Cooper-Standard Holdings Inc

Previous wording

The global automotive industry is susceptible to uncertain economic conditions that could adversely impact new vehicle demand and production. Business conditions may vary significantly from period to period or region to region. In 2022, global automotive production was negatively impacted by broad supply chain challenges, labor market disruptions and other lingering impacts of the COVID-19 pandemic. In 2023, light vehicle production showed resilience and strong growth, supported by sustained consumer demand and OEM efforts to replenish depleted inventory levels. This resilience and growth was despite continued uncertainty in the global economy created by continued inflation, rising interest rates and increased geopolitical tension in key regions of the world. In 2024, we expect production growth will moderate as inventory levels normalize, interest rates remain relatively high, and the geopolitical tensions driving global economic uncertainty persist.

Current wording

The global automotive industry is susceptible to uncertain economic conditions that could adversely impact new vehicle demand and production. Business conditions may vary significantly from period to period or region to region. In 2022, global automotive production was negatively impacted by broad supply chain challenges, labor market disruptions and other lingering impacts of the COVID-19 pandemic. In 2023, light vehicle production showed resilience and strong growth, supported by sustained consumer demand and OEM efforts to replenish depleted inventory levels. This resilience and growth was despite continued uncertainty in the global economy created by continued inflation, rising interest rates and increased geopolitical tension in key regions of the world. In 2024, we expect production growth will moderate as inventory levels ramp slowly higher, interest rates remain relatively high, and the geopolitical tensions driving global economic uncertainty persist.

Previous wording

In North America, U.S. consumer confidence has increased from 2023 levels but remains well below pre-pandemic historical averages. Slowing inflation and the Federal Reserve Board’s pause on policy rate actions have been key drivers of improved consumer sentiment. Economists at the International Monetary Fund (IMF) are expecting the economies of the United States, Canada and Mexico to grow by 2.7 percent, 1.2 percent and 2.4 percent, respectively, in 2024.

Current wording

In North America, U.S. consumer confidence has increased from 2023 levels but remains well below pre-pandemic historical averages. Slowing inflation and the Federal Reserve Board’s pause on policy rate actions have been key drivers of improved consumer sentiment. Uncertainty regarding the upcoming elections and the timing of potential interest rate cuts by the Federal Reserve have served to soften consumer sentiment. Economists at the International Monetary Fund (IMF) are expecting the economies of the United States, Canada and Mexico to grow by 2.6 percent, 1.3 percent and 2.2 percent, respectively, in 2024.

Previous wording

In Europe, lower inflation and more stable energy costs are supporting stronger household consumption. Uncertainty related to ongoing geopolitical tension and the war in Ukraine continue, however, and remain a constraining factor to overall economic activity. In the current uncertain environment, economists at the IMF are expecting the economy in the Eurozone region to grow by approximately 0.8 percent in 2024.

Current wording

In Europe, lower inflation and more stable energy costs are supporting stronger household consumption. Momentum in the services sector and the economy has slowly increased in the first half of the year. Uncertainty related to ongoing geopolitical tension and the war in Ukraine continues, however, and remain a constraining factor to overall economic activity. In the current uncertain environment, economists at the IMF are expecting the economy in the Eurozone region to grow by approximately 0.9 percent in 2024.

Previous wording

In the Asia Pacific region, China’s post-COVID-19 economy has been burdened by a protracted property crisis, weak consumer and business confidence, and mounting local government debts. In order to bring property and housing supply in line with actual demand, the government will likely have to reduce its past levels of infrastructure investment. As a result, economists at the IMF are expecting the Chinese economy to grow at a more modest 4.6 percent in 2024.

Current wording

In the Asia Pacific region, China’s post-COVID-19 economy has been burdened by a protracted property crisis, weak consumer and business confidence, and mounting local government debts. In the first half of 2024, however, China’s economy has been buoyed by a rebound in private consumption and strong exports. As a result, economists at the IMF are expecting the Chinese economy to grow at a more modest 5.0 percent in 2024.

Previous wording

In South America, the Brazilian economy has started the year strong with an increase in the minimum wage and continuing strong labor market contributing to consumer demand. Despite these drivers, inflation has stabilized slightly above target levels set by the Brazilian central bank. As a result, economists at the IMF are now estimating the Brazilian economy will grow 2.2 percent in 2024.

Current wording

In South America, the Brazilian economy has started the first half of the year strong with an increase in the minimum wage and a continuing strong labor market contributing to consumer demand. Despite these drivers, inflation has stabilized slightly above target levels set by the Brazilian central bank. As a result, economists at the IMF are now estimating the Brazilian economy will grow 2.1 percent in 2024.

