NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share and share amounts)
1. Description of Business
Cooper-Standard Holdings Inc. (together with its consolidated subsidiaries, the “Company” or “Cooper Standard”), through its wholly-owned subsidiary, Cooper-Standard Automotive Inc. (“CSA U.S.”), is a leading manufacturer of sealing, fuel and brake delivery, and fluid transfer systems. The Company’s products are primarily for use in passenger vehicles and light trucks that are manufactured by global automotive original equipment manufacturers (“OEMs”) and replacement markets. The Company conducts substantially all of its activities through its subsidiaries.
The Company believes it is the largest global producer of sealing systems, the second largest global producer of the types of fuel and brake delivery products that it manufactures and the third largest global producer of fluid transfer systems. The Company designs and manufactures its products in each major region of the world through a disciplined and sustained approach to engineering and operational excellence. The Company operates in 74 manufacturing locations and 55 design, engineering, administrative and logistics locations in 21 countries around the world.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Certain balances in prior periods have been conformed to the current presentation.
Summary of Significant Accounting Policies
Principles of Consolidation – The consolidated financial statements include the accounts of the Company and the wholly-owned and less than wholly-owned subsidiaries controlled by the Company. All material intercompany accounts and transactions have been eliminated. Acquired businesses are included in the consolidated financial statements from the dates of acquisition or when the Company gained control.
The equity method of accounting is followed for investments in which the Company does not have control, but does have the ability to exercise significant influence over operating and financial policies. Generally, this occurs when ownership is between 20% to 50%.
Foreign Currency – The financial statements of foreign subsidiaries are translated to U.S. dollars at the end-of-period exchange rates for assets and liabilities and at a weighted average exchange rate for each period for revenues and expenses. Translation adjustments for those subsidiaries whose local currency is their functional currency are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity (“AOCI”). Transaction related gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in earnings as incurred, except for those intercompany balances which are designated as long-term.
Cash and Cash Equivalents – The Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents.
Accounts Receivable – The Company records trade accounts receivable when revenue is recorded in accordance with its revenue recognition policy and relieves accounts receivable when payments are received from customers. Accounts receivable are written off when it is apparent such amounts are not collectible. Generally, the Company does not require collateral for its accounts receivable, nor is interest charged on accounts receivable balances.
The Company receives bank notes from its customers, which are classified as other current assets in the consolidated balance sheets, for certain amounts of accounts receivable, primarily in China. The Company may elect to hold such bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third party financial institutions in exchange for cash.
Allowance for Credit Losses – An allowance for credit losses is established through charges to the provision for credit losses when it is probable that the outstanding receivable or reimbursable tooling will not be collected. The Company evaluates the adequacy of the allowance for credit losses on a periodic basis, including historical trends in collections and write-offs, management’s judgment of the probability of collecting accounts and management’s evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. The allowance for credit losses was $20,313 and $7,100 as of December 31, 2021 and 2020, respectively. The increase primarily related to bankruptcy proceedings of a divested joint venture. See Note 4. “Acquisition and Divestitures.”
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Advertising Expense – Expenses incurred for advertising are generally expensed when incurred. Advertising expense was $443, $425 and $711 for the years ended December 31, 2021, 2020 and 2019, respectively.
Inventories – Inventories are valued at lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs. The Company records inventory reserves for inventory in excess of production and/or forecasted requirements and for obsolete inventory. | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Finished goods | $ | 43,186 | | | $ | 39,136 | |
Work in process | 37,045 | | | 35,477 | |
Raw materials and supplies | 77,844 | | | 69,129 | |
| $ | 158,075 | | | $ | 143,742 | |
Derivative Financial Instruments – Derivative financial instruments are utilized by the Company to reduce foreign currency exchange. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. On the date the derivative is established, the Company designates the derivative as either a fair value hedge, a cash flow hedge or a net investment hedge in accordance with its established policy. The Company does not enter into derivative financial instruments for trading or speculative purposes.
Income Taxes – Deferred tax assets or liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax laws and rates. A valuation allowance is provided on deferred tax assets if the Company determines that it is more likely than not that the asset will not be realized.
Long-lived Assets – Property, plant and equipment are recorded at cost and depreciated using primarily the straight-line method over estimated useful lives. Leasehold improvements are amortized over the expected life of the asset or term of the lease, whichever is shorter. Intangibles with finite lives, which include technology and customer relationships, are amortized over estimated useful lives. The Company evaluates the recoverability of long-lived assets when events and circumstances indicate that the assets may be impaired and the undiscounted net cash flows estimated to be generated by those assets are less than their carrying value. If the net carrying value exceeds the fair value, an impairment loss exists and is calculated based on either estimated salvage value or estimated orderly liquidation value.
Pre-production Costs Related to Long Term Supply Arrangements – Costs for molds, dies and other tools owned by the Company to produce products under long-term supply arrangements are recorded at cost in property, plant and equipment and amortized over the lesser of three years or the term of the related supply agreement. The amounts capitalized were $4,266 and $5,131 as of December 31, 2021 and 2020, respectively. The Company expenses all pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer. Reimbursable tooling costs are recorded in tooling receivable in the accompanying consolidated balance sheets if considered to be receivable in the next twelve months, and in other assets if considered to be receivable beyond twelve months. Tooling receivable for customer-owned tooling as of December 31, 2021 and 2020 was $88,900 and $82,150, respectively. Reimbursable tooling costs included in other assets in the accompanying consolidated balance sheets were $18,297 and $15,219 as of December 31, 2021 and 2020, respectively.
Goodwill – The Company tests goodwill for impairment on an annual basis in the fourth quarter, or more frequently if an event occurs or circumstances indicate the carrying amount may be impaired. Goodwill impairment testing is performed at the reporting unit level. The impairment test involves first qualitatively assessing goodwill for impairment. If the qualitative assessment is not met, a quantitative assessment is performed by comparing the estimated fair value of each reporting unit to its carrying value. If the carrying value exceeds the fair value, an impairment charge is recorded based on that difference.
