Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-54305

 

 

COOPER-STANDARD HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-1945088

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

39550 Orchard Hill Place Drive

Novi, Michigan 48375

(Address of principal executive offices)

(Zip Code)

(248) 596-5900

(Registrant’s telephone number, including area code)

 

 

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.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No  ¨

As of November 2, 2012 there were 17,620,074 shares of the registrant’s common stock, $0.001 par value, outstanding.

 

 

 


Table of Contents

COOPER-STANDARD HOLDINGS INC.

Form 10-Q

For the period ended September 30, 2012

 

         Page  
PART I. FINANCIAL INFORMATION   

Item 1.

  Financial Statements (unaudited)   
  Condensed Consolidated Statements of Comprehensive Income (Loss)      3   
  Condensed Consolidated Balance Sheets      4   
  Condensed Consolidated Statements of Cash Flows      5   
  Notes to Condensed Consolidated Financial Statements      6   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      25   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      33   

Item 4.

  Controls and Procedures      33   
PART II. OTHER INFORMATION   

Item 1.

  Legal Proceedings      34   

Item 1A.

  Risk Factors      34   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      34   

Item 6.

  Exhibits      35   

SIGNATURES

     36   

INDEX TO EXHIBITS AND EXHIBITS

     37   

 

2


Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

COOPER-STANDARD HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollar amounts in thousands except per share amounts)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2012     2011     2012  

Sales

   $ 708,544      $ 684,029      $ 2,157,776      $ 2,183,794   

Cost of products sold

     599,985        580,956        1,804,743        1,844,616   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     108,559        103,073        353,033        339,178   

Selling, administration & engineering expenses

     64,403        65,421        190,856        206,432   

Amortization of intangibles

     3,911        3,866        11,745        11,590   

Restructuring

     6,539        10,171        48,124        15,758   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     33,706        23,615        102,308        105,398   

Interest expense, net of interest income

     (9,603     (11,325     (30,158     (33,326

Equity earnings

     843        2,342        3,480        5,891   

Other income (expense), net

     (8,884     1,118        6,191        (449
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     16,062        15,750        81,821        77,514   

Provision (benefit) for income tax expense

     7,963        5,392        26,782        (32,772
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

     8,099        10,358        55,039        110,286   

Net loss attributable to noncontrolling interests

     7,559        1,266        24,576        2,441   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cooper-Standard Holdings Inc.

   $ 15,658      $ 11,624      $ 79,615      $ 112,727   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to Cooper-Standard Holdings Inc. common stockholders

   $ 11,080      $ 8,037      $ 59,315      $ 86,588   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income per share attributable to Cooper-Standard Holdings Inc.

   $ 0.63      $ 0.46      $ 3.37      $ 4.93   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per share attributable to Cooper-Standard Holdings Inc.

   $ 0.58      $ 0.44      $ 3.08      $ 4.63   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (53,137   $ 18,790      $ 32,922      $ 104,998   

Add: Comprehensive loss attributable to noncontrolling interests

     9,030        825        26,961        2,758   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Cooper-Standard Holdings Inc.

   $ (44,107   $ 19,615      $ 59,883      $ 107,756   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

COOPER-STANDARD HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands except share amounts)

 

     December 31,     September 30,  
     2011     2012  
           (Unaudited)  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 361,745      $ 217,838   

Accounts receivable, net

     433,947        543,762   

Inventories, net

     139,726        161,573   

Prepaid expenses

     26,295        23,611   

Other

     43,808        51,772   
  

 

 

   

 

 

 

Total current assets

     1,005,521        998,556   

Property, plant and equipment, net

     619,717        620,980   

Goodwill

     136,406        136,216   

Intangibles, net

     131,691        121,025   

Deferred tax assets

     31,962        64,441   

Other assets

     78,491        84,093   
  

 

 

   

 

 

 
   $ 2,003,788      $ 2,025,311   
  

 

 

   

 

 

 

Liabilities and Equity

    

Current liabilities:

    

Debt payable within one year

   $ 33,093      $ 30,153   

Accounts payable

     256,671        240,816   

Payroll liabilities

     84,591        100,668   

Accrued liabilities

     108,628        89,600   
  

 

 

   

 

 

 

Total current liabilities

     482,983        461,237   

Long-term debt

     455,559        452,043   

Pension benefits

     192,124        164,384   

Postretirement benefits other than pensions

     68,242        67,571   

Deferred tax liabilities

     18,803        14,172   

Other liabilities

     44,614        41,961   
  

 

 

   

 

 

 

Total liabilities

     1,262,325        1,201,368   

Redeemable noncontrolling interests

     14,344        16,523   

7% Cumulative participating convertible preferred stock, $0.001 par value, 10,000,000 shares authorized at December 31, 2011, and September 30, 2012; 1,007,444 shares issued and 1,003,108 outstanding at December 31, 2011 and 977,004 shares issued and 971,090 outstanding at September 30, 2012

     125,916        122,858   

Equity:

    

Common stock, $0.001 par value, 190,000,000 shares authorized at December 31, 2011 and September 30, 2012; 18,416,957 shares issued and 18,323,443 outstanding at December 31, 2011 and 18,426,553 shares issued and 17,737,874 outstanding at September 30, 2012

     17        17   

Additional paid-in capital

     485,637        479,784   

Retained earnings

     124,674        219,214   

Accumulated other comprehensive loss

     (12,469     (17,440
  

 

 

   

 

 

 

Total Cooper-Standard Holdings Inc. equity

     597,859        681,575   

Noncontrolling interests

     3,344        2,987   
  

 

 

   

 

 

 

Total equity

     601,203        684,562   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 2,003,788      $ 2,025,311   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

COOPER-STANDARD HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollar amounts in thousands)

 

     Nine Months Ended September 30,  
     2011     2012  

Operating Activities:

    

Consolidated net income

   $ 55,039      $ 110,286   

Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities:

    

Depreciation

     80,298        79,640   

Amortization of intangibles

     11,745        11,590   

Deferred income taxes

     —          (47,763

Non-cash restructuring

     383        147   

Amortization of debt issuance cost

     938        947   

Stock-based compensation expense

     9,164        11,473   

Gain on partial sale of joint venture

     (11,423     —     

Gain on sale of fixed assets

     —          (929

Changes in operating assets and liabilities

     (100,392     (187,410
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     45,752        (22,019

Investing activities:

    

Capital expenditures, including other intangible assets

     (70,253     (91,537

Acquisition of businesses, net of cash acquired

     30,878        (1,084

Investment in affiliate

     (10,500     —     

Proceeds from partial sale of joint venture

     16,000        —     

Proceeds from the sale of fixed assets

     377        8,997   
  

 

 

   

 

 

 

Net cash used in investing activities

     (33,498     (83,624

Financing activities:

    

Decrease in short-term debt

     (4,336     (2,833

Principal payments on long-term debt

     (3,189     (4,310

Cash dividends paid

     (5,406     (5,135

Repurchase of preferred stock

     —          (4,870

Repurchase of common stock

     —          (20,636

Other

     (154     21   
  

 

 

   

 

 

 

Net cash used in financing activities

     (13,085     (37,763

Effects of exchange rate changes on cash

     (7,319     (501
  

 

 

   

 

 

 

Changes in cash and cash equivalents

     (8,150     (143,907

Cash and cash equivalents at beginning of period

     294,450        361,745   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 286,300      $ 217,838   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

1. Overview

Basis of presentation

Cooper-Standard Holdings Inc. (together with its consolidated subsidiaries, the “Company”, “Cooper-Standard”, “we”, “our”, or “us”) is a leading manufacturer of fluid handling, body sealing, and Anti-Vibration Systems (“AVS”) components, systems, subsystems, and modules. The Company’s products are primarily for use in passenger vehicles and light trucks that are manufactured by global automotive original equipment manufacturers (“OEMs”) and replacement markets. The Company conducts substantially all of its activities through its subsidiaries.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2011 Annual Report on Form 10-K, 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 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. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. The operating results for the interim period ended September 30, 2012 are not necessarily indicative of results for the full year.

Recent accounting pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Comprehensive Income (Topic 220).” This ASU required companies to present items of net income, items of other comprehensive income (“OCI”) and total comprehensive income in one continuous statement or two separate but consecutive statements. The Company adopted this new accounting guidance in the first quarter of 2012.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820).” This ASU amends the requirements for measuring fair value and disclosing information about fair value. This ASU is effective for fiscal years and interim periods beginning after December 15, 2011. The Company adopted this new accounting guidance in the first quarter of 2012.