Previous wording

Light vehicle production by region for the three months ended March 31, 2024 and 2023 was as follows:

Current wording

Light vehicle production by region for the three and six months ended June 30, 2024 and 2023 was as follows:

Previous wording

Despite improved production in 2023, vehicle inventory and expected production levels remain well below pre-pandemic historical averages. Current industry forecasts suggest global light vehicle production in 2024 will remain flat compared to full year 2023, followed by modest growth in 2025 and 2026. Actual production may vary from forecasted levels due to a number of factors, however, including, but not limited to, consumer demand and industry competitiveness.

Current wording

Despite improved production in 2023 and the first half of 2024, overall vehicle inventory and expected production levels remain below pre-pandemic historical averages, with the exception of higher inventories of battery electric vehicles. Current industry forecasts suggest global light vehicle production in 2024 will be slightly lower than full year 2023, followed by modest growth in 2025 and 2026. Actual production volumes have varied and may further vary from forecasted levels due to a number of factors including, but not limited to, consumer demand, the regulatory environment, incentives offered and industry competitiveness. The electric vehicle segment has been particularly challenged with regard to production volumes meeting forecasted levels.

Previous wording

Our business is susceptible to inflationary pressures with respect to raw materials. Abrupt changes in the market prices or availability of certain key raw materials may result in operational and profitability challenges for the Company and the industry as a whole. Following the pandemic, market prices for key raw materials, such as steel, aluminum, and oil-derived commodities, experienced a period of extreme volatility, which led to significant cost increases for our business. In response, we worked with our customers to implement or expand index-based commercial agreements that have enabled us to partially recover incremental material costs incurred and significantly reduce our exposure and risk related to commodity price fluctuations going forward. Global commodity markets and pricing have stabilized to a large degree in 2024, and material cost impacts on our results for the three months ended March 31, 2024 were relatively small.

Current wording

Our business is susceptible to inflationary pressures with respect to raw materials. Abrupt changes in the market prices or availability of certain key raw materials may result in operational and profitability challenges for the Company and the industry as a whole. Since 2020, market prices for key raw materials, such as steel, aluminum, and oil-derived commodities, experienced a period of extreme volatility, which led to significant cost increases for our business. In response, we worked with our customers to implement or expand index-based commercial agreements that have enabled us to partially recover incremental material costs incurred and significantly reduce our exposure and risk related to commodity price fluctuations going forward. Global commodity markets and pricing have stabilized to a large degree in 2024, and material cost impacts on our results for the six months ended June 30, 2024 were relatively small.

Previous wording

We continue to experience inflationary cost pressures and diligently work to address these costs both internally and with our customers. As such, we continue to actively pursue pricing adjustments on current business and consider the impact of inflationary and other costs in our quotes for new business. The majority of our customers recognized these costs and customer negotiations for inflation recovery and sustainable pricing were completed in 2023.

Current wording

We continue to experience inflationary cost pressures and diligently work to address these costs both internally and with our customers. As such, we continue to actively pursue pricing adjustments on current business and consider the impact of inflationary and other costs in our quotes for new business. The majority of our customers recognized these costs and customer negotiations for inflation recovery and sustainable pricing were initiated in 2023.

Previous wording

Sales for the three months ended March 31, 2024 decreased 0.9%, compared to the three months ended March 31, 2023. The decrease in sales was driven by the divestitures of our European technical rubber products business and a joint venture in the Asia Pacific region in prior year, and the negative impact of foreign exchange. The decrease was partially offset by favorable volume and mix, net customer price adjustments including recoveries.

Current wording

Sales for the three months ended June 30, 2024 decreased 2.1% compared to the three months ended June 30, 2023. The decrease in sales was driven by the divestitures of our European technical rubber products business and a joint venture in the Asia Pacific region in the prior year, and the negative impact of foreign exchange. The decrease was partially offset by favorable volume and mix, net of customer price adjustments including recoveries.

Previous wording

Cost of products sold is primarily comprised of materials, labor, manufacturing overhead, freight, depreciation and other direct operating expenses. Materials comprise the largest component of our cost of products sold and represented approxim ately 50% oftotal cost of products sold for each of the three months ended March 31, 2024 and March 31, 2023. The change in cost of products sold was impacted by lower volume and mix, net of recoveries, lower energy costs, and manufacturing and purchasing savings through lean initiatives, partially offset by higher inflation of labor and overhead, and unfavorable foreign exchange.

