This management's discussion and analysis of financial condition and results of operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Our historical results may not indicate, and should not be relied upon as an indication of, our future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. See "Forward-Looking Statements" below for a discussion of risks associated with reliance on forward-looking statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed below and in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 filed with theU.S. Securities and Exchange Commission ("2021 Annual Report"), including Item 1A. "Risk Factors." The following should be read in conjunction with our 2021 Annual Report and the other information included herein. Our discussion of trends and conditions supplements and updates such discussion included in our 2021 Annual Report. References in this quarterly report on Form 10-Q (the "Report") to "we," "our," or the "Company" refer toCooper-Standard Holdings Inc. , together with its consolidated subsidiaries.
Executive Overview
Our Business
We design, manufacture and sell sealing, fuel and brake delivery, and fluid
transfer systems for use primarily in passenger vehicles and light trucks
manufactured by global automotive original equipment manufacturers ("OEMs"). We
are primarily a "Tier 1" supplier, with approximately 83% of our sales in 2021
made directly to major OEMs. We operate our business along the following
reportable segments: North America , Europe , Asia Pacific and South America . All
other business activities are reported in Corporate, eliminations and other.
Recent Trends and Conditions
General Economic Conditions and Outlook
The global automotive industry is susceptible to uncertain economic conditions that could adversely impact new vehicle demand and production. Business conditions may vary significantly from period to period or region to region. In 2020, the COVID-19 pandemic created an unusually high degree of economic disruption and uncertainty globally which adversely impacted automotive production. In 2021, global automotive production was again negatively impacted by lingering impacts of the COVID-19 pandemic and broad supply chain challenges stemming, in part, from a sharp rebound in overall industrial demand. In 2022, rising inflation and continuing supply chain challenges are contributing to global economic uncertainty. In addition, recent pandemic related restrictions imposed in certain large population centers inChina , the threat of additional lockdowns, and continuing military actions inEastern Europe are having broad negative impacts on key sectors of the global economy. InNorth America ,U.S. consumer confidence has trended downward since the second quarter of 2021. Key drivers of the decline are significant inflation, continuing supply chain disruptions and rising interest rates. Geopolitical tensions and persistent concerns over new variants of COVID-19 are also important factors. However, theU.S. economy is seeing some benefits from near all-time low unemployment rates and rising wages. In addition, current and future government spending authorized by recently passed infrastructure legislation and private spending related to pent-up consumer demand continue to support economic growth. Economists at theInternational Monetary Fund (IMF) are expecting the economies ofthe United States ,Canada andMexico to grow by 2.3 percent, 3.4 percent and 2.4 percent, respectively, in 2022. InEurope , the war inUkraine and related sanctions imposed onRussia are having a dramatic impact on energy prices and energy security. This is translating into lower output and higher inflation for mostEurozone countries. Supply chain disruptions have also hurt certain industries including the automobile sector, with the war and sanctions hindering the production of key input materials. The easing of COVID-19 restrictions, tighter labor markets, pent-up spending andEuropean Union fiscal policy changes should continue to sustain activity and support some growth in 2022. Economists at theIMF are currently expecting the economy in theEurozone region to grow by approximately 2.6 percent for the year. In theAsia Pacific region, the combination of more transmissible variants and the strict zero-COVID strategy inChina has led to repeated mobility restrictions and localized lockdowns that have weighed on economic activity and private consumption. Recent lockdowns in key Chinese manufacturing and trading hubs such asShenzhen andShanghai compounded supply disruptions elsewhere in the region and beyond during the second quarter of 2022. Moreover, real estate investment inChina , once a key driver of economic growth, has slowed significantly. As Chinese exports surged inJune 2022 following the end of the most recent round of COVID-related lockdowns, the Chinese government reaffirmed a GDP growth target of "around of 26 --------------------------------------------------------------------------------
5.5 percent” for 2022, implying that further stimulus measures may be
implemented to sustain economic growth. Economists at the
Chinese economy to grow 3.3 percent for the year.
InSouth America , the Brazilian economy continues to expand amid fiscal support and the lessening impact of the COVID-19 pandemic. Increasing exports of goods and services have provided strong support and the unemployment rate remains low. Tighter monetary policy, inflation and political uncertainty ahead of theOctober 2022 general elections are likely to temper investment and economic growth in the second half of the year. Economists at theIMF are now estimating the Brazilian economy will grow just 1.7 percent in 2022. We remain cautious for the economic outlook in this market given the long history of political instability and economic volatility in the region.