In the fourth quarter of 2021, the Company completed a quantitative goodwill impairment assessment, and after evaluating the results, events and circumstances, the Company concluded that sufficient evidence existed to assert quantitatively that the estimated fair value of the North America and Industrial Specialty Group reporting units remained in excess of their carrying values. However, the estimated fair value of the Europe reporting unit did not exceed its carrying value. As a result, the Company recorded an impairment for the Europe reporting unit. See Note 9. “Goodwill and Intangible Assets”.
In the fourth quarter of 2020, the Company completed a quantitative goodwill impairment assessment, and no impairment was identified as a result of completing the goodwill impairment test.
Business Combinations – The purchase price of an acquired business is allocated to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
recorded as goodwill. Determining the fair values of assets acquired and liabilities assumed requires management’s judgment, the utilization of independent appraisal firms and often involves the use of significant estimates and assumptions with respect to the timing and amount of future cash flows, market rate assumptions, actuarial assumptions, and appropriate discount rates, among other items.
Revenue Recognition and Sales Commitments – In accordance with ASC 606, Revenue from Contracts with Customers, revenue is recognized when the performance obligations are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. The Company has one major performance obligation category: manufactured parts.
A contract’s transaction price is allocated to each distinct performance obligation and recognized when the performance obligation is satisfied. The Company’s contracts may include multiple performance obligations. For such contracts, the Company generally allocates the contract’s transaction price to each performance obligation based on the purchase order or other arranged pricing.
Revenue is recognized for manufactured parts at a point in time, generally when products are shipped or delivered. The point at which revenue is recognized often depends on the shipping terms.
The Company usually enters into agreements with customers to produce products at the beginning of a vehicle’s life. Blanket purchase orders received from customers and related documents generally establish the annual terms, including pricing, related to a vehicle model. Although purchase orders do not usually specify quantities, fulfillment of customers’ purchasing requirements can be the Company’s obligation for the entire production life of the vehicle. These agreements generally may be terminated by the Company’s customer at any time, but such cancellations have historically been minimal. Customers typically pay for parts based on customary business practices with payment terms generally between 30 and 90 days. The Company has no significant financing arrangements with customers.
The Company applies the optional exemption to forgo disclosing information about its remaining performance obligations because its contracts usually have an original expected duration of one year or less. It also applies an accounting policy to treat shipping and handling costs that are incurred after revenue is recognizable as a fulfillment activity by expensing such costs as incurred, instead of as a separate performance obligation. This is consistent with the Company’s historical accounting practices. The Company has chosen to present revenue net of sales and other similar taxes, which is also consistent with its historical accounting practices.
Shipping and Handling – Amounts billed to customers related to shipping and handling are included in sales in the Company’s consolidated statements of operations. Shipping and handling costs are included in cost of products sold in the Company’s consolidated statements of operations.
Research and Development – Engineering, research and development, and program management costs are charged to selling, administration and engineering expenses as incurred and totaled $89,956, $101,607 and $114,854 for the years ended December 31, 2021, 2020 and 2019, respectively.
Share-based Compensation – The Company measures share-based compensation expense at fair value and generally recognizes such expenses on a straight-line basis over the vesting period of the share-based employee awards. See Note 20. “Share-Based Compensation” for additional information.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect amounts reflected in the consolidated financial statements, as well as disclosure of contingent assets and liabilities. Considerable judgment is often involved in making such estimates, and the use of different assumptions could result in different conclusions. Management believes its assumptions and estimates are reasonable and appropriate. However, actual results could differ from those estimates.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
3. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
The Company adopted the following Accounting Standards Updates (“ASU”) in 2021, which did not have a material impact on its consolidated financial statements: | | | | | | | | |
Standard | Description | Effective Date |
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes | Modifies ASC Topic 740 by removing certain exceptions and amending existing guidance in order to simplify the accounting for income taxes. | January 1, 2021 |
ASU 2021-01, Reference Rate Reform (Topic 848): Scope | Clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition and tailors the existing guidance to derivative instruments affected by the discounting transition. | January 1, 2021 |
Recently Issued Accounting Pronouncements
The Company considered the recently issued accounting pronouncement summarized as follows, which is not expected to have a material impact on its consolidated finance statements or disclosures: | | | | | | | | |
Standard | Description | Effective Date |
ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance | Requires new annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model. | January 1, 2022 |
4. Acquisition and Divestitures
LS Mtron Automotive Parts Acquisition
In the fourth quarter of 2018, the Company acquired 80.1% of LS Mtron Ltd.’s South Korean automotive parts business. The acquisition agreement included an option for LS Mtron Ltd. to sell its remaining 19.9% noncontrolling interest to the Company, beginning three years from the acquisition date. In the fourth quarter of 2021, LS Mtron Ltd. exercised its option, requiring the Company to purchase the remaining 19.9% interest. As a result, the Company paid $6,279 to LS Mtron Ltd. in the fourth quarter of 2021 and subsequently owns 100% of the business.
2020 Divestiture
In the fourth quarter of 2019, management approved a plan to sell its European rubber fluid transfer and specialty sealing businesses, as well as its Indian operations. The entities and the associated assets and liabilities met the criteria for presentation as held for sale as of March 31, 2020, and depreciation of long-lived assets ceased. The divestiture did not meet the criteria for presentation as a discontinued operation.
Upon meeting the criteria for held for sale classification, the Company recorded non-cash impairment charges of $86,470 during the six months ended June 30, 2020 to reduce the carrying value of the held for sale entities to fair value less costs to sell. Fair value, which is categorized within Level 3 of the fair value hierarchy, was determined using a market approach, estimated based on expected proceeds. The fair value less costs to sell were assessed each reporting period that the asset group remained classified as held for sale.
