Months Ended September 30, Variance Due To:
Foreign
2020 2019 Change Volume/ Mix* Exchange Divestitures
(dollar amounts in thousands)
Sales to external customers
North America $ 820,145 $ 1,198,943 $ (378,798) $ (321,792) $ (2,175) $ (54,831)
Europe 410,076 634,867 (224,791) (167,710) 685 (57,766)
Asia Pacific 316,133 367,086 (50,953) (29,847) (5,379) (15,727)
South America 41,932 73,581 (31,649) (20,572) (11,077) -
Total Automotive 1,588,286 2,274,477 (686,191) (539,921) (17,946) (128,324)
Corporate, eliminations and
other 90,271 107,734 (17,463) (17,406) (57) -
Consolidated $ 1,678,557 $ 2,382,211 $ (703,654) $ (557,327) $ (18,003) $ (128,324)
* Net of customer price reductions
•Volume and mix, net of customer price reductions, is mainly driven by the
impact of the decline in vehicle production volume driven by government imposed
global shutdowns related to the COVID-19 pandemic.
•The impact of foreign currency exchange primarily relates to the Brazilian
Real, Chinese Renminbi, Canadian Dollar and Mexican Peso.
Segment adjusted EBITDA
Nine Months Ended September 30, Variance Due To:
Foreign Cost (Increases)/
2020 2019 Change Volume/ Mix* Exchange Decreases Divestitures
(dollar amounts in thousands)
Segment adjusted EBITDA
North America $ 52,260 $ 172,853 $ (120,593) $ (140,772) $ 174 $ 24,542 $ (4,537)
Europe (47,492) 21,540 (69,032) (74,178) 635 6,978 (2,467)
Asia Pacific (6,983) (14,313) 7,330 (17,735) 1,139 22,717 1,209
South America (11,608) (4,817) (6,791) (4,283) (6,465) 3,957 -
Total Automotive (13,823) 175,263 (189,086) (236,968) (4,517) 58,194 (5,795)
Corporate, eliminations and
other (7,516) 663 (8,179) (9,322) (1,492) 805 1,830
Consolidated adjusted
EBITDA $ (21,339) $ 175,926 $ (197,265) $ (246,290) $ (6,009) $ 58,999 $ (3,965)
* Net of customer price reductions
•Volume and mix, net of customer price reductions primarily includes the impact
of the decline in vehicle production volume as driven by government imposed
global shutdowns related to the COVID-19 pandemic.
•The impact of foreign currency exchange is driven by the Brazilian Real, Euro,
Chinese Renminbi, Brazilian Real, Euro, Polish Zloty, and Czech Koruna.
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•The Cost (Increases) / Decreases category above includes:
•Reduction in compensation-related expenses, due to salaried headcount
initiatives, purchasing savings through lean initiatives, and restructuring
savings;
•Commodity cost fluctuations, wage increases and variable employee compensation
increases;
•The non-recurrence of prior year one-time impact of commercial settlements in
Asia Pacific ;
•Net manufacturing efficiencies of $45 million , weakened by the impact of
COVID-19, primarily driven by our European, North America 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 ("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 10. "Debt" to the
unaudited condensed consolidated financial statements included in Part I, Item 1
of this Report for additional information.
We continue to take aggressive action to preserve cash and enhance liquidity,
including significantly decreasing our capital expenditures. Based on those
actions and current projections for increasing OEM customer production, 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, despite the challenges presented by the
COVID-19 pandemic. We continuously monitor and forecast our liquidity situation,
take the necessary actions to preserve our liquidity and evaluate other
financial alternatives that may be available to us should the need arise. Our
ability to fund our working capital needs, debt payments and other obligations,
and to comply with the financial covenants, including borrowing base
limitations, under our ABL Facility, depend on our future operating performance
and cash flows and many factors outside of our control, including the costs of
raw materials, the state of the overall automotive industry and financial and
economic conditions, including the impact of COVID-19, and other factors.
Cash Flows
Operating Activities. Net cash used in operations was $26.5 million for the nine
months ended September 30, 2020 , compared to net cash provided by operations of
$29.9 million for the nine months ended September 30, 2019 . The net outflow was
primarily due to decreased cash earnings, partially offset by working capital
improvements.
Investing Activities. Net cash used in investing activities was $89.5 million
for the nine months ended September 30, 2020 , compared to net cash provided by
investing activities of $113.9 million for the nine months ended September 30,
2019 . Significant decreases in capital expenditures occurred throughout 2020, in
order to preserve liquidity in response to the COVID-19 pandemic. Additionally,
lower capital expenditures are expected in the fourth quarter of 2020. Cash
provided by investing activities in 2019 consisted primarily of gross proceeds
of $243.4 million from the sale of our AVS product line, partially offset by
capital spending.