2. Acquisitions

On March 28, 2011, the Company completed the acquisition of USi, Inc. (“USi”), based in Rockford, Tennessee, from Ikyuo Co. Ltd. of Japan, for cash consideration of $6,500. USi provides an innovative hard coating process for use in automotive and industrial applications, which allows the Company to expand its technology capabilities. This acquisition was accounted for under Accounting Standards Codification (“ASC”) 805, “Business Combinations,” and the results of operations of USi are included in the Company’s condensed consolidated financial statements from the date of acquisition. This acquisition does not meet the thresholds for a significant acquisition and therefore no pro forma financial information is presented.

To broaden product lines across Europe, the Company completed an agreement with Fonds de Modernisation des Equipementiers Automobiles (“FMEA”) on May 2, 2011, to establish a joint venture that combined the Company’s French body sealing operations and the operations of Société des Polymères Barre-Thomas (“SPBT”). SPBT was a French supplier of anti-vibration systems and low pressure hoses, as well as body sealing products, which FMEA acquired as a preliminary step to the joint venture transaction. The Company contributed its French body sealing assets and obligations, which had a fair value of approximately $33,000, to the joint venture to acquire 51 percent ownership and FMEA contributed the assets and obligations of SPBT for its 49 percent ownership. SPBT changed its name to Cooper Standard France SAS (“CS France”) subsequent to the transaction.

The Company accounted for the transaction as a sale of a subsidiary while retaining control under ASC 810, “Consolidations” and an acquisition of 51 percent ownership interest of SPBT under ASC 805, “Business Combinations.” Accordingly, the subsidiary was transferred at historical cost and the assets acquired and the liabilities assumed of SPBT were recorded at fair value and are included in the Company’s condensed consolidated balance sheets. The Company received net cash of $38,224 as part of the transaction. Also, as part of the acquisition the Company acquired an ownership interest in a joint venture in India.

The operating results of CS France are included in the Company’s condensed consolidated financial statements from the date of acquisition. This joint venture does not meet the thresholds for a significant acquisition and therefore no pro forma financial information is presented.

 

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Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

In connection with the investment in CS France, the noncontrolling shareholders have the option, which is embedded in the noncontrolling interest, to require the Company to purchase the remaining 49 percent noncontrolling share at a formula price designed to approximate fair value based on operating results of the entity. The put option becomes exercisable at the expiration of the four year period following the May 2, 2011 closing date of the transaction. The combination of a noncontrolling interest and a put option resulted in a redeemable noncontrolling interest.

The noncontrolling interest is redeemable at other than fair value as the put value is determined based on a formula described above. The Company records the noncontrolling interests in CS France at the greater of 1) the initial carrying amount, increased or decreased for the noncontrolling shareholders’ share of net income or loss and its share of other comprehensive income or loss and dividends (“carrying amount”) or 2) the cumulative amount required to accrete the initial carrying amount to the redemption value, which resulted in accretion of $1,527 and $4,580 for the three and nine months ended September 30, 2012. Such accretion amounts are recorded as increases to redeemable noncontrolling interests with offsets to equity. According to authoritative accounting guidance, the redeemable noncontrolling interest is classified outside of permanent equity, in mezzanine equity, on the Company’s condensed consolidated balance sheets. As of September 30, 2012, the estimated redemption value of the put option is $28,910. The redemption amount related to the put option is guaranteed by the Company and secured with the CS France shares held by a subsidiary of the Company. The Company has determined that the non-recurring fair value measurement related to this calculation relies primarily on Company-specific inputs and the Company’s assumptions, as observable inputs are not available. As such, the Company has determined that this fair value measurement resides within Level 3 of the fair value hierarchy. To determine the fair value of the put option, the Company utilizes the projected cash flows expected to be generated by the joint venture, then discounts the future cash flows by using a risk-adjusted rate for the Company.

According to authoritative accounting guidance for redeemable noncontrolling shareholders’ interests, to the extent the noncontrolling shareholders have a contractual right to receive an amount upon exercise of a put option that is other than fair value, and such amount is greater than carrying value, the noncontrolling shareholder has, in substance, received a dividend distribution that is different than other common stockholders. Therefore the redemption amount in excess of fair value should be reflected as a reduction in the income available to the Company’s common stockholders in the computation of earnings per share. At September 30, 2012 there was no difference between redemption value and fair value.

On July 1, 2011, the Company purchased from Nishikawa Rubber Co., Limited (“Nishikawa Rubber”) a 20% interest in Nishikawa Tachaplalert Rubber Company Limited for cash consideration of $10,500. Nishikawa Tachaplalert Rubber Company Limited is a joint venture majority owned by Nishikawa Rubber based in Thailand and supplies body sealing products. The new joint venture entity is Nishikawa Tachaplalert Cooper Limited. This joint venture is owned 20% by Cooper Standard, 77.7% by Nishikawa Rubber and 2.3% owned by Original Tachaplalerts and Marubeni Thailand. This investment is accounted for under the equity method and is included in other assets in the accompanying condensed consolidated balance sheets.

During the fourth quarter of 2011, the Company acquired the automotive sealing business of Sigit S.p.A, (“Sigit”) based in Chivasso, Italy and Poland, for a total cash consideration of $4,066. Consolidating Sigit’s sealing capabilities into the Company’s existing operations will broaden the Company’s supply relationship with global OEM customers. This acquisition was accounted for under ASC 805, “Business Combinations,” and the results of operations of Sigit are included in the Company’s condensed consolidated financial statements from the date of acquisition. This acquisition does not meet the thresholds for a significant acquisition and therefore no pro forma financial information is presented.

3. Goodwill and Intangibles

The changes in the carrying amount of goodwill by reportable operating segment for the nine months ended September 30, 2012 are summarized as follows:

 

     North America      International     Total  

Balance at January 1, 2012

   $ 115,298       $ 21,108      $ 136,406   

Foreign exchange translation

     160         (350     (190
  

 

 

    

 

 

   

 

 

 

Balance at September 30, 2012

   $ 115,458       $ 20,758      $ 136,216   
  

 

 

    

 

 

   

 

 

 

Goodwill is not amortized but is tested for impairment, either annually or when events or circumstances indicate that impairment may exist, by reporting units determined in accordance with ASC 350, “Goodwill and Other Intangible Assets.”

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

The following table presents intangible assets and accumulated amortization balances of the Company as of December 31, 2011 and September 30, 2012, respectively:

 

     Gross            Net      Weighted  
     Carrying      Accumulated     Carrying      Average Useful  
     Amount      Amortization     Amount      Life (Years)  

Customer relationships

   $ 138,576       $ (21,267   $ 117,309         8.6   

Developed technology

     9,503         (2,521     6,982         4.8   

Other

     7,603         (203     7,400      
  

 

 

    

 

 

   

 

 

    

Balance at December 31, 2011

   $ 155,682       $ (23,991   $ 131,691         8.1   
  

 

 

    

 

 

   

 

 

    

Customer relationships

   $ 136,006       $ (30,902   $ 105,104         7.9   

Developed technology

     9,469         (3,702     5,767         4.1   

Other

     10,636         (482     10,154      
  

 

 

    

 

 

   

 

 

    

Balance at September 30, 2012

   $ 156,111       $ (35,086   $ 121,025         7.4   
  

 

 

    

 

 

   

 

 

    

Amortization expense totaled $3,911 and $3,866 for the three months ended September 30, 2011 and 2012, respectively and $11,745 and $11,590 for the nine months ended September 30, 2011 and 2012, respectively. Estimated amortization expense will total approximately $15,500 for the year ending December 31, 2012.

4. Restructuring

The Company implemented several restructuring initiatives in prior years in connection with the closure or consolidation of facilities in North America, Europe, South America, Australia and Asia. The Company also implemented a restructuring initiative that involved the reorganization of the Company’s operating structure. The Company commenced these initiatives prior to December 31, 2010 and continued to execute these initiatives through September 30, 2012. The majority of the costs associated with these initiatives were incurred shortly after the original implementation. However, the Company continues to incur costs on some of the initiatives related principally to the liquidation of the respective facilities. The total expense incurred related to these actions amounted to $(241) and $566 for the nine months ended September 30, 2011 and 2012, respectively. As of September 30, 2012, there is a liability of $80 associated with these initiatives recorded on the Company’s condensed consolidated balance sheet.