On July 1, 2020, the Company completed the divestiture of its European rubber fluid transfer and specialty sealing businesses, as well as its Indian operations, to Mutares SE & Co. KGaA (“Mutares”). The transaction included payment denominated in Euro of €9,000, which consisted of €6,500 in cash paid and €2,500 in deferred payment obligations, which was settled in December 2021.
Upon finalizing the sale in the third quarter of 2020 and including subsequent adjustments in the fourth quarter of 2020, the Company recorded a net gain on deconsolidation of the businesses of $353 during the year ended December 31, 2020. During the year ended December 31, 2021, the Company recorded subsequent adjustments resulting in a net gain of $696.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
2020 Joint Venture Deconsolidation
In the third quarter of 2020, management approved and completed a plan to sell the Company’s entire controlling equity interest of a joint venture in the Asia Pacific region. Upon finalizing the sale, the Company recorded a gain on deconsolidation of the business of $1,334. In the third quarter of 2021, the Company recorded an allowance for credit loss of $11,218 in selling, administration and engineering expenses. The credit loss resulted from the bankruptcy proceedings of the divested joint venture and represented accounts receivable balances with the divested joint venture. These accounts receivable amounts primarily represented sales to the joint venture prior to deconsolidation in the third quarter of 2020.
2019 Divestiture
During the first quarter of 2019 and in prior periods, the Company also operated an AVS product line. On April 1, 2019, the Company completed its sale of the AVS product line to Continental AG. The total sale price of the transaction was $265,000, subject to certain adjustments. Cash proceeds received in 2019 were $243,362 after adjusting for certain liabilities assumed by the purchaser. The Company recognized a gain on the divestiture of $191,571 during the year ended December 31, 2019. In 2020, the Company finalized adjustments to the gain recorded in 2019 by recording an additional gain on divestiture of $1,147, primarily due to working capital adjustments.
Subsequent Event
In the first quarter of 2022, a joint venture in the Asia Pacific region that was previously consolidated with a noncontrolling interest amended the joint venture governing document. The amendment to the agreement did not change the Company’s 51% ownership. However, as a result of the amendment and effective January 1, 2022, the joint venture will be deconsolidated and accounted for as an investment under the equity method.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
5. Revenue
The passenger and light duty group consists of sales to automotive OEMs and automotive suppliers, while the commercial group represents sales to OEMs of on- and off-highway commercial equipment and vehicles. The other customer group includes sales related to specialty and adjacent markets.
Revenue by customer group for the year ended December 31, 2021 was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Passenger and Light Duty | $ | 1,119,736 | | | $ | 496,169 | | | $ | 455,445 | | | $ | 61,683 | | | $ | — | | | $ | 2,133,033 | |
Commercial | 14,092 | | | 21,417 | | | 2,855 | | | 30 | | | 5,165 | | | 43,559 | |
Other | 14,429 | | | 659 | | | 6 | | | — | | | 138,505 | | | 153,599 | |
Revenue | $ | 1,148,257 | | | $ | 518,245 | | | $ | 458,306 | | | $ | 61,713 | | | $ | 143,670 | | | $ | 2,330,191 | |
Revenue by customer group for the year ended December 31, 2020 was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Passenger and Light Duty | $ | 1,110,294 | | | $ | 554,349 | | | $ | 463,586 | | | $ | 60,676 | | | $ | — | | | $ | 2,188,905 | |
Commercial | 11,291 | | | 18,134 | | | 4,338 | | | 22 | | | 3,731 | | | 37,516 | |
Other | 19,783 | | | 14,256 | | | 118 | | | 56 | | | 114,805 | | | 149,018 | |
Revenue | $ | 1,141,368 | | | $ | 586,739 | | | $ | 468,042 | | | $ | 60,754 | | | $ | 118,536 | | | $ | 2,375,439 | |
Revenue by customer group for the year ended December 31, 2019 was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Passenger and Light Duty | $ | 1,504,136 | | | $ | 765,766 | | | $ | 503,676 | | | $ | 94,310 | | | $ | 5 | | | $ | 2,867,893 | |
Commercial | 17,784 | | | 28,068 | | | 73 | | | 114 | | | 1,213 | | | 47,252 | |
Other | 21,925 | | | 32,501 | | | 204 | | | 111 | | | 138,514 | | | 193,255 | |
Revenue | $ | 1,543,845 | | | $ | 826,335 | | | $ | 503,953 | | | $ | 94,535 | | | $ | 139,732 | | | $ | 3,108,400 | |
Substantially all the Company’s revenues are generated from sealing, fuel and brake delivery, fluid transfer and anti-vibration systems for use in passenger vehicles and light trucks manufactured by global OEMs. On April 1, 2019, the Company completed the divestiture of its AVS product line. See Note 4. “Acquisition and Divestitures” for additional information.