Raw Materials
Our business is susceptible to inflationary pressures with respect to raw materials which may place operational and profitability burdens on the entire supply chain. Costs related to raw materials, such as steel, aluminum, and oil-derived commodities, continue to be volatile, which led to significant increases in these costs in 2021. Current global events continue to add further price pressure and uncertainty to raw material costs for 2022. In addition, we continue to see significant inflationary pressure on wages, energy, transportation and other general costs. As such, we will continue to work on an ongoing basis with our customers and suppliers to mitigate both inflationary pressures and our material-related cost exposures through a combination of expanded index-based agreements and other commercial enhancements.
Production Levels
Our business is directly affected by the automotive vehicle production rates inNorth America ,Europe ,Asia Pacific andSouth America which have been adversely affected by a series of events in recent years. Beginning in the first quarter of 2020, we experienced production shutdowns related to the COVID-19 pandemic. Beginning in the first quarter of 2021, OEM production volumes were disrupted by the global shortage of semiconductors. In 2022, disruptions stemming from theRussia -Ukraine crisis and lockdowns in key Chinese manufacturing and trading hubs such asShenzhen andShanghai have further exacerbated supply chain disruptions and vehicle production levels. We continue to collaborate closely with our customers to minimize production inefficiencies while supporting their needs.
Light vehicle production in certain regions for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
(In millions of units) 2022(1) 2021(1) % Change 2022(1) 2021(1) % Change
North America 3.6 3.2 11.7% 7.1 6.8 4.7%
Europe 3.9 4.1 (4.9)% 7.8 8.9 (11.8)%
Asia Pacific 10.0 10.3 (2.6)% 21.3 21.4 (0.2)%
Greater China 5.5 5.8 (5.9)% 11.7 11.6 0.6%
South America 0.7 0.6 12.9% 1.3 1.3 (0.5)%
(1)Production data based on S&P Global (formerly IHS Markit),
In all regions, production volumes were impacted by the global shortage of semiconductors which began in the first quarter of 2021 and deteriorated thereafter throughout the year. Production stoppages related to semiconductor and other supply chain shortages continued into 2022, but have improved sequentially quarter over quarter. InEurope , vehicle production in the six months endedJune 30, 2022 was negatively impacted by additional supply chain issues related to theRussia -Ukraine crisis. InChina , vehicle production in the three months endedJune 30, 2022 was negatively impacted by the COVID-19 related shutdowns. 27 --------------------------------------------------------------------------------
Results of Operations
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(dollar amounts in thousands)
Sales $ 605,917 $ 533,185 $ 72,732 $ 1,218,901 $ 1,202,152 $ 16,749
Cost of products sold 590,541 534,118 56,423 1,181,983 1,134,793 47,190
Gross profit (loss) 15,376 (933) 16,309 36,918 67,359 (30,441)
Selling, administration & engineering
expenses 52,282 50,085 2,197 104,186 108,139
(3,953)
Loss (gain) on sale of business, net - 195 (195) - (696)
696
Gain on sale of fixed assets, net (33,391) - (33,391) (33,391) - (33,391) Amortization of intangibles 1,737 1,933 (196) 3,483 3,705 (222) Restructuring charges 3,482 11,631 (8,149) 11,313 32,678 (21,365) Impairment charges 3 841 (838) 458 841 (383) Operating loss (8,737) (65,618) 56,881 (49,131) (77,308) 28,177 Interest expense, net of interest income (18,454) (18,125) (329) (36,631) (35,909)
(722)
Equity in (losses) earnings of affiliates (3,446) 393 (3,839) (4,802) 1,179 (5,981) Other (expense) income, net (1,509) 1,362 (2,871) (2,720) (3,727) 1,007 Loss before income taxes (32,146) (81,988) 49,842 (93,284) (115,765) 22,481 Income tax expense (benefit) 2,005 (17,459) 19,464 2,657 (16,523) 19,180 Net loss (34,151) (64,529) 30,378 (95,941) (99,242) 3,301 Net loss attributable to noncontrolling interests 904 918 (14) 1,334 1,767
(433)
Net loss attributable to Cooper-Standard Holdings Inc.$ (33,247) $ (63,611) $ 30,364 $ (94,607) $ (97,475) $ 2,868
Three Months Ended
Sales