Current wording

Cost of products sold is primarily comprised of materials, labor, manufacturing overhead, freight, depreciation and other direct operating expenses. Materials comprise the largest component of our cost of products sold and represented approxim ately 51% and 52%oftotal cost of products sold for the three months ended June 30, 2024 and 2023, respectively. The change in cost of products sold was impacted by favorable volume and mix, manufacturing and purchasing savings through lean initiatives and lower energy costs, partially offset by higher inflation of labor and overhead, and unfavorable foreign exchange.

Previous wording

Gross profit for the three months ended March 31, 2024 increased $19.8 million compared to the three months ended March 31, 2023. The change was driven by volume and mix, net of customer price adjustments including recoveries, manufacturing and purchasing savings through lean initiatives and lower energy costs, partially offset by higher inflation of labor and overhead, and unfavorable foreign exchange.

Current wording

Gross profit for the three months ended June 30, 2024 increased $5.2 million compared to the three months ended June 30, 2023. The change was driven by favorable volume and mix, net of customer price adjustments including recoveries, manufacturing and purchasing savings through lean initiatives and lower energy costs, partially offset by higher inflation of labor and overhead, and unfavorable foreign exchange.

Previous wording

Selling, Administration and Engineering Expenses. Selling, administration and engineering expenses include administrative expenses as well as product engineering and design and development costs. Selling, administration and engineering expenses for the three months ended March 31, 2024 were $55.4 million, or 8.2% of sales, compared to $52.1 million, or 7.6% of sales, for the three months ended March 31, 2023. The increase was primarily related to higher compensation related costs.

Current wording

Selling, Administration and Engineering Expenses. Selling, administration and engineering expenses include administrative expenses as well as product engineering and design and development costs. Selling, administration and engineering expenses for the three months ended June 30, 2024 were $52.4 million, or 7.4% of sales, compared to $54.6 million, or 7.5% of sales, for the three months ended June 30, 2023. The decrease was primarily due to lower compensation-related costs and foreign exchange.

Previous wording

Restructuring Charges. Restructuring charges for the three months ended March 31, 2024 decreased $1.2 million compared to the three months ended March 31, 2023.

Current wording

Restructuring Charges. Restructuring charges for the three months ended June 30, 2024 increased $9.3 million compared to the three months ended June 30, 2023. The increase was primarily driven by a cost optimization restructuring plan that was implemented in the second quarter of 2024. See Note 3. “Restructuring” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for additional information.

Previous wording

Other Expense, Net. Other expense, net, for the three months ended March 31, 2024 decreased $0.4 million compared to the three months ended March 31, 2023, primarily due to a decrease in net periodic benefit cost other than service cost.

Current wording

Other Expense, Net. Other expense, net, for the three months ended June 30, 2024 increased $2.6 million compared to the three months ended June 30, 2023, primarily due to the unfavorable impact of foreign currency exchange, partially offset by a decrease in periodic benefit cost other than service cost.

Previous wording

Income Tax Expense. Income tax expense for the three months ended March 31, 2024 was $4.1 million on losses before income taxes of $27.2 million compared to an income tax expense of $0.4 million on losses before income taxes of $130.8 million for the three months ended March 31, 2023. The effective tax rate for the three months ended March 31, 2024 differed from the effective tax rate for the three months ended March 31, 2023 primarily due to the geographic mix of pre-tax losses, the inability to record a tax expense for pre-tax earnings and tax benefit for pre-tax losses in the U.S. and certain foreign jurisdictions due to valuation allowances, adjustments to uncertain tax positions, and other permanent items.

Current wording

Income Tax Expense. Income tax expense for the three months ended June 30, 2024 was $8.1 million on losses before income taxes of $68.1 million compared to an income tax expense of $4.8 million on losses before income taxes of $23.7 million for the three months ended June 30, 2023. The effective tax rate for the three months ended June 30, 2024 differed from the effective tax rate for the three months ended June 30, 2023 primarily due to the geographic mix of pre-tax losses, the inability to record a tax benefit for pre-tax losses in the U.S. and certain foreign jurisdictions due to valuation allowances, adjustments to uncertain tax positions, and other permanent items.