Financing Activities. Net cash provided by financing activities totaled $225.1
million for the nine months ended September 30, 2020 , compared to net cash used
in financing activities of $78.3 million for the nine months ended September 30,
2019 . The inflow was primarily due to proceeds from issuance of the Senior
Secured Notes during the nine months ended September 30, 2020 . There were no
share repurchases during the nine months ended September 30, 2020 . Cash used for
share repurchases was $36.6 million for the nine months ended September 30,
2019 .
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
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discontinued at any time at our discretion. As of September 30, 2020 , we had
approximately $98.7 million of repurchase authorization remaining under the 2018
Program. We currently have no plans to repurchase shares in the foreseeable
future.
We did not make any repurchases during the nine months ended September 30, 2020 .
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 repurchase was completed in the third
quarter of 2019 when we received final delivery of an additional 72,875 shares.
A total of 699,180 shares were repurchased at a weighted average purchase price
of $42.91 per share.
In addition to the repurchase under the ASR agreement, during the nine months
ended September 30, 2019 , we repurchased 85,000 shares at an average purchase
price of $69.85 per share, excluding commissions, for a total cost of $5.9
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,
Senior Notes and Senior Secured Notes;
•they do not reflect certain tax payments that may represent a reduction in cash
available to us;
•although depreciation and amortization are non-cash charges, the assets being
depreciated or amortized may have to be replaced in the future, and EBITDA and
Adjusted EBITDA do not reflect cash requirements for such replacements; and
•other companies, including companies in our industry, may calculate these
measures differently and, as the number of differences in the way companies
calculate these measures increases, the degree of their usefulness as a
comparative measure correspondingly decreases.
In addition, in evaluating Adjusted EBITDA, it should be noted that in the
future, we may incur expenses similar to the adjustments in the below
presentation. Our presentation of Adjusted EBITDA should not be construed as an
inference that our future results will be unaffected by special items.
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The following table provides a reconciliation of EBITDA and Adjusted EBITDA from
net income (loss), which is the most comparable financial measure in accordance
with U.S. GAAP:
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(dollar amounts in thousands)
Net income (loss) attributable to
Cooper-Standard Holdings Inc. $ 4,381 $ (4,877) $ (240,426) $ 134,913
Income tax (benefit) expense (2,386) 745 (55,485) 47,001
Interest expense, net of interest income 17,985 10,351 40,993 33,858
Depreciation and amortization 36,504 37,495 116,727 111,968
EBITDA $ 56,484 $ 43,714 $ (138,191) $ 327,740
Impairment of assets held for sale - - 86,470 -
Restructuring charges 6,186 5,572 23,236 29,214
Project costs (1) - 335 4,234 2,003
Other impairment charges (2) 100 1,958 947 4,146
Lease termination costs (3) 83 512 684 1,003
Gain on sale of business, net (4) (2,314) 1,730 (2,314) (188,180)
Divested noncontrolling interest debt
extinguishment 3,595 - 3,595 -
Adjusted EBITDA $ 64,134 $ 53,821 $ (21,339) $ 175,926
(1)Project costs recorded in selling, administration and engineering expense
related to divestitures in 2020 and acquisitions and divestiture costs in 2019.
(2)Non-cash impairment charges of $947 related to fixed assets, net of
approximately $293 attributable to our noncontrolling interests for the nine
months ended September 30, 2020 .
(3)Lease termination costs no longer recorded as restructuring charges in
accordance with ASC 842.
(4)Gain on sale of business primarily related to divestitures in 2020. In the
third quarter of 2019, there were working capital adjustments to the net gain on
sale of business, which related to the divestiture of the AVS product line in
2019.
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Contingencies and Environmental Matters
The information concerning contingencies, including environmental contingencies
and the amount currently held in reserve for environmental matters, contained in
Note 21. "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 nine months ended September 30, 2020 .
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: the impact, and expected continued
impact, of the recent COVID-19 outbreak on our financial condition and results
of operations; significant risks to our liquidity presented by the COVID-19
pandemic risk; prolonged or material contractions in automotive sales and
production volumes; our inability to realize sales represented by awarded
business; escalating pricing pressures; loss of large customers or significant
platforms; our ability to successfully compete in the automotive parts industry;
availability and increasing volatility in costs of manufactured components and
raw materials; disruption in our supply base; competitive threats and commercial
risks associated with our diversification strategy through Advanced Technology
Group; possible variability of our working capital requirements; risks
associated with our international operations, including changes in laws,
regulations, and policies governing the terms of foreign trade such as increased
trade restrictions and tariffs; foreign currency exchange rate fluctuations; our
ability to control the operations of our joint ventures for our sole benefit;
our substantial amount of indebtedness; 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, data privacy concerns, other disruptions in, or the
inability to implement upgrades to, our information technology systems; the
possible volatility of our annual effective tax rate; changes in our assumptions
as a result of IRS issuing guidance on the Tax Cuts and Jobs Act; the
possibility of a failure to maintain effective controls and procedures; the
possibility of future impairment charges to our goodwill and long-lived assets;
our 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.
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