A summary of the Company’s products is as follows: | | | | | | | | |
Product Line | | Description |
Sealing Systems | | Protect vehicle interiors from weather, dust and noise intrusion for improved driving experience; provide aesthetic and functional class-A exterior surface treatment |
Fuel & Brake Delivery Systems | | Sense, deliver and control fluids to fuel and brake systems |
Fluid Transfer Systems | | Sense, deliver and control fluids and vapors for optimal powertrain & HVAC operation |
Anti-Vibration Systems (Divested on April 1, 2019) | | Control and isolate vibration and noise in the vehicle to improve ride and handling |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Revenue by product line for the year ended December 31, 2021 was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Sealing systems | $ | 425,388 | | | $ | 406,677 | | | $ | 287,117 | | | $ | 46,748 | | | $ | — | | | $ | 1,165,930 | |
Fuel and brake delivery systems | 364,309 | | | 94,751 | | | 107,137 | | | 9,789 | | | — | | | 575,986 | |
Fluid transfer systems | 358,560 | | | 16,817 | | | 64,052 | | | 5,176 | | | — | | | 444,605 | |
| | | | | | | | | | | |
Other | — | | | — | | | — | | | — | | | 143,670 | | | 143,670 | |
Consolidated | $ | 1,148,257 | | | $ | 518,245 | | | $ | 458,306 | | | $ | 61,713 | | | $ | 143,670 | | | $ | 2,330,191 | |
Revenue by product line for the year ended December 31, 2020 was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Sealing systems | $ | 433,291 | | | $ | 438,012 | | | $ | 298,028 | | | $ | 39,354 | | | $ | — | | | $ | 1,208,685 | |
Fuel and brake delivery systems | 371,397 | | | 95,516 | | | 110,403 | | | 16,968 | | | — | | | 594,284 | |
Fluid transfer systems | 336,680 | | | 41,102 | | | 59,611 | | | 4,432 | | | — | | | 441,825 | |
Other | — | | | 12,109 | | | — | | | — | | | 118,536 | | | 130,645 | |
Consolidated | $ | 1,141,368 | | | $ | 586,739 | | | $ | 468,042 | | | $ | 60,754 | | | $ | 118,536 | | | $ | 2,375,439 | |
Revenue by product line for the year ended December 31, 2019 was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Sealing systems | $ | 553,901 | | | $ | 563,529 | | | $ | 334,056 | | | $ | 69,111 | | | $ | — | | | $ | 1,520,597 | |
Fuel and brake delivery systems | 479,962 | | | 124,803 | | | 112,253 | | | 23,871 | | | — | | | 740,889 | |
Fluid transfer systems | 453,064 | | | 87,375 | | | 56,180 | | | 1,553 | | | — | | | 598,172 | |
Anti-vibration systems | 56,457 | | | 20,807 | | | 1,464 | | | — | | | — | | | 78,728 | |
Other | 461 | | | 29,821 | | | — | | | — | | | 139,732 | | | 170,014 | |
Consolidated | $ | 1,543,845 | | | $ | 826,335 | | | $ | 503,953 | | | $ | 94,535 | | | $ | 139,732 | | | $ | 3,108,400 | |
Contract Estimates
The amount of revenue recognized is usually based on the purchase order price and adjusted for variable consideration, including pricing concessions. The Company accrues for pricing concessions by reducing revenue as products are shipped or delivered. The accruals are based on historical experience, anticipated performance and management’s best judgment. The Company also generally has ongoing adjustments to customer pricing arrangements based on the content and cost of its products. Such pricing accruals are adjusted as they are settled with customers. Customer returns are usually related to quality or shipment issues and are recorded as a reduction of revenue. The Company generally does not recognize significant return obligations due to their infrequent nature.
Contract Balances
The Company’s contract assets consist of unbilled amounts associated with variable pricing arrangements in its Asia Pacific region. Once pricing is finalized, contract assets are transferred to accounts receivable. As a result, the timing of revenue recognition and billings, as well as changes in foreign exchange rates, will impact contract assets on an ongoing basis. Changes during the year ended December 31, 2021 were not materially impacted by any other factors.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
The Company’s contract liabilities consist of advance payments received and due from customers. Net contract (liabilities) assets consisted of the following: | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 | | Change |
Contract assets | | $ | — | | | $ | 777 | | | $ | (777) | |
Contract liabilities | | (143) | | | (27) | | | (116) | |
Net contract (liabilities) assets | | $ | (143) | | | $ | 750 | | | $ | (893) | |
Other
The Company at times enters into agreements that provide for lump sum payments to customers. These payment agreements are recorded as a reduction of revenue during the period the commitment is made. Amounts related to commitments of future payments to customers on the condensed consolidated balance sheets as of December 31, 2021 and December 31, 2020 were current liabilities of $12,045 and $16,932, respectively, and long-term liabilities of $7,214 and $6,828, respectively.
The Company provides assurance-type warranties to its customers. Such warranties provide customers with assurance that the related product will function as intended and complies with any agreed-upon specifications and are recognized in costs of products sold.
6. Restructuring
On an ongoing basis, the Company evaluates its business and objectives to ensure that it is properly configured and sized based on changing market conditions. Accordingly, the Company has implemented several restructuring initiatives, including closure or consolidation of facilities throughout the world and the reorganization of its operating structure.
The Company’s restructuring charges consist of severance, retention and outplacement services, and severance-related postemployment benefits (collectively, “employee separation costs”), other related exit costs and asset impairments related to restructuring activities. Employee separation costs are recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy.
Restructuring expense by segment for the years ended December 31, 2021, 2020 and 2019 was as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
North America | $ | 5,710 | | | $ | 16,499 | | | $ | 10,831 | |
Europe | 27,986 | | | 14,573 | | | 23,525 | |
Asia Pacific | 2,013 | | | 4,773 | | | 6,781 | |
South America | 580 | | | 2,129 | | | 37 | |
Total Automotive | 36,289 | | | 37,974 | | | 41,174 | |
Corporate and other | 661 | | | 1,508 | | | 9,928 | |
Total | $ | 36,950 | | | $ | 39,482 | | | $ | 51,102 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Restructuring activity for all restructuring initiatives for the years ended December 31, 2021 and 2020 was as follows: | | | | | | | | | | | | | | | | | | | |
| Employee Separation Costs | | Other Exit Costs | | | | Total |
Balance as of December 31, 2019 | $ | 22,990 | | | $ | 4,005 | | | | | $ | 26,995 | |
Expense | 17,926 | | | 21,556 | | | | | 39,482 | |
Cash payments | (25,261) | | | (15,071) | | | | | (40,332) | |
Non-cash fixed asset and intangible impairments included in expense | — | | | (2,558) | | | | | (2,558) | |
Foreign exchange translation and other | (626) | | | 474 | | | | | (152) | |
Balance as of December 31, 2020 | $ | 15,029 | | | $ | 8,406 | | | | | $ | 23,435 | |
Expense | 32,000 | | | 4,950 | | | | | 36,950 | |
Cash payments | (24,820) | | | (7,952) | | | | | (32,772) | |
Non-cash fixed asset impairments included in expense | — | | | (214) | | | | | (214) | |
Foreign exchange translation and other | (1,252) | | | 437 | | | | | (815) | |
Balance as of December 31, 2021 | $ | 20,957 | | | $ | 5,627 | | | | | $ | 26,584 | |
Restructuring expense for the year ended December 31, 2021 includes expenses incurred due to the termination of contracts by a customer in the South America region and offsetting expense due to cost recoveries from this customer to reimburse the severance costs for the Company’s employees and also obsolete inventories. Other exit costs for the year ended December 31, 2021 include non-cash fixed asset impairment charges related to closed facilities.