Previous wording

Loss on Refinancing and Extinguishment of Debt. Loss on refinancing and extinguishment of debt for the three months ended March 31, 2023 was $81.9 million, which resulted from certain fees and the partial write off of new and unamortized

Current wording

Loss on Refinancing and Extinguishment of Debt. Loss on refinancing and extinguishment of debt for the six months ended June 30, 2023 was $81.9 million which resulted from certain fees and the partial write off of new and unamortized debt issuance costs and unamortized original issue discount related to refinancing transactions that occurred in 2023.

Previous wording

As disclosed in its 2023 Annual Report, effective January 1, 2024, the Company changed its management reporting structure with the launch of global product line-focused business segments. This resulted in the realignment of its reportable segments, which are determined based on how the CODM manages the business, allocates resources, makes operating decisions, and evaluates operating performance. As a result, the Company established two reportable segments: Sealing Systems and Fluid Handling Systems. All other business activities are reported in Corporate, eliminations and other. The segment realignment had no impact on the Company’s consolidated financial position, results of operations, or cash flows. All segment information included in this Form 10-Q is reflective of this new structure and prior period information has been revised to conform to the Company’s current period segment presentation.

Current wording

Effective January 1, 2024, the Company changed its management reporting structure with the launch of global product line-focused business segments. This resulted in the realignment of its reportable segments, which are determined based on how the CODM manages the business, allocates resources, makes operating decisions, and evaluates operating performance. As a result, the Company established two reportable segments: Sealing Systems and Fluid Handling Systems. All other business activities are reported in Corporate, eliminations and other. The segment realignment had no impact on the Company’s consolidated financial position, results of operations, or cash flows. All reportable segment information included in this Form 10-Q is reflective of this new structure and prior period information has been revised to conform to the Company’s current period segment presentation.

Previous wording

We continue to actively preserve cash and enhance liquidity, including managing our capital expenditures as a percent of sales. We continuously monitor and forecast our liquidity situation in light of automotive industry, customer and economic factors, and take the necessary actions to preserve our liquidity and evaluate other financial alternatives that may be available to us should the need arise. Our ability to fund our working capital needs, debt payments and other obligations, and to comply with the financial covenants, including borrowing base limitations, under our ABL Facility, depend on our future operating performance and cash flows and many factors outside of our control, including the costs of raw materials, the state of the overall automotive industry and financial and economic conditions, including work stoppages and the continued impact of public health events, and other factors. Based on those actions and current projections of light vehicle production and customer demand for our products, we believe that our cash flows from operations, cash on hand, availability under our ABL Facility and receivables factoring will enable us to meet our ongoing working capital requirements, capital expenditures, debt service and other funding requirements for the foreseeable future, despite the challenges facing the industry.

Current wording

We continue to actively preserve cash and enhance liquidity, including proactively managing our capital expenditures. We continuously monitor and forecast our liquidity situation in light of automotive industry, customer and economic factors, and take the necessary actions to preserve our liquidity and evaluate other financial alternatives that may be available to us should the need arise. Our ability to fund our working capital needs, debt payments and other obligations, and to comply with the financial covenants, including borrowing base limitations under our ABL Facility, depend on our future operating performance and cash flows and many factors outside of our control, including industry production levels, the costs of raw materials, the state of the overall automotive industry and financial and economic conditions, including work stoppages and the continued impact of public health events, and other factors. Based on those actions and current projections of light vehicle production and customer demand for our products, we believe that our cash flows from operations, cash on hand, availability under our ABL Facility and receivables factoring will enable us to meet our ongoing working capital requirements, capital expenditures, debt service and other funding requirements for the foreseeable future, despite the challenges facing the industry.

Previous wording

Operating Activities. Net cash used in operations was $14.2 million for the three months ended March 31, 2024, compared to net cash provided by operations of $30.4 million for the three months ended March 31, 2023. The net change was primarily due to changes in net working capital balances, partially offset by higher cash earnings.

Current wording

Operating Activities. Net cash used in operations was $26.2 million for the six months ended June 30, 2024, compared to net cash provided by operations of $17.2 million for the six months ended June 30, 2023. The net change was primarily due to changes in net working capital balances, partially offset by higher cash earnings.

Previous wording

Investing Activities. Net cash used in investing activities was $16.7 million for the three months ended March 31, 2024, compared to net cash used in investing activities of $29.0 million for the three months ended March 31, 2023. The net change was primarily due to lower capital expenditures. We expect capital expenditures in 2024 to be relatively consistent with 2023, primarily as part of initiatives to consistently manage overall capital spending. We anticipate that we will spend approximately $75 to $85 million on capital expenditures in 2024.