Sales for the three months endedJune 30, 2022 increased 13.6%, compared to the three months endedJune 30, 2021 . The increase in sales was driven by volume and mix (higher net vehicle production volume due to the impact of lessening semiconductor supply issues in the current year partially offset by the impact of COVID-19 related shutdowns inChina and theUkraine conflict inEurope and net customer price adjustments including recovery of cost increases). This was partially offset by the negative impact of foreign exchange, and the deconsolidation of a joint venture in theAsia Pacific region. See Note 2. "Deconsolidation and Divestiture" to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for additional information. Three Months Ended June 30, Variance Due To: Foreign 2022 2021 Change Volume / Mix* Exchange Deconsolidation (dollar amounts in thousands) Total sales$ 605,917 $ 533,185 $ 72,732 $ 101,878 $ (22,603) $ (6,543)
* Net of customer price adjustments, including recoveries
28 --------------------------------------------------------------------------------
Gross Profit
Three Months Ended June 30, Variance Due To:
Foreign
2022 2021 Change Volume / Mix* Exchange Cost Increases/(Decreases)**
(dollar amounts in thousands)
Cost of products sold $ 590,541 $ 534,118 $ 56,423 $ 46,920 $ (20,619) $ 30,122
Gross profit 15,376 (933) 16,309 54,958 (1,984) (36,665)
Gross profit percentage
of sales 2.5 % (0.2) %
* Net of customer price adjustments, including recoveries
** Net of deconsolidation
Cost of products sold is primarily comprised of material, labor, manufacturing overhead, freight, depreciation, warranty costs and other direct operating expenses. The Company's material cost of products sold was approximately 50% and 45% of total cost of products sold for the three months endedJune 30, 2022 and 2021, respectively. The change in cost of products sold was impacted by higher volume and mix, commodity inflation, higher compensation related costs, higher labor and overhead costs due to inconsistent volume production schedules, and higher energy and transportation costs. These costs were partially offset by foreign exchange, purchasing lean and manufacturing efficiencies, and the deconsolidation of a joint venture in theAsia Pacific region. Gross profit for the three months endedJune 30, 2022 increased$16.3 million , compared to the three months endedJune 30, 2021 . The change was driven by volume and mix, net customer price adjustments including recovery of cost increases, manufacturing efficiencies, and purchasing lean and restructuring savings, partially offset by commodity and wage inflation, higher energy and transportation costs and foreign exchange. Selling, Administration and Engineering Expense. Selling, administration and engineering expense includes administrative expenses as well as product engineering and design and development costs. Selling, administration and engineering expense for the three months endedJune 30, 2022 was 8.6% of sales compared to 9.4% for the three months endedJune 30, 2021 . The decrease was primarily due to lower compensation costs due to salaried headcount initiative savings and foreign exchange, partially offset by higher compensation related costs. Loss on Sale of Business, Net. The loss on sale of business of$0.2 million for the three months endedJune 30, 2021 related to the net effect of our 2020 divestitures. See Note 2. "Deconsolidation and Divestiture" to the unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Report for additional information.
Gain on Sale of Fixed Assets, Net. The gain on sale of fixed assets for the
three months ended
sale-leaseback of a European facility of
Amortization of Intangibles. Intangible amortization for the three months ended
Restructuring. Restructuring charges for the three months endedJune 30, 2022 decreased$8.1 million compared to the three months endedJune 30, 2021 . The decrease was primarily driven by lower restructuring charges inEurope . Impairment Charges. Non-cash impairment charges for the three months endedJune 30, 2022 decreased$0.8 million , primarily due to impairments inEurope in the prior year period.
Interest Expense, Net. Net interest expense for the three months ended
2022
Other Expense, Net. Other expense, net, for the three months ended
decreased
primarily due to the unfavorable impact of foreign exchange.