7. Leases
The Company primarily has operating and finance leases for certain manufacturing facilities, corporate offices and certain equipment. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities and long-term operating lease liabilities on the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net, debt payable within one year, and long-term debt on the Company’s consolidated balance sheets.
Lease right-of-use assets are recognized at commencement date based upon the present value of the remaining future minimum lease payments over the lease term. The Company’s lease terms include options to renew or terminate the lease when it is reasonably certain that it will exercise the option. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based upon information available at the commencement date to determine the present value of future lease payments.
The Company has lease agreements with lease and non-lease components. For real estate leases, these components are accounted for separately, while for equipment leases, the Company accounts for the lease and non-lease components as a single lease component.
Variable lease expense includes payments based upon changes in a rate or index, such as consumer price indexes, as well as usage of the leased asset. Short-term lease expense includes leases with terms, at lease commencement, of 12 months or less and no purchase option reasonably certain to be exercised. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
The components of lease expense were as follows: | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Operating lease expense | | $ | 31,912 | | | $ | 32,053 | | | $ | 33,360 | |
Short-term lease expense | | 6,736 | | | 5,069 | | | 3,557 | |
Variable lease expense | | 907 | | | 942 | | | 1,619 | |
Finance lease expense: | | | | | | |
Amortization of right-of-use assets | | 2,102 | | | 2,564 | | | 2,550 | |
Interest on lease liabilities | | 1,444 | | | 1,551 | | | 1,438 | |
Total lease expense | | $ | 43,101 | | | $ | 42,179 | | | $ | 42,524 | |
The Company recorded impairment charges of $647 due to the deterioration of financial results at a certain location in North America during the year ended December 31, 2020. The fair value was determined using estimated market rate for the leased right-of-use asset. Additionally, the Company recorded sublease income of $256 and $374 for the years ended December 31, 2021 and 2020, respectively.
Other information related to leases was as follows: | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2021 | | 2020 | | 2019 | | |
Supplemental Cash Flows Information | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
Operating cash flows for operating leases | | $ | 33,402 | | | $ | 30,830 | | | $ | 34,235 | | | |
Operating cash flows for finance leases | | 1,440 | | | 1,563 | | | 1,438 | | | |
Financing cash flows for finance leases | | 2,133 | | | 2,081 | | | 1,284 | | | |
Non-cash right-of-use assets obtained in exchange for lease obligations: | | | | | | |
Operating leases | | 25,010 | | | 50,663 | | | 11,143 | | | |
Finance leases | | 644 | | | 549 | | | 22,671 | | | |
| | | | | | | | |
Weighted Average Remaining Lease Term (in years) | | | | | | | | |
Operating leases | | 7.5 | | 8.0 | | 5.2 | | |
Finance leases | | 9.7 | | 10.5 | | 11.3 | | |
| | | | | | | | |
Weighted Average Discount Rate | | | | | | | | |
Operating leases | | 5.9 | % | | 5.4 | % | | 4.7 | % | | |
Finance leases | | 5.8 | % | | 5.7 | % | | 6.1 | % | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Future minimum lease payments under non-cancellable leases as of December 31, 2021 were as follows: | | | | | | | | | | | | | | | | | | |
Year | | | | | | Operating Leases | | Finance Leases |
2022 | | | | | | $ | 28,267 | | | $ | 3,281 | |
2023 | | | | | | 23,948 | | | 3,207 | |
2024 | | | | | | 17,492 | | | 3,445 | |
2025 | | | | | | 14,722 | | | 3,494 | |
2026 | | | | | | 11,076 | | | 3,206 | |
Thereafter | | | | | | 48,879 | | | 17,343 | |
Total future minimum lease payments | | | | | | 144,384 | | | 33,976 | |
Less imputed interest | | | | | | (29,072) | | | (8,233) | |
Total | | | | | | $ | 115,312 | | | $ | 25,743 | |
Amounts recognized on the consolidated balance sheets as of December 31, 2021 and December 31, 2020 were as follows: | | | | | | | | | | | | | | | | | | |
| | | | | | December 31, 2021 | | December 31, 2020 |
Operating Leases | | | | | | | | |
Operating lease right-of-use assets, net | | | | | | $ | 111,052 | | | $ | 109,795 | |
Current operating lease liabilities | | | | | | 22,552 | | | 21,711 | |
Long-term operating lease liabilities | | | | | | 92,760 | | | 90,517 | |
| | | | | | | | |
Finance Leases | | | | | | | | |
Debt payable within one year | | | | | | 2,153 | | | 2,300 | |
Long-term debt | | | | | | 23,590 | | | 26,152 | |
As of December 31, 2021 and December 31, 2020, assets recorded under finance leases, net of accumulated depreciation were $25,690 and $30,847, respectively. As of December 31, 2021, the Company had additional operating leases, primarily for real estate, that have not yet commenced with undiscounted lease payments of approximately $1,282. These operating leases will commence in 2022 with lease terms up to nine years.