In the first quarter of 2011, the Company initiated the closure of a facility in North America and announced the decision to establish a centralized shared services function in Europe. The estimated total costs of these initiatives amount to $11,000 and are expected to be completed in 2013. The Company has recognized $10,993 of costs related to these initiatives. The following tables summarize the activity for these initiatives for the nine months ended September 30, 2011 and 2012:

 

     Employee     Other              
     Separation     Exit     Asset        
     Costs     Costs     Impairments     Total  

Balance at January 1, 2011

   $ —        $ —        $ —        $ —     

Expense

     2,278        4,721        —          6,999   

Cash payments

     —          (3,465     —          (3,465
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

   $ 2,278      $ 1,256      $ —        $ 3,534   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Employee     Other              
     Separation     Exit     Asset        
     Costs     Costs     Impairments     Total  

Balance at January 1, 2012

   $ 3,443      $ 848      $ —        $ 4,291   

Expense

     (392     2,413        147        2,168   

Cash payments

     (3,046     (3,261     —          (6,307

Utilization of reserve

     —          —          (147     (147
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

   $ 5      $ —        $ —        $ 5   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

An other postretirement benefit curtailment gain of $1,539 for the nine months ended September 30, 2012 resulted from the closure of a U.S. facility and was recorded as a reduction to restructuring expense.

In the second quarter of 2011, the Company initiated the reorganization of the Company’s French body sealing operations in relation to the joint venture agreement with FMEA. The estimated total cost of this initiative is $44,300 and is expected to be completed in 2012. The Company has recognized $44,237 of costs related to this initiative. The following tables summarize the activity for this initiative for the nine months ended September 30, 2011 and 2012:

 

     Employee     Other               
     Separation     Exit     Asset         
     Costs     Costs     Impairments      Total  

Balance at January 1, 2011

   $ —        $ —        $ —         $ —     

Expense

     33,431        4,160        —           37,591   

Reorganization iniative transfer

     1,877        —          —           1,877   

Cash payments and foreign exchange translation

     (3,927     (4,160     —           (8,087
  

 

 

   

 

 

   

 

 

    

 

 

 

Balance at September 30, 2011

   $ 31,381      $ —        $ —         $ 31,381   
  

 

 

   

 

 

   

 

 

    

 

 

 
     Employee     Other               
     Separation     Exit     Asset         
     Costs     Costs     Impairments      Total  

Balance at January 1, 2012

   $ 23,228      $ —        $ —         $ 23,228   

Expense

     423        1,360        —           1,783   

Cash payments and foreign exchange translation

     (22,060     (1,360     —           (23,420
  

 

 

   

 

 

   

 

 

    

 

 

 

Balance at September 30, 2012

   $ 1,591      $ —        $ —         $ 1,591   
  

 

 

   

 

 

   

 

 

    

 

 

 

In the third quarter of 2011, the Company initiated the transfer of a sealing business from one of its German facilities to other sealing operations in Eastern Europe. After discussions with several stakeholders it was determined the completion of this initiative would not be achieved. As a result, $1,644 of restructuring expense was reversed in the nine months ended September 30, 2012.

In the first quarter of 2012, the Company initiated the closure of a facility in North America and a restructuring liability of $4,886 was recorded. During the second quarter of 2012, the Company was able to negotiate a new contract with the union, therefore enabling the facility to remain open. As a result, $4,725 of restructuring expense was reversed in the nine months ended September 30, 2012.

During 2012, the Company initiated the restructuring of facilities in Europe to change the Company’s European footprint to improve the Company’s operating performance. The estimated total cost of this initiative is $20,300 and is expected to be completed in 2013. The following table summarizes the activity for this initiative for the nine months ended September 30, 2012:

 

     Employee     Other               
     Separation     Exit     Asset         
     Costs     Costs     Impairments      Total  

Balance at January 1, 2012

   $ —        $ —        $ —         $ —     

Expense

     14,053        210        —           14,263   

Cash payments and foreign exchange translation

     (3,368     (210     —           (3,578
  

 

 

   

 

 

   

 

 

    

 

 

 

Balance at September 30, 2012

   $ 10,685      $ —        $ —         $ 10,685   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

9


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

5. Inventories

Inventories were comprised of the following at December 31, 2011 and September 30, 2012:

 

     December 31,      September 30,  
     2011      2012  

Finished goods

   $ 34,446       $ 40,897   

Work in process

     34,466         39,791   

Raw materials and supplies

     70,814         80,885   
  

 

 

    

 

 

 
   $ 139,726       $ 161,573   
  

 

 

    

 

 

 

6. Debt

Outstanding debt consisted of the following at December 31, 2011 and September 30, 2012:

 

     December 31,     September 30,  
     2011     2012  

Senior notes

   $ 450,000      $ 450,000   

Other borrowings

     38,652        32,196   
  

 

 

   

 

 

 

Total debt

   $ 488,652      $ 482,196   

Less current portion

     (33,093     (30,153
  

 

 

   

 

 

 

Total long-term debt

   $ 455,559      $ 452,043   
  

 

 

   

 

 

 

Senior ABL Facility

The Company’s senior secured asset-based revolving credit facility (the “Senior ABL Facility”) provides for an aggregate revolving loan availability of up to $125,000, subject to borrowing base availability, including a $45,000 letter of credit sub-facility and a $20,000 swing line sub-facility. The Senior ABL Facility also provides for an uncommitted $25,000 incremental loan facility, for a potential total Senior ABL Facility of $150,000 (if requested by the borrowers and any existing lenders or new lenders agree to fund such increase). No consent of any lender (other than those participating in the increase) is required to effect any such increase. As of September 30, 2012, no amounts were drawn under the Senior ABL Facility, but there were approximately $27,632 of letters of credit outstanding.

 

10


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

7. Pension and Postretirement Benefits other than Pensions

The following tables disclose the amount of net periodic benefit cost for the three and nine months ended September 30, 2011 and 2012 for the Company’s defined benefit plans and other postretirement benefit plans:

 

     Pension Benefits  
     Three Months Ended September 30,  
     2011     2012  
     U.S.     Non-U.S.     U.S.     Non-U.S.  

Service cost

   $ 526      $ 633      $ 287      $ 778   

Interest cost

     3,687        1,791        3,476        1,919   

Expected return on plan assets

     (4,052     (1,017     (3,868     (1,010

Amortization of prior service cost and recognized actuarial loss

     5        10        124        96   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 166      $ 1,417      $ 19      $ 1,783   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Pension Benefits  
     Nine Months Ended September 30,  
     2011     2012  
     U.S.     Non-U.S.     U.S.     Non-U.S.  

Service cost

   $ 1,578      $ 1,898      $ 861      $ 2,366   

Interest cost

     11,061        5,373        10,428        5,830   

Expected return on plan assets

     (12,156     (3,059     (11,604     (3,010

Amortization of prior service cost and recognized actuarial loss

     15        32        372        284   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 498      $ 4,244      $ 57      $ 5,470   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Other Postretirement Benefits  
     Three Months Ended September 30,  
     2011     2012  
     U.S.     Non-U.S.     U.S.     Non-U.S.  

Service cost

   $ 299      $ 160      $ 136      $ 163   

Interest cost

     751        231        449        206   

Amortization of prior service cost and recognized actuarial (gain) loss

     1        —          (444     (14

Other

     21        —          19        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 1,072      $ 391      $ 160      $ 355   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Other Postretirement Benefits  
     Nine Months Ended September 30,  
     2011     2012  
     U.S.     Non-U.S.     U.S.     Non-U.S.  

Service cost

   $ 897      $ 481      $ 408      $ 486   

Interest cost

     2,253        695        1,347        614   

Amortization of prior service cost and recognized actuarial (gain) loss

     3        —          (1,332     (41

Other

     63        —          57        —     

Curtailment gain

     —          —          (1,539     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (gain)

   $ 3,216      $ 1,176      $ (1,059   $ 1,059   
  

 

 

   

 

 

   

 

 

   

 

 

 

The curtailment gain for the nine months ended September 30, 2012 in the table above resulted from the closure of a U.S. facility and was recorded as a reduction to restructuring expense.

 

11


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

8. Income Taxes

Under ASC Topic 270, “Interim Reporting,” the Company is required to determine its effective tax rate each quarter based upon its estimated annual effective tax rate. The Company is also required to record 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.