Income Tax Expense. Income tax expense for the three months endedJune 30, 2022 was$2.0 million on losses before income taxes of$32.1 million compared to an income tax benefit of$17.5 million on losses before income taxes of$82.0 million for the three months endedJune 30, 2021 . The effective tax rate for the three months endedJune 30, 2022 differed from the effective tax rate for the three months endedJune 30, 2021 primarily due to the geographic mix of pre-tax losses, the inability to record a tax benefit for pre-tax losses in theU.S. and certain foreign jurisdictions due to valuation allowances, discrete tax impacts on the gain on sale transaction inEurope , and other tax reserve changes during the three-month period endedJune 30, 2022 . 29 --------------------------------------------------------------------------------
Six Months Ended
Sales
Sales for the six months endedJune 30, 2022 increased 1.4%, compared to the six months endedJune 30, 2021 . The increase in sales was driven by volume and mix (higher net vehicle production volume due to the impact of lessening semiconductor supply issues in the current year, partially offset by the impact of COVID-19 inChina and theUkraine conflict inEurope and net customer price adjustments, including recovery of cost increases). This was partially offset by foreign exchange, and the deconsolidation of a joint venture in theAsia Pacific region. See Note 2. "Deconsolidation and Divestiture" to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for additional information. Six Months Ended June 30, Variance Due To: Foreign 2022 2021 Change Volume / Mix* Exchange Deconsolidation (dollar amounts in thousands) Total sales$ 1,218,901 $ 1,202,152 $ 16,749 $ 64,424 $ (32,662) $ (15,013)
* Net of customer price adjustments, including recoveries
Gross Profit
Six Months Ended June 30, Variance Due To:
Foreign Cost Increases /
2022 2021 Change Volume / Mix* Exchange (Decreases)**
(dollar amounts in thousands)
Cost of products sold $ 1,181,983 $ 1,134,793 $ 47,190 $ 13,588 $ (28,035) $ 61,637
Gross profit 36,918 67,359 (30,441) 50,836 (4,627) (76,650)
Gross profit percentage
of sales 3.0 % 5.6 %
* Net of customer price adjustments, including recoveries
** Net of deconsolidation
Cost of products sold is primarily comprised of material, labor, manufacturing overhead, freight, depreciation, warranty costs and other direct operating expenses. The Company's material cost of products sold was approximately 50% and 47% of total cost of products sold for the six months endedJune 30, 2022 and 2021, respectively. The change in the cost of products sold was impacted by commodity inflation, higher volume and mix, higher compensation related costs, increased labor and overhead costs due to inconsistent volume production schedules, and higher energy and transportation costs. These costs were partially offset by foreign exchange, purchasing lean and manufacturing efficiencies, restructuring savings and the deconsolidation of a joint venture in theAsia Pacific region. Gross profit for the six months endedJune 30, 2022 decreased 45.2%, compared to the six months endedJune 30, 2021 . The change was driven by commodity and wage inflation and the non-recurrence of prior year COVID-19 government incentives. These items were partially offset by volume and mix, net favorable operational performance, lower variable employee compensation expenses, purchasing lean savings, restructuring savings, and the prior year divestiture of our European rubber fluid transfer and specialty sealing businesses and Indian operations. Selling, Administration and Engineering Expense. Selling, administration and engineering expense includes administrative expenses as well as product engineering and design and development costs. Sales, administration and engineering expense for the six months endedJune 30, 2022 was 8.5% of sales compared to 9.0% for the six months endedJune 30, 2021 . The decrease was primarily due to salaried headcount initiative savings, customer recovery of engineering expense, and foreign exchange, partially offset by higher compensation related costs. Loss (Gain) on Sale of Business, Net. The gain on sale of business, net of$0.7 million for the six months endedJune 30, 2021 related to the net effect of our 2020 divestitures. Gain on Sale of Fixed Assets, Net. The gain on sale of fixed assets for the six months endedJune 30, 2022 was attributable to the gain on the sale-leaseback of a European facility of$33.4 million .
Amortization of Intangibles. Intangible amortization for the six months ended
30 --------------------------------------------------------------------------------
Restructuring. Restructuring charges for the six months ended
decreased
decrease was primarily driven by lower restructuring charges in
Impairment Charges. Impairment charges for the six months endedJune 30, 2022 decreased$0.4 million , as compared to the six months endedJune 30, 2021 . The decrease was driven by lower impairment charges inEurope in the current year period.
Interest Expense, Net. Net interest expense for the six months ended
2022
Other Expense, Net. Other expense for the six months ended
decreased
due to favorable foreign currency, offset by a loss on deconsolidation.
Income Tax Expense (Benefit). Income tax expense for the six months endedJune 30, 2022 was$2.7 million on losses before income taxes of$93.3 million compared to income tax benefit of$16.5 million on losses before income taxes of$115.8 million for the six months endedJune 30, 2021 . The effective tax rate for the six months endedJune 30, 2022 differed primarily from the effective tax rate for the six months endedJune 30, 2021 due to the geographic mix of pre-tax losses, the inability to record a tax benefit for pre-tax losses in theU.S. and certain foreign jurisdictions due to valuation allowances, discrete tax impacts of the gain on sale transaction inEurope , and other tax reserve changes during the six-month period endedJune 30, 2022 .
Segment Results of Operations
Our business is organized into the following reportable segments:North America ,Europe ,Asia Pacific andSouth America . All other business activities are reported in Corporate, eliminations and other. The Company uses Segment adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. We have defined adjusted EBITDA as net income before interest, taxes, depreciation, amortization, restructuring expense, and special items.
The following tables present sales and segment adjusted EBITDA for each of the
reportable segments.