8. Property, Plant and Equipment
Property, plant and equipment consists of the following:
| | | | | | | | | | | | | | | | | |
| December 31, | | Estimated |
| 2021 | | 2020 | | Useful Lives |
Land and improvements | $ | 44,495 | | | $ | 61,226 | | | 10 to 25 years |
Buildings and improvements | 285,240 | | | 298,431 | | | 10 to 40 years |
Machinery and equipment | 1,269,330 | | | 1,277,624 | | | 5 to 10 years |
Construction in progress | 80,868 | | | 96,706 | | | |
| $ | 1,679,933 | | | $ | 1,733,987 | | | |
Accumulated depreciation | (895,585) | | | (841,678) | | | |
Property, plant and equipment, net | $ | 784,348 | | | $ | 892,309 | | | |
The Company recorded impairment charges of $20,118 related to machinery and equipment and $1,775 related to a leased building, due to recent operating performance in certain locations in North America, Europe, and Asia Pacific for the year ended December 31, 2021. The fair value of owned buildings was determined using a sales comparison approach or the cost approach while the fair value of leased buildings was determined using a discounted cash flow approach. The fair value of machinery and equipment was determined using estimated orderly liquidation value, which was deemed the highest and best use of the assets. The Company also recorded impairment charges of $3,326 due to equipment no longer being utilized, primarily in certain North America and Europe locations, for the year ended December 31, 2021. The fair value was determined using estimated salvage value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
For the year ended December 31, 2020, the Company recorded impairment charges of $13,084 due to the deterioration of financial results at certain locations in North America, Europe, and Asia Pacific. The fair value of buildings was determined using a value-in-exchange cost method while the fair value of machinery and equipment was determined using estimated orderly liquidation value, which was deemed the highest and best use of the assets. The Company also recorded impairment charges of $4,162 related to equipment no longer being utilized at certain locations in Europe, Asia Pacific, and Corporate and other for the year ended December 31, 2020. The fair value of equipment was determined using estimated salvage value, which was deemed the highest and best use of the assets.
For the year ended December 31, 2019, the Company recorded impairment charges for property, plant and equipment of $21,968 due to the deterioration of financial results at certain locations in Europe and Asia Pacific and the termination of certain customer programs in the Asia Pacific region and recorded impairment charges of $1,171 related to equipment no longer being utilized at certain locations in Europe and Corporate and other.
A summary of these asset impairment charges is as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
North America | $ | 8,479 | | | $ | 947 | | | $ | — | |
Europe | 9,179 | | | 11,938 | | | 9,943 | |
Asia Pacific | 7,071 | | | 4,080 | | | 13,146 | |
| | | | | |
Total Automotive | 24,729 | | | 16,965 | | | 23,089 | |
Corporate and other | 490 | | | 281 | | | 50 | |
Total | $ | 25,219 | | | $ | 17,246 | | | $ | 23,139 | |
Subsequent Event
In the first quarter of 2022, the Company signed a sale-leaseback agreement on one of its European facilities. Based on the sales price, the Company expects to record a gain on the sales transaction of approximately $34,000 to $37,000. The Company expects the transaction to close in the second quarter of 2022.
9. Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill by reporting unit for the years ended December 31, 2021 and 2020 were as follows: | | | | | | | | | | | | | | | | | | | | | |
| North America | | Industrial Specialty Group | | | | | | Total |
Balance as of December 31, 2019 | $ | 142,187 | | | $ | — | | | | | | | $ | 142,187 | |
Change in organizational structure | (14,036) | | | 14,036 | | | | | | | — | |
| | | | | | | | | |
Foreign exchange translation | 63 | | | — | | | | | | | 63 | |
| | | | | | | | | |
Balance as of December 31, 2020 | $ | 128,214 | | | $ | 14,036 | | | | | | | $ | 142,250 | |
| | | | | | | | | |
| | | | | | | | | |
Foreign exchange translation | 32 | | | — | | | | | | | 32 | |
Balance as of December 31, 2021 | $ | 128,246 | | | $ | 14,036 | | | | | | | $ | 142,282 | |
The Company performed its annual impairment analysis of goodwill during the fourth quarter of 2021. Prior to the analysis, the Company recorded additional goodwill in the second quarter of 2021 as a result of purchasing a supplier in its Europe reporting unit for an immaterial purchase consideration. The fair value of each reporting unit is determined and compared to the carrying value. If the carrying value exceeds the fair value, an impairment charge is recorded based on that difference. The annual impairment analysis resulted in no impairment for the North America and Industrial Specialty Group reporting units. However, as a result of recent operating performance, the Company recorded an impairment on goodwill that was recognized in the second quarter of 2021 for the Europe reporting unit of $390.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
The Company’s organizational structure changed on January 1, 2020. Prior to this change in organizational structure, the Company’s North America operating segment was the only reporting unit in which goodwill was recorded. As a result of the change in organizational structure, a portion of the goodwill that was previously attributable to the North America reporting unit was reallocated to the Industrial Specialty Group reporting unit based on the relative fair value approach. The Industrial Specialty Group reporting unit is a component of the Advanced Technology Group operating segment, which is reflected in “Corporate, eliminations and other”.
The change in organizational structure of the business represented a triggering event to test goodwill for impairment as of January 1, 2020. No impairment was identified as a result of completing the goodwill impairment test. The Company's annual goodwill impairment analysis during the fourth quarter resulted in no impairment for 2020.
The Company's annual goodwill impairment analysis resulted in no impairment for 2019.