On a quarterly basis, the Company reviews the likelihood that it will realize the benefit of its deferred tax assets and, therefore, the need for valuation allowances. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset is considered, along with all other available positive and negative evidence. The factors considered by management in its determination of the probability of the realization of the deferred tax assets include but are not limited to: recent historical financial results, historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. The Company utilizes rolling twelve quarters of pre-tax book results adjusted for significant permanent book to tax differences as a measure of cumulative results in recent years. In certain foreign jurisdictions, the Company’s analysis indicates that it would have cumulative three year historical losses on this basis. This is considered significant negative evidence which is difficult to overcome. However, the three year loss position is not solely determinative and, accordingly, management considers all other available positive and negative evidence in its analysis. Based upon this analysis, management concluded that it is more likely than not that the net deferred tax assets in certain foreign jurisdictions may not be realized in the future. Accordingly, the Company continues to maintain a valuation allowance related to those net deferred tax assets.

In the United States, the Company has been in a cumulative loss position in recent years. However, that position changed to a three year cumulative income position during the second quarter of 2012. This position, along with management’s analysis of all other available evidence, resulted in the conclusion that the net deferred tax asset in the United States is more likely than not to be realized. As such, the valuation allowance previously recorded against the net deferred tax assets in the United States has been reversed.

During 2012, the Company is expected to record a tax benefit of approximately ($67,800) related to reductions in its U.S. valuation allowance against net deferred tax assets, which is comprised of two items: 1) a net benefit of ($19,500) included in the estimated annual effective tax rate resulting from forecasted net income in the U.S. with no corresponding tax expense due to utilization of valuation allowances, and 2) a benefit of ($48,300) resulting from changes in determinations relating to the potential realization of deferred tax assets and the resulting reversal of a valuation allowance on net deferred tax assets in the United States.

The effective tax rate for the three and nine months ended September 30, 2012 is 34% and (42%), respectively. Excluding the impact of releasing the U.S. valuation allowance discretely, the effective tax rate for the nine months ended September 30, 2012 is 20%. The effective tax rate for the three and nine months ended September 30, 2011 was 50% and 33%, respectively. The income tax rate for the three and nine months ended September 30, 2012 varies from statutory rates due to the benefit resulting from the reversal of the valuation allowance on net deferred tax assets in the U.S., income in jurisdictions with no tax expense due to valuation allowance release, income taxes on foreign earnings taxed at rates lower than the U.S. statutory rate, 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, income tax incentives, withholding taxes, and other permanent items.

There is no corresponding income tax benefit recognized with respect to losses incurred and no corresponding income tax expense recognized with respect to earnings generated in jurisdictions with a valuation allowance. This causes variability in the Company’s effective tax rate. The Company intends to maintain the valuation allowances in those jurisdictions until it is more likely than not that the net deferred tax assets will be realized. If operating results improve or deteriorate on a sustained basis, the Company’s conclusions regarding the need for a valuation allowance could change, resulting in either the reversal or initial recognition of a valuation allowance in the future, which could have a significant impact on income tax expense in the period recognized and subsequent periods.

 

12


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

9. Comprehensive Income (Loss), Equity and Redeemable Noncontrolling Interests

The components of comprehensive income (loss), net of related tax are as follows:

 

     Three Months Ended September 30,  
     2011     2012  
     Total     Cooper-Standard
Holdings Inc.
    Noncontrolling
Interest
    Total     Cooper-Standard
Holdings Inc.
    Noncontrolling
Interest
 

Net income (loss)

   $ 8,099      $ 15,658      $ (7,559   $ 10,358      $ 11,624      $ (1,266

Currency translation adjustment

     (61,159     (59,688     (1,471     8,701        8,260        441   

Pension and other postretirement benefits, net of tax

     17        17        —          (189     (189     —     

Fair value change of derivatives, net of tax

     (94     (94     —          (80     (80     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

   $ (53,137   $ (44,107   $ (9,030   $ 18,790      $ 19,615      $ (825
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Nine Months Ended September 30,  
     2011     2012  
     Total     Cooper-Standard
Holdings Inc.
    Noncontrolling
Interest
    Total     Cooper-Standard
Holdings Inc.
    Noncontrolling
Interest
 

Net income (loss)

   $ 55,039      $ 79,615      $ (24,576   $ 110,286      $ 112,727      $ (2,441

Currency translation adjustment

     (23,402     (21,017     (2,385     (4,602     (4,285     (317

Pension and other postretirement benefits, net of tax

     1,655        1,655        —          (815     (815     —     

Fair value change of derivatives, net of tax

     (370     (370     —          129        129        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

   $ 32,922      $ 59,883      $ (26,961   $ 104,998      $ 107,756      $ (2,758
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table summarizes the Company’s equity and redeemable noncontrolling interest activity for the nine months ended September 30, 2012:

 

     Cooper-Standard     Noncontrolling     Total     Redeemable
Noncontrolling
 
     Holdings Inc.     Interest     Equity     Interests  

Equity at January 1, 2012

   $ 597,859      $ 3,344      $ 601,203      $ 14,344   

Net income (loss)

     112,727        (359     112,368        (2,082

Preferred stock dividends

     (5,087     —          (5,087     —     

Preferred stock redemption premium

     (974     —          (974     —     

Repurchase common stock

     (21,292     —          (21,292     —     

Other comprehensive loss

     (4,971     2        (4,969     (319

Stock-based compensation

     7,893        —          7,893        —     

Accretion of redeemable noncontrolling interests

     (4,580     —          (4,580     4,580   
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity at September 30, 2012

   $ 681,575      $ 2,987      $ 684,562      $ 16,523   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

13


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

10. Net Income Per Share Attributable to Cooper-Standard Holdings Inc.

Basic net income per share attributable to Cooper-Standard Holdings Inc. was computed using the two-class method by dividing net income attributable to Cooper-Standard Holdings Inc., after deducting dividends on the Company’s 7% preferred stock, premium paid for redemption of preferred stock and undistributed earnings allocated to participating securities, by the average number of common shares outstanding during the period excluding unvested restricted shares. The Company’s shares of 7% preferred stock outstanding are considered participating securities. A summary of information used to compute basic net income per share attributable to Cooper-Standard Holdings Inc. is shown below:

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2012     2011     2012  

Net income attributable to Cooper-Standard Holdings Inc.

   $ 15,658      $ 11,624      $ 79,615      $ 112,727   

Less: Preferred stock dividends (paid or unpaid)

     (1,835     (1,699     (5,519     (5,087

Less: Premium paid for redemption of preferred stock

     —          —          —          (974

Less: Undistributed earnings allocated to participating securities

     (2,743     (1,888     (14,781     (20,078
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to Cooper-Standard Holdings Inc. common stockholders

   $ 11,080      $ 8,037      $ 59,315      $ 86,588   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average shares of common stock outstanding

     17,693,458        17,454,226        17,580,474        17,578,580   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income per share attributable to Cooper-Standard Holdings Inc.

   $ 0.63      $ 0.46      $ 3.37      $ 4.93   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per share attributable to Cooper-Standard Holdings Inc. was computed using the treasury stock method by dividing net income attributable to Cooper-Standard Holdings Inc. by the average number of shares of common stock outstanding, including the dilutive effect of common stock equivalents, using the average share price during the period. Diluted net income per share attributable to Cooper-Standard Holdings Inc. computed using the two-class method was anti-dilutive. A summary of information used to compute diluted net income per share attributable to Cooper-Standard Holdings Inc. is shown below:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2011      2012      2011      2012  

Net income available to Cooper-Standard Holdings Inc. common stockholders

   $ 11,080       $ 8,037       $ 59,315       $ 86,588   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average common shares outstanding

     17,693,458         17,454,226         17,580,474         17,578,580   

Dilutive effect of:

           

Common restricted stock

     278,700         172,586         408,964         270,230   

Preferred restricted stock

     62,095         19,181         91,263         47,833   

Warrants

     946,478         570,067         992,627         699,533   

Options

     183,034         77,707         210,660         111,023   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average dilutive shares of common stock outstanding

     19,163,765         18,293,767         19,283,988         18,707,199   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income per share attributable to Cooper-Standard Holdings Inc.