Three Months EndedJune 30, 2022 Compared with Three Months EndedJune 30, 2021 Sales Three Months Ended June 30, Variance Due To: Foreign 2022 2021 Change Volume/ Mix* Exchange Deconsolidation (dollar amounts in thousands) Sales to external customers North America$ 331,687 $ 247,525 $ 84,162 $ 85,220 $ (1,058) $ - Europe 126,287 132,621 (6,334) 10,499 (16,833) - Asia Pacific 85,779 103,915 (18,136) (6,741) (4,852) (6,543) South America 26,261 14,153 12,108 10,319 1,789 -Total Automotive 570,014 498,214 71,800 99,297 (20,954) (6,543) Corporate, eliminations and other 35,903 34,971 932 2,581 (1,649) - Consolidated$ 605,917 $ 533,185 $ 72,732 $ 101,878 $ (22,603) $ (6,543)
* Net of customer price adjustments, including recoveries
•Volume and mix, net of customer price adjustments, including recoveries, was driven by vehicle production volume increases due to the lessening impact of semiconductor-related supply issues, partially offset by the impact of COVID-19 shutdowns inChina and theUkraine conflict inEurope .
•The impact of foreign currency exchange was primarily related to the Euro,
Chinese Renminbi, Korean Won and Brazilian Real.
31
--------------------------------------------------------------------------------
Segment adjusted EBITDA
Three Months Ended June 30, Variance Due To:
Foreign Cost (Increases)/
2022 2021 Change Volume/ Mix* Exchange Decreases**
(dollar amounts in thousands)
Segment adjusted EBITDA
North America $ 15,441 $ 756 $ 14,685 $ 34,180 $ (723) $ (18,772)
Europe (15,316) (14,391) (925) 11,328 2,096 (14,349)
Asia Pacific (7,799) (2,302) (5,497) 3,862 (2,688) (6,671)
South America (1,298) (726) (572) 2,967 (2,297) (1,242)
Total Automotive (8,972) (16,663) 7,691 52,337 (3,612) (41,034)
Corporate, eliminations
and other (1,402) 1,937 (3,339) 2,621 (124) (5,836)
Consolidated adjusted
EBITDA $ (10,374) $ (14,726) $ 4,352 $ 54,958 $ (3,736) $ (46,870)
* Net of customer price adjustments, including recoveries
** Net of deconsolidation
•Volume and mix, net of customer price adjustments, including recoveries, was driven by vehicle production volume increases due to a lessening impact on customer production schedules for semi-conductor-related supply issues in the current year period partially offset by the impact of COVID-19 shutdowns inChina and theUkraine conflict inEurope .
•The impact of foreign currency exchange was primarily related to the Euro,
Chinese Renminbi, Korean Won and Brazilian Real.
•The Cost (Increases) / Decreases category above includes:
•Commodity cost and inflationary economics;
• Manufacturing efficiencies and purchasing savings through lean initiatives;
•Increased compensation-related expenses; and
•Decreased costs related to ongoing salaried headcount initiatives and
restructuring savings.
Six Months Ended
Sales
Six Months Ended June 30, Variance Due To:
Foreign
2022 2021 Change Volume/ Mix* Exchange Deconsolidation
(dollar amounts in thousands)
Sales to external customers
North America $ 653,581 $ 586,561 $ 67,020 $ 68,396 $ (1,376) $ -
Europe 257,701 298,397 (40,696) (14,121) (26,575) -
Asia Pacific 189,532 218,140 (28,608) (8,535) (5,060) (15,013)
South America 47,780 29,639 18,141 15,228 2,913 -
Total Automotive 1,148,594 1,132,737 15,857 60,968 (30,098) (15,013)
Corporate, eliminations and
other 70,307 69,415 892 3,456 (2,564) -
Consolidated $ 1,218,901 $ 1,202,152 $ 16,749 $ 64,424 $ (32,662) $ (15,013)
* Net of customer price adjustments, including recoveries
•Volume and mix, net of customer price adjustments, including recoveries, was
driven by vehicle production volume increases due to a lessening impact on
customer production schedules for semi-conductor related supply issues in the
32 --------------------------------------------------------------------------------
current year period partially offset by the impact of COVID-19 shutdowns in
•The impact of foreign currency exchange was primarily related to the Euro,
Chinese Renminbi, Korean Won and Brazilian Real.