Intangible Assets
Definite-lived intangible assets and accumulated amortization balances as of December 31, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 154,767 | | | $ | (126,626) | | | $ | 28,141 | |
Other | 44,955 | | | (12,721) | | | 32,234 | |
Balance as of December 31, 2021 | $ | 199,722 | | | $ | (139,347) | | | $ | 60,375 | |
| | | | | |
Customer relationships | $ | 155,409 | | | $ | (122,657) | | | $ | 32,752 | |
Other | 44,826 | | | (9,899) | | | 34,927 | |
Balance as of December 31, 2020 | $ | 200,235 | | | $ | (132,556) | | | $ | 67,679 | |
Estimated amortization expense for the next five years is shown in the table below:
| | | | | | | | |
Year | | Expense |
2022 | | $ | 7,320 | |
2023 | | 7,315 | |
2024 | | 7,052 | |
2025 | | 6,609 | |
2026 | | 4,831 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
10. Debt
A summary of outstanding debt as of December 31, 2021 and 2020 was as follows: | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Senior Notes | $ | 396,544 | | | $ | 395,829 | |
Senior Secured Notes | 241,683 | | | 239,567 | |
Term Loan Facility | 321,212 | | | 323,636 | |
| | | |
Finance Leases | 25,743 | | | 28,452 | |
Other borrowings | 51,533 | | | 36,007 | |
Total debt | 1,036,715 | | | 1,023,491 | |
Less current portion | (56,111) | | | (40,731) | |
Total long-term debt | $ | 980,604 | | | $ | 982,760 | |
The principal maturities of debt, at nominal value, as of December 31, 2021 are as follows: | | | | | | | | |
Year | | Debt and Finance Lease Obligations |
2022 | | $ | 57,578 | |
2023 | | 322,171 | |
2024 | | 252,692 | |
2025 | | 2,687 | |
2026 | | 402,432 | |
Thereafter | | 12,716 | |
Total | | $ | 1,050,276 | |
The weighted average interest rate of our short-term debt was 3.9% as of December 31, 2021 and 4.1% as of December 31, 2020.
5.625% Senior Notes due 2026
On November 2, 2016, the Company’s wholly-owned subsidiary, CSA Inc. (the “Issuer”), issued $400,000 aggregate principal amount of its 5.625% Senior Notes due 2026 (the “Senior Notes”), pursuant to the Indenture, dated November 2, 2016 (the “Indenture”), by and among the Issuer, the Company and the other guarantors party thereto (collectively, the “Guarantors”) and U.S. Bank National Association, as trustee, in a transaction exempt from registration under Rule 144A and Regulation S of the Securities Act of 1933 (“the Securities Act”). The net proceeds from the Senior Notes were used to repay the non-extended term loan outstanding under the Term Loan Facility, defined below, and to pay fees and expenses related to the refinancing.
The Senior Notes are guaranteed by the Company, CS Intermediate HoldCo 1 LLC, as well as each of the Issuer’s wholly-owned existing or subsequently organized U.S. subsidiaries, subject to certain exceptions, to the extent such subsidiary guarantees the senior asset-based revolving credit facility (“ABL Facility”) and the senior term loan facility (“Term Loan Facility”).
The Issuer may redeem all or part of the Senior Notes at various points in time prior to maturity, as described in the Indenture. The Senior Notes mature on November 15, 2026. Interest on the Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year.
Upon the occurrence of certain events constituting a Change of Control (as defined in the Indenture), the Issuer will be required to make an offer to repurchase all of the Senior Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any.
The Indenture contains certain covenants that limit the Issuer’s and its subsidiaries’ ability to, among other things, make restricted payments; sell assets; create or incur liens; enter into sale and lease-back transactions; and merge or consolidate with other entities. These covenants are subject to a number of important limitations and exceptions. The Indenture also provides for events of default, which, if any occur, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes to be due and payable immediately.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
The Company paid approximately $7,055 of debt issuance costs in connection with the transaction. The debt issuance costs are being amortized into interest expense over the term of the Senior Notes. As of December 31, 2021 and 2020, the Company had $3,456 and $4,171, respectively, of unamortized debt issuance costs related to the Senior Notes, which is classified as a discount in the consolidated balance sheet.
13.0% Senior Secured Notes due 2024
On May 29, 2020, Cooper Standard Automotive Inc. (the “Issuer”), a wholly-owned subsidiary of the Company, issued $250,000 aggregate principal amount of its 13.0% Senior Secured Notes due 2024 (the “Senior Secured Notes”), pursuant to the Indenture, dated as of May 29, 2020 (the “Indenture”), by and among the Issuer, the other guarantors party thereto and U.S. Bank National Association, as trustee, in a transaction exempt from registration under Rule 144A and Regulation S of the Securities Act of 1933. Proceeds from the Senior Secured Notes were used to provide additional liquidity for the Company, as a result of uncertainty from the COVID-19 pandemic.
The Senior Secured Notes are guaranteed on a senior secured basis by CS Intermediate HoldCo 1 LLC and each of the Issuer’s present and future subsidiaries that are obligors or guarantee the Term Loan Facility and each of the Issuer’s wholly owned domestic subsidiaries that are obligors under, or guarantee, certain other indebtedness, subject to certain exceptions. The notes are also guaranteed on a senior unsecured basis by Cooper-Standard Latin America B.V.
The Issuer may redeem all or part of the Senior Secured Notes prior to maturity at the prices set forth in the Indenture. The Senior Secured Notes mature on June 1, 2024. Interest on the Senior Secured Notes is payable semi-annually in arrears in cash on June 1 and December 1 of each year.
The Indenture contains certain covenants that limit the Issuer’s and its subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness or issue certain preferred stock; make restricted payments; sell assets; create or incur liens; and merge or consolidate with other entities. These covenants are subject to a number of important limitations and exceptions. The Indenture also provides for customary events of default for non-investment grade debt securities, which, if any occur, would permit or require the principal, interest and any other monetary obligations on all the then-outstanding Senior Secured Notes to be due and payable immediately.