   $ 0.58       $ 0.44       $ 3.08       $ 4.63   
  

 

 

    

 

 

    

 

 

    

 

 

 

The effect of certain common stock equivalents, including the convertible preferred stock and options, were excluded from the computation of weighted average diluted shares outstanding for the three and nine months ended September 30, 2011 and 2012, as inclusion would have resulted in antidilution. A summary of these preferred shares (as if converted) and options are shown below:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2011      2012      2011      2012  

Number of options

     33,700         272,800         33,700         272,800   

Exercise price

   $ 43.50       $ 43.50-46.75       $ 43.50       $ 43.50-46.75   

Preferred shares, as if converted

     4,381,005         4,099,692         4,381,005         4,076,150   

Preferred dividends, undistributed earnings and premium allocated to participating securities that would be added back in the diluted calculation

   $ 4,578       $ 3,587       $ 20,300       $ 26,139   

 

14


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

11. Redeemable Preferred Stock

The following table reconciles the Company’s 7% preferred stock activity for the nine months ended September 30, 2012:

 

     Preferred
Shares
    Preferred
Stock
 

Preferred stock at January 1, 2012

     1,003,108      $ 125,916   

Stock-based compensation

     —          1,040   

Repurchased preferred stock shares

     (32,018     (4,098
  

 

 

   

 

 

 

Preferred stock at September 30, 2012

     971,090      $ 122,858   
  

 

 

   

 

 

 

12. Stock-Based Compensation

On May 27, 2010, the Company adopted the 2010 Cooper-Standard Holdings Inc. Management Incentive Plan. In 2011, the Company adopted the 2011 Omnibus Incentive Plan, which amended, restated and replaced the 2010 Cooper-Standard Holdings Inc. Management Incentive Plan. Under these plans, stock options, restricted common stock, restricted preferred stock, unrestricted common stock and restricted stock units have been granted to key employees and directors. Total compensation expense recognized was $3,350 and $3,436 for the three months ended September 30, 2011 and 2012, respectively and $9,164 and $11,473 for the nine months ended September 30, 2011 and 2012, respectively.

13. Other Income (Expense), Net

The components of other income (expense), net are as follows:

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2012     2011     2012  

Foreign currency gains (losses)

   $ (2,848   $ (193   $ 1,455      $ (4,516

Unrealized gains (losses) related to forward contracts

     (5,487     1,476        (5,487     3,836   

Loss on sale of receivables

     (357     (165     (974     (689

Gain on partial sale of joint venture

     —          —          11,423        —     

Miscellaneous income (expense)

     (192     —          (226     920   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

   $ (8,884   $ 1,118      $ 6,191      $ (449
  

 

 

   

 

 

   

 

 

   

 

 

 

14. Related Party Transactions

Sales to NISCO, a 40% owned joint venture, totaled $6,983 and $7,472 for the three months ended September 30, 2011 and 2012, respectively and $21,016 and $31,491 for the nine months ended September 30, 2011 and 2012, respectively. In March 2012, the Company received from NISCO a dividend of $800, all of which was related to earnings.

Purchases of materials from Guyoung Technology Co. Ltd, a Korean corporation of which the Company owns approximately 20% of the common stock, totaled $643 and $743 for the three months ended September 30, 2011 and 2012, respectively and $2,236 and $2,340 for the nine months ended September 30, 2011 and 2012, respectively.

 

15


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

15. Business Segments

ASC 280, “Segment Reporting,” establishes the standards for reporting information about operating segments in financial statements. In applying the criteria set forth in ASC 280, the Company has determined that it operates in two segments, North America and International. The Company’s principal product lines within each of these segments are body and chassis products and fluid handling products. The Company evaluates segment performance based on segment profit before tax. The results of each segment include certain allocations for general, administrative, interest, and other shared costs.

The following table details information on the Company’s business segments:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2011     2012     2011     2012  

Sales to external customers

       

North America

  $ 348,507      $ 363,859      $ 1,073,655      $ 1,139,273   

International

    360,037        320,170        1,084,121        1,044,521   
 

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

  $ 708,544      $ 684,029      $ 2,157,776      $ 2,183,794   
 

 

 

   

 

 

   

 

 

   

 

 

 

Intersegment sales

       

North America

  $ 2,171      $ 1,646      $ 5,372      $ 5,979   

International

    2,271        3,577        6,322        10,112   

Eliminations and other

    (4,442     (5,223     (11,694     (16,091
 

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

  $ —        $ —        $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Segment profit (loss)

       

North America

  $ 31,850      $ 32,790      $ 131,880      $ 113,922   

International

    (15,788     (17,040     (50,059     (36,408
 

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

  $ 16,062      $ 15,750      $ 81,821      $ 77,514   
 

 

 

   

 

 

   

 

 

   

 

 

 

Restructuring cost included in segment profit (loss)

       

North America

  $ 1,838      $ 276      $ 4,958      $ 755   

International

    4,701        9,895        43,166        15,003   
 

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

  $ 6,539      $ 10,171      $ 48,124      $ 15,758   
 

 

 

   

 

 

   

 

 

   

 

 

 
    December 31,
2011
    September 30,
2012
       

Segment assets

     

North America

  $ 752,082      $ 800,456     

International

    1,020,410        1,010,463     

Eliminations and other

    231,296        214,392     
 

 

 

   

 

 

   

Consolidated

  $ 2,003,788      $ 2,025,311     
 

 

 

   

 

 

   

16. Guarantor and Non-Guarantor Subsidiaries

In connection with the May 27, 2010 Reorganization of the Company, Cooper-Standard Automotive Inc. (the “Issuer”), a wholly-owned subsidiary of Cooper-Standard Holdings Inc., issued 8 1/2% senior notes due 2018 (“the Senior Notes”) with a total principal amount of $450,000. Cooper-Standard Holdings Inc. and all wholly-owned domestic subsidiaries of Cooper-Standard Automotive Inc. (the “Guarantors”) unconditionally guarantee the Senior Notes. The following condensed consolidated financial data provides information regarding the financial position, results of operations, and cash flows of the Guarantors. Separate financial statements of the Guarantors are not presented because management has determined that those would not be material to the holders of the Senior Notes. The Guarantors account for their investments in the non-guarantor subsidiaries on the equity method. The principal elimination entries are to eliminate the investments in subsidiaries and intercompany balances and transactions.

 

16


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended September 30, 2011

 

                                  Consolidated  
    Parent     Issuer     Guarantors     Non-Guarantors     Eliminations     Totals  
    (dollars in millions)  

Sales

  $ —        $ 123.1      $ 150.6      $ 471.0      $ (36.2   $ 708.5   

Cost of products sold

    —          99.0        124.1        413.1        (36.2     600.0   

Selling, administration, & engineering expenses

    —          29.0        (0.1     35.5        —          64.4   

Amortization of intangibles

    —          2.7        —          1.2        —          3.9   

Restructuring

    —          0.1        1.7        4.7        —          6.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

    —          (7.7     24.9        16.5        —          33.7   

Interest expense, net of interest income

    —          (9.0     —          (0.6     —          (9.6

Equity earnings

    —          0.2        —          0.6        —          0.8   

Other income (expense), net

    —          12.5        0.2        (21.5     —          (8.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    —          (4.0     25.1        (5.0     —          16.1   

Provision (benefit) for income tax expense

    —          (1.7     8.9        0.8        —          8.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity in income of subsidiaries

    —          (2.3     16.2        (5.8     —          8.1   

Equity in net income of subsidiaries

    15.7        18.0        —          —          (33.7     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

    15.7        15.7        16.2        (5.8     (33.7     8.1   

Net loss attributable to noncontrolling interest

    —          —          —          7.6        —          7.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cooper-Standard Holdings Inc.

  $ 15.7      $ 15.7      $ 16.2      $ 1.8      $ (33.7   $ 15.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  $ (44.1   $ (44.1   $ 16.2      $ (64.7   $ 83.6      $ (53.1

Add: comprehensive loss attributable to noncontrolling interests

    —          —          —          9.0        —          9.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Cooper-Standard Holdings Inc.

  $ (44.1   $ (44.1   $ 16.2      $ (55.7   $ 83.6      $ (44.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Three Months Ended September 30, 2012

 

                                  Consolidated  
    Parent     Issuer     Guarantors     Non-Guarantors     Eliminations     Totals  
                (dollars in millions)              

Sales

  $ —        $ 135.1      $ 150.7      $ 441.4      $ (43.2   $ 684.0   

Cost of products sold

    —          113.0        129.1        382.0        (43.2     580.9   

Selling, administration, & engineering expenses

    —          30.8        —          34.6        —          65.4   

Amortization of intangibles

    —          2.8        —          1.1        —          3.9   

Restructuring

    —          0.1        0.2        9.9        —          10.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

    —          (11.6     21.4        13.8        —          23.6   

Interest expense, net of interest income

    —          (8.3     —          (3.0     —          (11.3

Equity earnings

    —          1.0        0.5        0.9        —          2.4   

Other income (expense), net

    —          8.7        (0.1     (7.5     —          1.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    —          (10.2     21.8        4.2        —          15.8   

Provision for income tax expense

    —          0.3        4.6        0.5        —          5.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity in income of subsidiaries

    —          (10.5     17.2        3.7        —          10.4   

Equity in net income of subsidiaries

    11.6        22.1        —          —          (33.7     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

    11.6        11.6        17.2        3.7        (33.7     10.4   

Net income attributable to noncontrolling interests

    —          —          —          1.2        —          1.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cooper-Standard Holdings Inc.