Segment adjusted EBITDA
Six Months Ended June 30, Variance Due To:
Foreign Cost (Increases)/
2022 2021 Change Volume/ Mix* Exchange Decreases**
(dollar amounts in thousands)
Segment adjusted EBITDA
North America $ 32,937 $ 41,989 $ (9,052) $ 27,170 $ (502) $ (35,720)
Europe (29,973) (15,880) (14,093) 8,260 2,340 (24,693)
Asia Pacific (8,541) 1,250 (9,791) 4,019 (2,589) (11,221)
South America (1,707) (3,334) 1,627 4,529 1,121 (4,023)
Total Automotive (7,284) 24,025 (31,309) 43,978 370 (75,657)
Corporate, eliminations
and other (2,945) (211) (2,734) 6,858 347 (9,939)
Consolidated adjusted
EBITDA $ (10,229) $ 23,814 $ (34,043) $ 50,836 $ 717 $ (85,596)
* Net of customer price adjustments, including recoveries
** Net of deconsolidation
•Volume and mix, net of customer price adjustments, including recoveries, was driven by vehicle production volume increases due to a lessening impact on vehicle manufacturers of the semi-conductor related supply issues partially offset by the impact of COVID-19 shutdowns inChina and theUkraine conflict inEurope . •The impact of foreign currency exchange was primarily related to the Euro, Chinese Renminbi, Korean Won and Brazilian Real.
•The Cost (Increases) / Decreases category above includes:
•Commodity cost and inflationary economics;
•Manufacturing efficiencies and purchasing savings through lean initiatives;
•Increased compensation-related expenses; and
•Decreased costs related to ongoing salaried headcount initiatives and
restructuring savings.
Liquidity and Capital Resources
Short and Long-Term Liquidity Considerations and Risks
We intend to fund our ongoing working capital, capital expenditures, debt
service and other funding requirements through a combination of cash flows from
operations, cash on hand, borrowings under our senior asset-based revolving
credit facility ("ABL Facility") and receivables factoring. The Company utilizes
intercompany loans and equity contributions to fund its worldwide operations.
There may be country-specific regulations which may restrict or result in
increased costs in the repatriation of these funds. See Note 9. "Debt" to the
unaudited condensed consolidated financial statements included in Part I, Item 1
of this Report for additional information.
We continue to actively preserve cash and enhance liquidity, including
decreasing our capital expenditures and improving working capital. Based on
those actions and current projections of OEM customer production, we believe
that our cash flows from operations, cash on hand, borrowings under our ABL
Facility and receivables factoring will enable us to meet our ongoing working
capital, capital expenditures and debt service requirements for the next twelve
months, despite the challenges presented by the COVID-19 pandemic and supply
chain issues facing the industry. We continuously monitor and forecast our
liquidity situation, take the necessary actions to preserve our liquidity and
evaluate other financial alternatives that may be available to us should the
need arise. Our ability to fund our working capital needs, debt payments and
other obligations, and to comply with the financial covenants, including
borrowing base limitations, under our ABL Facility, depend on our future
operating performance and cash flows and many factors outside of our control,
including the costs of raw materials, the state of the overall automotive
industry and financial and economic conditions, including the continued impact
of COVID-19, and other factors.
33
--------------------------------------------------------------------------------
Our Term Loan Facility matures on November 2, 2023 . The Company has retained
Goldman Sachs & Co. LLC as its financial advisor to analyze, evaluate and help
arrange a refinancing of the Term Loan Facility and possibly certain other debt
instruments. To the extent the Company is not able to refinance its Term Loan
Facility prior to the issuance of the financial statements for the year ended
December 31, 2022 , our independent auditors may issue an audit opinion including
an explanatory paragraph that indicates there is substantial doubt about our
ability to continue as a going concern. The inclusion of such an explanatory
paragraph in the report of our independent auditors would breach a covenant
under our Term Loan Facility which, unless cured, would constitute an event of
default thereunder. Such an event of default would cause a cross-default or
cross-acceleration of other indebtedness. In such a case, the Company would not
expect that it would have sufficient liquidity to repay all of its outstanding
indebtedness at such time. While there can be no assurance that the Company will
be able to refinance its Term Loan Facility on acceptable terms or at all prior
to the issuance of the financial statements for the year ended December 31,
2022 , the Company believes its actions to improve financial performance, to
maintain liquidity and current discussions with certain investors will enable
the Company to refinance its Term Loan Facility.
Cash Flows
Operating Activities. Net cash used in operations was$0.2 million for the six months endedJune 30, 2022 , compared to net cash used in operations of$60.7 million for the six months endedJune 30, 2021 . The net change was primarily due to the receipt of$51.4 million in cash payments from theUnited States Internal Revenue Service for tax refunds related to net operating loss carrybacks. Investing Activities. Net cash provided by investing activities was$8.4 million for the six months endedJune 30, 2022 , compared to net cash used in investing activities of$52.6 million for the six months endedJune 30, 2021 . The change was primarily related to proceeds of$50.0 million related to the sale-leaseback of a certain European facility which were received in the six months endedJune 30, 2022 . We expect to continue initiatives to reduce overall capital spending and anticipate that we will spend approximately$85 -$95 million on capital expenditures in 2022. Financing Activities. Net cash used in financing activities totaled$4.1 million for the six months endedJune 30, 2022 , compared to net cash provided by financing activities of$11.7 million for the six months endedJune 30, 2021 . The outflow in 2022 primarily related to principal payments on debt, while the inflow in 2021 was primarily due to an increase in short-term debt.