Current wording

Investing Activities. Net cash used in investing activities was $27.8 million for the six months ended June 30, 2024, compared to net cash used in investing activities of $45.1 million for the six months ended June 30, 2023. The net change was primarily due to lower capital expenditures. We expect to continue initiatives to reduce overall capital spending and anticipate that we will spend approximately $50.0 to $60.0 million on capital expenditures in 2024.

Previous wording

Financing Activities. Net cash used in financing activities totaled $1.2 million for the three months ended March 31, 2024, compared to net cash used in financing activities of $75.7 million for the three months ended March 31, 2023. The net change was primarily due to the impact of refinancing transactions that occurred in 2023.

Current wording

Financing Activities. Net cash used in financing activities totaled $3.5 million for the six months ended June 30, 2024, compared to net cash used in financing activities of $79.0 million for the six months ended June 30, 2023. The net change was primarily due to the impact of refinancing transactions that occurred in 2023.

Previous wording

In June 2018, our Board of Directors approved a common stock repurchase program (the “2018 Program”) authorizing us to repurchase, in the aggregate, up to $150.0 million of our outstanding common stock. Under the 2018 Program, repurchases may be made on the open market, through private transactions, accelerated share repurchases, round lot or block transactions on the New York Stock Exchange or otherwise, as determined by us and in accordance with prevailing market conditions and federal securities laws and regulations. We expect to fund any future repurchases from cash on hand and future cash flows from operations. The specific timing and amount of any future repurchase will vary based on market and business conditions, changes in tax laws 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. The 2018 Program became effective in November 2018. As of March 31, 2024, 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 three months ended March 31, 2024 or 2023.

Current wording

In June 2018, our Board of Directors approved a common stock repurchase program (the “2018 Program”) authorizing us to repurchase, in the aggregate, up to $150.0 million of our outstanding common stock. Under the 2018 Program, repurchases may be made on the open market, through private transactions, accelerated share repurchases, round lot or block transactions on the New York Stock Exchange or otherwise, as determined by us and in accordance with prevailing market conditions and federal securities laws and regulations. We expect to fund any future repurchases from cash on hand and future cash flows from operations. The specific timing and amount of any future repurchase will vary based on market and business conditions, changes in tax laws 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. The 2018 Program became effective in November 2018. As of June 30, 2024, 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 ended June 30, 2024 or 2023.

Previous wording

In the third quarter of 2023, we designated Liveline Technologies, Inc. (“Liveline”) an unrestricted subsidiary under the terms of certain of its debt agreements, but Liveline remains a wholly-owned subsidiary of Cooper-Standard Automotive Inc. Liveline had $0.3 million of net income during the three months ended March 31, 2024. As of March 31, 2024, Liveline had less than $0.1 million of gross assets. Liveline will look to Cooper Standard for necessary funding until it is able to sustain itself through sales of its products and services.

Current wording

In the third quarter of 2023, we designated Liveline Technologies, Inc. (“Liveline”) an unrestricted subsidiary under the terms of certain of its debt agreements, but Liveline remains a wholly-owned subsidiary of Cooper-Standard Automotive Inc. Liveline incurred a net loss of $0.7 million and $0.4 million during the three months and six months ended June 30, 2024, respectively. As of June 30, 2024, Liveline had less than $0.1 million of gross assets, and will rely on Cooper Standard for necessary funding until it is able to sustain itself through sales of its products and services.

Previous wording

In addition, we believe EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts and other interested parties in evaluating our performance. We define Adjusted EBITDA as net income (loss) plus income tax expense (benefit), interest expense, net of interest income, depreciation and amortization or EBITDA, as adjusted for items that management does not consider to be reflective of our core operating performance. These adjustments include, but are not limited to, restructuring costs, impairment charges, non-cash fair value adjustments and acquisition-related costs.

Current wording

In addition, we believe EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts and other interested parties in evaluating our performance. We define Adjusted EBITDA as net income (loss) plus income tax expense (benefit), interest expense, net of interest income, depreciation and amortization or EBITDA, as adjusted for items that management does not consider to be reflective of our core operating performance. These adjustments include, but are not limited to, restructuring costs, certain impairment charges, non-cash fair value adjustments and acquisition-related costs.

Previous wording

(1)Loss on refinancing and extinguishment of debt relating to refinancing transactions in 2023.

Current wording

(2)Loss on refinancing and extinguishment of debt relating to refinancing transactions in 2023.

Previous wording

There have been no significant changes in our critical accounting estimates during the three months ended March 31, 2024.

Current wording

There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2024.