  $ 11.6      $ 11.6      $ 17.2      $ 4.9      $ (33.7   $ 11.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 19.6      $ 19.6      $ 17.2      $ 11.5      $ (49.1   $ 18.8   

Add: comprehensive loss attributable to noncontrolling interests

    —          —          —          0.8        —          0.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cooper-Standard Holdings Inc.

  $ 19.6      $ 19.6      $ 17.2      $ 12.3      $ (49.1   $ 19.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

17


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Nine Months Ended September 30, 2011

 

                                  Consolidated  
    Parent     Issuer     Guarantors     Non-Guarantors     Eliminations     Totals  
    (dollars in millions)  

Sales

  $ —        $ 373.6      $ 462.3      $ 1,426.7      $ (104.8   $ 2,157.8   

Cost of products sold

    —          304.2        381.5        1,223.9        (104.8     1,804.8   

Selling, administration, & engineering expenses

    —          86.9        (5.2     109.2        —          190.9   

Amortization of intangibles

    —          8.3        —          3.4        —          11.7   

Restructuring

    —          0.3        4.7        43.1        —          48.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

    —          (26.1     81.3        47.1        —          102.3   

Interest expense, net of interest income

    —          (26.6     —          (3.6     —          (30.2

Equity earnings

    —          0.3        0.5        2.7        —          3.5   

Other income (expense), net

    —          38.0        12.8        (44.6     —          6.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    —          (14.4     94.6        1.6        —          81.8   

Provision (benefit) for income tax expense

    —          (2.7     15.2        14.3        —          26.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity in income (loss) of subsidiaries

    —          (11.7     79.4        (12.7     —          55.0   

Equity in net income of subsidiaries

    79.6        91.3        —          —          (170.9     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

    79.6        79.6        79.4        (12.7     (170.9     55.0   

Net loss attributable to noncontrolling interest

    —          —          —          24.6        —          24.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cooper-Standard Holdings Inc.

  $ 79.6      $ 79.6      $ 79.4      $ 11.9      $ (170.9   $ 79.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  $ 59.9      $ 59.9      $ 79.4      $ (37.2   $ (129.1   $ 32.9   

Add: comprehensive loss attributable to noncontrolling interests

    —          —          —          27.0        —          27.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Cooper-Standard Holdings Inc.

  $ 59.9      $ 59.9      $ 79.4      $ (10.2   $ (129.1   $ 59.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Nine Months Ended September 30, 2012

 

                                  Consolidated  
    Parent     Issuer     Guarantors     Non-Guarantors     Eliminations     Totals  
    (dollars in millions)  

Sales

  $ —        $ 429.7      $ 475.5      $ 1,420.2      $ (141.6   $ 2,183.8   

Cost of products sold

    —          356.5        401.9        1,227.8        (141.6     1,844.6   

Selling, administration, & engineering expenses

    —          96.2        0.9        109.3        —          206.4   

Amortization of intangibles

    —          8.5        —          3.1        —          11.6   

Restructuring

    —          0.3        0.3        15.2        —          15.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

    —          (31.8     72.4        64.8        —          105.4   

Interest expense, net of interest income

    —          (24.9     —          (8.4     —          (33.3

Equity earnings

    —          0.5        2.7        2.7        —          5.9   

Other income (expense), net

    —          26.6        1.0        (28.1     —          (0.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    —          (29.6     76.1        31.0        —          77.5   

Provision (benefit) for income tax expense

    —          18.4        (48.5     (2.7     —          (32.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity in income (loss) of subsidiaries

    —          (48.0     124.6        33.7        —          110.3   

Equity in net income of subsidiaries

    112.7        160.7        —          —          (273.4     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

    112.7        112.7        124.6        33.7        (273.4     110.3   

Net loss attributable to noncontrolling interest

    —          —          —          2.4        —          2.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cooper-Standard Holdings Inc.

  $ 112.7      $ 112.7      $ 124.6      $ 36.1      $ (273.4   $ 112.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 107.8      $ 107.8      $ 124.6      $ 29.0      $ (264.2   $ 105.0   

Add: comprehensive loss attributable to noncontrolling interests

    —          —          —          2.8        —          2.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cooper-Standard Holdings Inc.

  $ 107.8      $ 107.8      $ 124.6      $ 31.8      $ (264.2   $ 107.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2011

 

                                     Consolidated  
     Parent      Issuer      Guarantors     Non-Guarantors     Eliminations     Totals  
     (dollars in millions)  

ASSETS

              

Current assets:

              

Cash and cash equivalents

   $ —         $ 189.6       $ —        $ 172.1      $ —        $ 361.7   

Accounts receivable, net

     —           66.8         74.8        292.3        —          433.9   

Inventories

     —           18.8         24.2        96.7        —          139.7   

Prepaid expenses

     —           5.2         0.4        20.7        —          26.3   

Other

     —           23.1         2.0        18.8        —          43.9   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     —           303.5         101.4        600.6        —          1,005.5   

Investments in affiliates and intercompany accounts, net

     597.9         290.9         1,050.0        (164.9     (1,719.5     54.4   

Property, plant, and equipment, net

     —           77.8         64.6        477.3        —          619.7   

Goodwill

     —           111.1         —          25.3        —          136.4   

Other assets

     —           97.6         (5.8     96.0        —          187.8   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   $ 597.9       $ 880.9       $ 1,210.2      $ 1,034.3      $ (1,719.5   $ 2,003.8   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES & EQUITY

              

Current liabilities:

              

Debt payable within one year

   $ —         $ —         $ —        $ 33.1      $ —        $ 33.1   

Accounts payable

     —           48.3         30.9        177.5        —          256.7   

Accrued liabilities

     —           48.9         9.0        135.3        —          193.2   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     —           97.2         39.9        345.9        —          483.0   

Long-term debt

     —           450.0         —          5.6        —          455.6   

Other liabilities

     —           164.1         5.9        153.8        —          323.8   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     —           711.3         45.8        505.3        —          1,262.4   

Redeemable noncontrolling interests

     —           —           —          14.3        —          14.3   

Preferred stock

     —           125.9         —          —          —          125.9   

Total Cooper-Standard Holdings Inc. equity

     597.9         43.7         1,164.4        511.4        (1,719.5     597.9   

Noncontrolling interests

     —           —           —          3.3        —          3.3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     597.9         43.7         1,164.4        514.7        (1,719.5     601.2   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 597.9       $ 880.9       $ 1,210.2      $ 1,034.3      $ (1,719.5   $ 2,003.8   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

19


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

CONDENSED CONSOLIDATING BALANCE SHEET

September 30, 2012

 

                                    Consolidated  
     Parent      Issuer     Guarantors     Non-Guarantors     Eliminations     Totals  
     (dollars in millions)  

ASSETS

             

Current assets:

             

Cash and cash equivalents

   $ —         $ 126.7      $ —        $ 91.1      $ —        $ 217.8   

Accounts receivable, net

     —           75.9        87.9        379.9        —          543.7   

Inventories

     —           22.8        32.7        106.1        —          161.6   

Prepaid expenses

     —           4.5        0.3        18.8        —          23.6   

Other

     —           34.8        (0.2     17.2        —          51.8   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     —           264.7        120.7        613.1        —          998.5   

Investments in affiliates and intercompany accounts, net

     681.6         274.1        1,104.4        (162.2     (1,836.6     61.3   

Property, plant, and equipment, net

     —           83.4        56.7        480.9        —          621.0   

Goodwill

     —           111.1        —          25.1        —          136.2   

Other assets

     —           59.6        48.6        100.1        —          208.3   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 681.6       $ 792.9      $ 1,330.4      $ 1,057.0      $ (1,836.6   $ 2,025.3   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES & EQUITY

             

Current liabilities:

             