Share Repurchase Program
InJune 2018 , our Board of Directors approved a common stock repurchase program (the "2018 Program") authorizing us to repurchase, in the aggregate, up to$150.0 million of our outstanding common stock. Under the 2018 Program, repurchases may be made on the open market, through private transactions, accelerated share repurchases, round lot or block transactions on theNew York Stock Exchange or otherwise, as determined by us and in accordance with prevailing market conditions and federal securities laws and regulations. We expect to fund any future repurchases from cash on hand and future cash flows from operations. The specific timing and amount of any future repurchase will vary based on market and business conditions and other factors. We are not obligated to acquire a particular amount of securities, and the 2018 Program may be discontinued at any time at our discretion. As ofJune 30, 2022 , we had approximately$98.7 million of repurchase authorization remaining under the 2018 Program. We did not make any repurchases under the 2018 Program during the six months endedJune 30, 2022 or 2021.
Non-GAAP Financial Measures
In evaluating our business, management considers EBITDA and Adjusted EBITDA to
be key indicators of our operating performance. Our management also uses EBITDA
and Adjusted EBITDA:
•because similar measures are utilized in the calculation of the financial
covenants and ratios contained in our financing arrangements;
•in developing our internal budgets and forecasts;
•as a significant factor in evaluating our management for compensation purposes;
•in evaluating potential acquisitions;
•in comparing our current operating results with corresponding historical
periods and with the operational performance of other companies in our industry;
and
•in presentations to the members of our board of directors to enable our board
of directors to have the same measurement basis of operating performance as is
used by management in their assessments of performance and in forecasting and
budgeting for our company.
In addition, we believe EBITDA and Adjusted EBITDA and similar measures are
widely used by investors, securities analysts and other interested parties in
evaluating our performance. We define Adjusted EBITDA as net income (loss) plus
income tax expense (benefit), interest expense, net of interest income,
depreciation and amortization or EBITDA, as adjusted
34
--------------------------------------------------------------------------------
for items that management does not consider to be reflective of our core
operating performance. These adjustments include, but are not limited to,
restructuring costs, impairment charges, non-cash fair value adjustments and
acquisition-related costs.
EBITDA and Adjusted EBITDA are not financial measurements recognized underU.S. GAAP, and when analyzing our operating performance, investors should use EBITDA and Adjusted EBITDA as a supplement to, and not as alternatives for, net income (loss), operating income, or any other performance measure derived in accordance withU.S. GAAP, nor as an alternative to cash flow from operating activities as a measure of our liquidity. EBITDA and Adjusted EBITDA have limitations as analytical tools, and they should not be considered in isolation or as substitutes for analysis of our results of operations as reported underU.S. GAAP. These limitations include: •they do not reflect our cash expenditures or future requirements for capital expenditure or contractual commitments; •they do not reflect changes in, or cash requirements for, our working capital needs; •they do not reflect interest expense or cash requirements necessary to service interest or principal payments under our ABL Facility, Term Loan Facility, Senior Notes and Senior Secured Notes; •they do not reflect certain tax payments that may represent a reduction in cash available to us; •although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and •other companies, including companies in our industry, may calculate these measures differently and, as the number of differences in the way companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases.
In addition, in evaluating Adjusted EBITDA, it should be noted that in the
future, we may incur expenses similar to the adjustments in the below
presentation. Our presentation of Adjusted EBITDA should not be construed as an
inference that our future results will be unaffected by special items.
35 -------------------------------------------------------------------------------- The following table provides a reconciliation of EBITDA and Adjusted EBITDA from net loss, which is the most comparable financial measure in accordance withU.S. GAAP: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (dollar amounts in thousands) Net loss attributable to Cooper-Standard Holdings Inc.$ (33,247) $
(63,611)
Income tax expense (benefit)
2,005 (17,459) 2,657 (16,523) Interest expense, net of interest income 18,454 18,125 36,631 35,909 Depreciation and amortization 31,412 35,444 63,545 68,972 EBITDA$ 18,624 $ (27,501) $ 8,226 $ (9,117) Restructuring charges 3,482 11,631 11,313 32,678 Deconsolidation of joint venture (1) - - 2,257 - Impairment charges (2) 3 841 458 841 Loss (gain) on sale of business, net (3) - 195 - (696) Gain on sale of fixed assets, net (4) (33,391) - (33,391) - Lease termination costs (5) - 108 - 108 Indirect tax adjustments (6) 908 - 908 - Adjusted EBITDA$ (10,374) $ (14,726) $ (10,229) $ 23,814 (1)Loss attributable to deconsolidation of a joint venture in theAsia Pacific region, which required adjustment to fair value. (2)Non-cash impairment charges in 2022 and 2021 related to idle assets inEurope . (3)During 2021, we recorded subsequent adjustments to the net gain on sale of business, which related to the 2020 divestiture of our European rubber fluid transfer and specialty sealing businesses, as well as its Indian operations. (4)In the first quarter of 2022, the Company signed a sale-leaseback agreement on one of its European facilities, and a gain was recognized in the second quarter of 2022. (5)Lease termination costs no longer recorded as restructuring charges in accordance with ASC 842. (6)Impact of prior period indirect tax adjustments. 36
--------------------------------------------------------------------------------
Contingencies and Environmental Matters
The information concerning contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters, contained in Note 19. "Commitments and Contingencies" to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, is incorporated herein by reference.
Critical Accounting Estimates
There have been no significant changes in our critical accounting estimates
during the six months ended
Forward-Looking Statements This quarterly report on Form 10-Q includes "forward-looking statements" within the meaning ofU.S. federal securities laws, and we intend that such forward-looking statements be subject to the safe harbor created thereby. Our use of words "estimate," "expect," "anticipate," "project," "plan," "intend," "believe," "outlook", "guidance", "forecast," or future or conditional verbs, such as "will," "should," "could," "would," or "may," and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you that these expectations, beliefs and projections will be achieved. Forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties that may cause actual results or achievements to be materially different from the future results or achievements expressed or implied by the forward-looking statements. Among other items, such factors may include: Volatility or decline of the Company's stock price, or absence of stock price appreciation; impacts, including commodity cost increases and disruptions related to the war inUkraine and the current COVID-related lockdowns inChina ; our ability to offset the adverse impact of higher commodity and other costs through negotiations with our customers; the impact, and expected continued impact, of the COVID-19 outbreak on our financial condition and results of operations; significant risks to our liquidity presented by the COVID-19 pandemic risk; prolonged or material contractions in automotive sales and production volumes; our inability to realize sales represented by awarded business; escalating pricing pressures; loss of large customers or significant platforms; our ability to successfully compete in the automotive parts industry; availability and increasing volatility in costs of manufactured components and raw materials; disruption in our supply base; competitive threats and commercial risks associated with our diversification strategy through our Advanced Technology Group; possible variability of our working capital requirements; risks associated with our international operations, including changes in laws, regulations, and policies governing the terms of foreign trade such as increased trade restrictions and tariffs; foreign currency exchange rate fluctuations; our ability to control the operations of our joint ventures for our sole benefit; our substantial amount of indebtedness and variable rates of interest; our ability to obtain adequate financing sources in the future; operating and financial restrictions imposed on us under our debt instruments; the underfunding of our pension plans; significant changes in discount rates and the actual return on pension assets; effectiveness of continuous improvement programs and other cost savings plans; manufacturing facility closings or consolidation; our ability to execute new program launches; our ability to meet customers' needs for new and improved products; the possibility that our acquisitions and divestitures may not be successful; product liability, warranty and recall claims brought against us; laws and regulations, including environmental, health and safety laws and regulations; legal and regulatory proceedings, claims or investigations against us; work stoppages or other labor disruptions; the ability of our intellectual property to withstand legal challenges; cyber-attacks, data privacy concerns, other disruptions in, or the inability to implement upgrades to, our information technology systems; the possible volatility of our annual effective tax rate; the possibility of a failure to maintain effective controls and procedures; the possibility of future impairment charges to our goodwill and long-lived assets; our ability to identify, attract, develop and retain a skilled, engaged and diverse workforce; our ability to procure insurance at reasonable rates; and our dependence on our subsidiaries for cash to satisfy our obligations. You should not place undue reliance on these forward-looking statements. Our forward-looking statements speak only as of the date of this quarterly report on Form 10-Q, and we undertake no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except where we are expressly required to do so by law. This quarterly report on Form 10-Q also contains estimates and other information that is based on industry publications, surveys, and forecasts. This information involves a number of assumptions and limitations, and we have not independently verified the accuracy or completeness of the information.
© Edgar Online, source
Leave a Comment
You must be <a href="https://b2bchief.com/wp-login.php?redirect_to=https%3A%2F%2Fb2bchief.com%2Fcooper-standard-holdings-inc-managements-discussion-and-analysis-of-financial-condition-andresults-of-operations-form-10-q%2F">logged in</a> to post a comment.