Debt payable within one year

   $ —         $ —        $ —        $ 30.2      $ —        $ 30.2   

Accounts payable

     —           40.9        36.3        163.6        —          240.8   

Accrued liabilities

     —           56.0        5.2        129.0        —          190.2   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     —           96.9        41.5        322.8        —          461.2   

Long-term debt

     —           450.0        —          2.0        —          452.0   

Other liabilities

     —           141.8        (0.1     146.4        —          288.1   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     —           688.7        41.4        471.2        —          1,201.3   

Redeemable noncontrolling interests

     —           —          —          16.5        —          16.5   

Preferred stock

     —           122.9        —          —          —          122.9   

Total Cooper-Standard Holdings Inc. equity

     681.6         (18.7     1,289.0        566.3        (1,836.6     681.6   

Noncontrolling interests

     —           —          —          3.0        —          3.0   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     681.6         (18.7     1,289.0        569.3        (1,836.6     684.6   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 681.6       $ 792.9      $ 1,330.4      $ 1,057.0      $ (1,836.6   $ 2,025.3   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2011

 

                                  Consolidated  
    Parent     Issuer     Guarantors     Non-Guarantors     Eliminations     Totals  
    (dollars in millions)  

OPERATING ACTIVITIES

           

Net cash provided by (used in) operating activities

  $ 5.4      $ 0.9      $ (6.2   $ 45.7      $ —        $ 45.8   

INVESTING ACTIVITIES

           

Capital expenditures, including other intangible assets

    —          (15.6     (10.2     (44.5     —          (70.3

Acquisition of businesses, net of cash acquired

    —          —          —          30.9        —          30.9   

Investment in affiliates

    —          (10.5     —          —          —          (10.5

Proceeds from partial sale of joint venture

    —          —          16.0        —          —          16.0   

Proceeds from the sale of fixed assets

    —          —          0.4        —          —          0.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

    —          (26.1     6.2        (13.6     —          (33.5

FINANCING ACTIVITIES

           

Decrease in short-term debt

    —          —          —          (4.3     —          (4.3

Principal payments on long-term debt

    —          —          —          (3.2     —          (3.2

Other

    (5.4     33.5        —          (33.7     —          (5.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    (5.4     33.5        —          (41.2     —          (13.1

Effects of exchange rate changes on cash

    —          —          —          (7.4     —          (7.4

Changes in cash and cash equivalents

    —          8.3        —          (16.5     —          (8.2

Cash and cash equivalents at beginning of period

    —          163.0        —          131.5        —          294.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ —        $ 171.3      $ —        $ 115.0      $ —        $ 286.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

  $ —        $ 21.2      $ 11.9      $ 58.9      $ —        $ 92.0   

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2012

 

                                  Consolidated  
    Parent     Issuer     Guarantors     Non-Guarantors     Eliminations     Totals  
    (dollars in millions)  

OPERATING ACTIVITIES

           

Net cash provided by (used in) operating activities

  $ 5.1      $ (7.1   $ 8.0      $ (28.0   $ —        $ (22.0

INVESTING ACTIVITIES

           

Capital expenditures, including other intangible assets

    —          (19.9     (12.1     (59.5     —          (91.5

Acquisition of businesses, net of cash acquired

    —            —          (1.1     —          (1.1

Proceeds from the sale of fixed assets

    —          —          4.1        4.9        —          9.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    —          (19.9     (8.0     (55.7     —          (83.6

FINANCING ACTIVITIES

           

Decrease in short-term debt

    —          —          —          (2.8     —          (2.8

Principal payments on long-term debt

    —          —          —          (4.3     —          (4.3

Repurchase of preferred and common stock

    —          (25.5     —          —          —          (25.5

Other

    (5.1     (10.4     —          10.3        —          (5.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    (5.1     (35.9     —          3.2        —          (37.8

Effects of exchange rate changes on cash

    —          —          —          (0.5     —          (0.5

Changes in cash and cash equivalents

    —          (62.9     —          (81.0     —          (143.9

Cash and cash equivalents at beginning of period

    —          189.6        —          172.1        —          361.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ —        $ 126.7      $ —        $ 91.1      $ —        $ 217.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

  $ —        $ 21.3      $ 11.0      $ 58.9      $ —        $ 91.2   

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

17. Financial Instruments

Fair values of the Senior Notes approximated $462,375 and $489,938 at December 31, 2011 and September 30, 2012, respectively, based on quoted market prices, compared to the recorded value of $450,000. This fair value measurement is classified within Level 1 of the fair value hierarchy.

Derivative Instruments and Hedging Activities

The Company uses derivative financial instruments, including forward and swap contracts, to manage its exposure to fluctuations in foreign exchange and interest rates. For a fair value hedge, both the effective and ineffective, if significant, portions are recorded in earnings and reflected in the condensed consolidated statement of comprehensive income (loss). For a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in accumulated other comprehensive income (“AOCI”) in the condensed consolidated balance sheet. The ineffective portion, if significant, is recorded in other income or expense. When the underlying hedged transaction is realized or the hedged transaction is no longer probable, the gain or loss included in AOCI is recorded in earnings and reflected in the condensed consolidated statement of comprehensive income (loss) on the same line as the gain or loss on the hedged item attributable to the hedged risk.

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, accrued liabilities and other long-term liabilities.

Cash Flow Hedges

Forward foreign exchange contracts—The Company enters into forward contracts to hedge currency risk of the U.S. Dollar against the Mexican Peso, the Canadian Dollar against the U.S. Dollar and the Euro against the Polish Zloty and the U.S. Dollar. The forward contracts are used 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. As of September 30, 2012, the notional amount of these contracts was $9,984. The fair values of these contracts at September 30, 2012 were $204 in the asset position recorded in other current assets and $53 in the liability position recorded in accrued liabilities in the condensed consolidated balance sheet. The gains or losses on the forward contracts are reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The amount reclassified from AOCI into cost of products sold was ($94) and $65 for the three and nine months ended September 30, 2012, respectively. These foreign currency derivative contracts consist of hedges of transactions up to December 2012.

Interest rate swaps—The Company has an interest rate swap contract to manage cash flow fluctuations of variable rate debt due to changes in market interest rates. This contract which fixes the interest payment of a certain variable rate debt instrument is accounted for as a cash flow hedge. As of September 30, 2012, the notional amount of this contract was $2,108. At September 30, 2012, the fair value before taxes of the Company’s interest rate swap contract was a liability of $94 and is recorded in accrued liabilities in the Company’s condensed consolidated balance sheet with the offset reflected in AOCI, net of deferred taxes. The amount reclassified from AOCI into interest expense for this swap was $131 and $77 for the nine months ended September 30, 2011 and 2012, respectively. The amount to be reclassified in the next twelve months is expected to be approximately $94. The maturity date of this swap contract is September 2013.

Undesignated Derivatives

As part of the FMEA joint venture, SPBT had undesignated derivative forward contracts to hedge currency risk of the Euro against the Polish Zloty which are included in the Company’s condensed consolidated financial statements. The forward contracts are used to mitigate the potential volatility of cash flows arising from changes in currency exchange rates that impact the Company’s foreign currency transactions. These foreign currency derivative contracts relate to hedge transactions through April 2014. At September 30, 2012, the fair value of the Company’s undesignated derivative forward contracts was a liability of $581 and is recorded in accrued liabilities and other long-term liabilities in the Company’s condensed consolidated balance sheet. The unrealized gain or loss on the forward contracts is reported as a component of other income (expense), net. The unrealized gain amounted to $1,476 and $3,836 for the three and nine months ended September 30, 2012, respectively.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

Fair Value Measurements

ASC 820 clarifies that fair value is 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, ASC 820 establishes a three-tier fair value hierarchy, 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.

Estimates of the fair value of foreign currency and interest rate derivative instruments are determined using exchange traded prices and rates. The Company also considers the risk of non-performance in the estimation of fair value, and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. In certain instances where market data is not available, the Company uses management judgment to develop assumptions that are used to determine fair value. Fair value measurements and the fair value hierarchy level for the Company’s liabilities measured or disclosed at fair value on a recurring basis as of December 31, 2011 and September 30, 2012, are shown below:

 

     December 31, 2011  
     Asset                     

Contract

   (Liability)     Level 1      Level 2     Level 3  

Interest rate swap

   $ (156   $ —         $ (156   $ —     

Forward foreign exchange contracts

     (4,269     —           (4,269     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ (4,425   $ —         $ (4,425   $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 
     September 30, 2012  
     Asset                     

Contract

   (Liability)     Level 1      Level 2     Level 3  

Interest rate swap

   $ (94   $ —         $ (94   $ —     

Forward foreign exchange contracts

     (430     —           (430     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ (524   $ —         $ (524   $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Items measured at fair value on a non-recurring 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 non-recurring basis, which are not included in the table above. As these non-recurring 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 non-recurring basis, see Note 2. “Acquisitions” and Note 4. “Restructuring.”

18. Accounts Receivable Factoring

As a part of its working capital management, the Company sells certain receivables through third party financial institutions with and without recourse. The amount sold varies each month based on the amount of underlying receivables and cash flow needs of the Company. The Company continues to service the receivables. These are permitted transactions under the Company’s credit agreement.

At September 30, 2011 and 2012, the Company had $62,083 and $68,564, respectively, outstanding under receivable transfer agreements without recourse entered into by various locations. The total amount of accounts receivable factored were $149,715 and $256,033 for the nine months ended September 30, 2011 and 2012, respectively. The Company incurred a loss on the sale of receivables of $408 and $421 for the three months ended September 30, 2011 and 2012, respectively and $1,082 and $1,722 for the nine months ended September 30, 2011 and 2012, respectively. These amounts are recorded in other income (expense), net and interest expense, net of interest income in the condensed consolidated statements of comprehensive income (loss).

 

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Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(Dollar amounts in thousands except Note 16, per share and share amounts)

 

At September 30, 2011 and 2012, the Company had $14,040 and $11,296, respectively outstanding under receivable transfer agreements with recourse. The recourse amount is recorded in debt payable within one year. The total amount of accounts receivable factored was $38,026 and $61,631 for the nine months ended September 30, 2011 and 2012, respectively. The Company incurred a loss on the sale of receivables of $50 and $68 for the three months ended September 30, 2011 and 2012, respectively and $89 and $275 for the nine months ended September 30, 2011 and 2012, respectively. These amounts are recorded in other income (expense), net and interest expense, net of interest income in the condensed consolidated statements of comprehensive income (loss).

19. Subsequent Events

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.

 

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Table of Contents

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 (“MD&A”) presents information related to the condensed consolidated results of operations of the Company, including the impact of restructuring costs on the Company’s results, a discussion of the past results and future outlook of each of the Company’s segments, and information concerning both the liquidity and capital resources of the Company. The following discussion and analysis, which should be read in conjunction with our condensed consolidated financial statements and the notes included elsewhere in this report, contains certain forward-looking statements relating to anticipated future financial condition and operating results of the Company and its current business plans. In the future, the financial condition and operating results of the Company could differ materially from those discussed herein and its current business plans could be altered in response to market conditions and other factors beyond the Company’s control. Important factors that could cause or contribute to such differences or changes include those discussed elsewhere in this report (see “Forward-Looking Statements”) and in our most recently filed Annual Report on Form 10-K (see Item 1A. Risk Factors).

General

On October 1, 2012, the Board of Directors appointed Jeffrey S. Edwards to the position of President and Chief Executive Officer of the Company and its principal operating subsidiary, Cooper-Standard Automotive Inc., effective October 15, 2012. On October 1, 2012, James S. McElya announced that he would be retiring from his position as Chief Executive Officer of the Company, effective October 15, 2012. Mr. McElya is expected to continue to fulfill his current term on the Company’s Board of Directors, serving as Non-Executive Chairman.

Business Environment and Outlook

Our business is directly affected by the automotive build rates in North America and Europe. It is also becoming increasingly impacted by build rates in Brazil and Asia Pacific. New vehicle demand is driven by macro-economic 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 expected annualized light vehicle production volumes for 2012 are 15.1 million units in North America and 19 million units in Europe, according to IHS Automotive in September 2012.

According to IHS Automotive, actual North American light vehicle production volumes for the three months ended September 30, 2012 were 3.6 million units compared to 3.2 million units for the three months ended September 30, 2011, an increase of approximately 12.2%, and European light vehicle production volumes for the three months ended September 30, 2012 were 4.2 million units compared to 4.5 million units for the three months ended September 30, 2011, a decrease of approximately 7.8%. According to IHS Automotive, actual North American light vehicle production volumes for the nine months ended September 30, 2012 were 11.5 million units compared to 9.7 million units for the nine months ended September 30, 2011, an increase of approximately 19%, and European light vehicle production volumes for the nine months ended September 30, 2012 were 14.4 million units compared to 15.2 million units for the nine months ended September 30, 2011, a decrease of approximately 4.8%. According to IHS Automotive, North America and Europe light vehicle production volumes in the fourth quarter of 2012 are estimated at 3.6 million units and 4.5 million units, respectively, which is an expected 0.2 million unit increase for North America and a 0.5 million unit decrease for Europe, compared to the actual production volumes for the fourth quarter of 2011.

Competition in the automotive supplier industry is intense and has increased in recent years as OEMs have demonstrated a preference for stronger relationships with fewer suppliers. There are typically three or more significant competitors and numerous smaller competitors for most of the products we produce. Globalization and the importance of servicing customers around the world will continue to shape the success of suppliers going forward.

OEMs have shifted some research and development, design and testing responsibility to suppliers, while at the same time shortening new product cycle times. To remain competitive, suppliers must have state-of-the-art engineering and design capabilities and must be able to continuously improve their engineering, design and manufacturing processes to effectively service the customer. Suppliers are increasingly expected to collaborate on, or assume the product design and development of, key automotive components and to provide innovative solutions to meet evolving technologies aimed at improved emissions and fuel economy.

Pricing pressure has continued as competition for market share has reduced the overall profitability of the industry and resulted in continued pressure on suppliers for price concessions. Consolidations and market share shifts among vehicle manufacturers continues to put additional pressures on the supply chain. These pricing and market pressures will continue to drive our focus on reducing our overall cost structure through lean initiatives, capital redeployment, restructuring and other cost management processes.

During the fourth quarter of 2012, the Company began performing its annual goodwill impairment testing. As a result of the current macroeconomic environment and challenging conditions, which may continue, an impairment charge not to exceed $2.9 million may be recorded in the fourth quarter of 2012 for our South America reporting unit.

 

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Table of Contents

In March 2012, an explosion at a supplier’s chemical plant in Germany shut down the facility and interrupted production. The facility not only made one-third of the global output of PA-12 resin used in automotive fuel and brake components and other general industry products, but also made one-half of the world’s CDT which is a key ingredient in the production of PA-12 resin. We do use PA-12 resin in our products and we have been working with customers and suppliers on developing and approving alternative materials.

Cooper Standard put a global team in place immediately following the shutdown of the chemical plant to find solutions to ensure uninterrupted supply of product to our customers. The team was able to fast track alternative materials, gain necessary approvals and bring these alternatives to market. We have been able to meet all of our customers’ needs to date and anticipate the global supply of PA-12 to return to normalized levels in the fourth quarter of 2012.

Our business has also been impacted by our acquisition of USi and the joint venture agreement with FMEA. Our sales have increased as a result of these two acquisitions, but we continue to incur additional costs as we integrate and restructure these businesses. In addition, the joint venture agreement with FMEA has been negatively impacted by the challenging business conditions in Europe. In evaluating these businesses, management considers EBITDA and Adjusted EBITDA as key indicators of operating performance. The following table shows combined gross profit for the acquisitions and reconciles EBITDA and Adjusted EBITDA for the acquisitions to their net income (loss), which is the most directly comparable financial measure in accordance with U.S. GAAP (dollars in millions):

 

     Three Months Ended     Nine Months Ended  
     September 30, 2012     September 30, 2012  

Sales

   $ 47.0      $ 152.1   

Cost of products sold

     42.3        140.5   
  

 

 

   

 

 

 

Gross profit

   $ 4.7      $ 11.6   
  

 

 

   

 

 

 

Net income (loss)

   $ 0.4      $ (2.5

Provision for income tax expense

     0.2        0.7   

Interest expense

     0.1        0.3   

Depreciation and amortization

     2.0        5.9   
  

 

 

   

 

 

 

EBITDA

   $ 2.7      $ 4.4   

Noncontrolling interest restructuring

     (0.2     (0.5
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 2.5      $ 3.9   
  

 

 

   

 

 

 

 

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Table of Contents

Results of Operations

(dollar amounts in thousands)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2012     2011     2012  
        

Sales

   $ 708,544      $ 684,029      $ 2,157,776      $ 2,183,794   

Cost of products sold

     599,985        580,956        1,804,743        1,844,616   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     108,559        103,073        353,033        339,178   

Selling, administration & engineering expenses