The Company paid approximately $6,431 of debt issuance costs in connection with the transaction. Additionally, the Senior Secured Notes were issued at a discount of $5,000. As of December 31, 2021 and 2020, the Company had $4,594 and $5,828, respectively, of unamortized debt issuance costs and $3,723 and $4,605, respectively, of unamortized original issue discount related to the Senior Secured Notes, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheets. Both the debt issuance costs and the original issue discount are amortized into interest expense over the term of the Senior Secured Notes.
ABL Facility
On November 2, 2016, CS Intermediate Holdco 1 LLC (“Parent”), CSA U.S. (the “U.S. Borrower”), Cooper-Standard Automotive Canada Limited (the “Canadian Borrower”), Cooper-Standard Automotive International Holdings B.V. (the “Dutch Borrower”, and, together with the U.S. Borrower and the Canadian Borrower, the “Borrowers”) and certain subsidiaries of the U.S. Borrower, entered into a $210,000 Third Amended and Restated Loan Agreement with certain lenders, subject to borrowing base availability. In March 2020, the Company entered into the First Amendment of the Third Amended and Restated Loan Agreement (“the Amendment”). As a result of the Amendment, the senior asset-based revolving credit facility (“ABL Facility”) maturity was extended to March 2025 and the aggregate revolving loan commitment was reduced to $180,000.
The aggregate revolving loan availability includes a $100,000 letter of credit sub-facility and a $25,000 swing line sub-facility. The ABL Facility also provides for an uncommitted $100,000 incremental loan facility, for a potential total ABL Facility of $280,000 (if requested by the Borrowers and the 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. The Company’s borrowing base was $169,687. Net the greater of 10% of the borrowing base or $15,000 that cannot be borrowed without triggering the fixed charge coverage ratio maintenance covenant and $5,210 of outstanding letters of credit, the Company effectively had $147,508 available for borrowing under its ABL facility.
As of December 31, 2021, there were no obligations outstanding under the ABL Facility.
Maturity. Any borrowings under our ABL Facility will mature, and the commitments of the lenders under our ABL Facility will terminate, on March 24, 2025.
Borrowing Base. Loan and letter of credit availability under the ABL Facility is subject to a borrowing base, which at any time is limited to the lesser of: (A) the maximum facility amount (subject to certain adjustments) and (B) (i) up to 85% of eligible accounts receivable; plus (ii) the lesser of 70% of eligible inventory or 85% of the appraised net orderly liquidation value
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
of eligible inventory; plus (iii) up to the lesser of $30.0 million and 85% of eligible tooling accounts receivable; minus reserves established by the Agent. The accounts receivable portion of the borrowing base is subject to certain formulaic limitations (including concentration limits). The inventory portion of the borrowing base is limited to eligible inventory, as determined by the Agent. The borrowing base is also subject to certain reserves, which are established by the Agent (which may include changes to the advance rates indicated above). Loan availability under the ABL Facility is apportioned as follows: $180,000 to the U.S. Borrower, which includes a $40,000 sublimit to the Dutch Borrower and $20,000 to the Canadian Borrower.
Guarantees; Security. The obligations of the U.S. Borrower, the Canadian Borrower and the Dutch Borrower under the ABL Facility, as well as certain cash management arrangements and interest rate, foreign currency or commodity swaps entered into by the such Borrowers and their subsidiaries, and certain credit lines entered into by non-U.S. subsidiaries, in each case with the lenders and their affiliates (collectively, “Additional ABL Secured Obligations”) are guaranteed on a senior secured basis by the Company and its U.S. subsidiaries (with certain exceptions), and the obligations of the Canadian Borrower under the ABL Facility and Additional ABL Secured Obligations of the Canadian Borrower and its Canadian subsidiaries are, in addition, guaranteed on a senior secured basis by the Canadian subsidiaries of the Canadian Borrower. The obligations under the ABL Facility and related guarantees are secured by (1) a first priority lien on all of each Borrower’s and each guarantor’s existing and future personal property consisting of accounts receivable, payment intangibles, inventory, documents, instruments, chattel paper and investment property, certain money, deposit accounts and securities accounts and certain related assets and proceeds of the foregoing, with various enumerated exceptions, including that: (i) the collateral owned by Canadian Borrower or any of its Canadian subsidiaries that are Guarantors only secure the obligations of Canadian Borrower and such subsidiaries arising under the ABL Facility and Additional ABL Secured Obligations and (ii) no liens have been granted on any assets or properties of the Dutch Borrower or any other non-U.S. subsidiaries of the Company (other than the Canadian Borrower and Canadian Guarantors, as otherwise specified above) in connection with the ABL Facility and (2) a second priority lien on all the capital stock in restricted subsidiaries directly held by the U.S. Borrower and each of the U.S. Guarantors, and equipment of the U.S. Borrower and the U.S.-domiciled guarantors and all other material personal property of the U.S. Borrower and the U.S.-domiciled guarantors.
Interest. Borrowings under the ABL Facility bear interest at a rate equal to, at the Borrowers’ option:
•in the case of borrowings by the U.S. Borrower, LIBOR or the base rate plus, in each case, an applicable margin; or
•in the case of borrowings by the Canadian Borrower, bankers’ acceptance (“BA”) rate, Canadian prime rate or Canadian base rate plus, in each case, an applicable margin; or
•in the case of borrowings by the Dutch Borrower, LIBOR plus an applicable margin.
The initial applicable margin was 1.50% with respect to the LIBOR or Canadian BA rate-based borrowings and 0.50% with respect to U.S. base rate, Canadian prime rate and Canadian base rate borrowings, until April 1, 2020. The applicable margin may vary between 1.50% and 2.00% with respect to the LIBOR or Canadian BA rate-based borrowings and between 0.50% and 1.00% with respect to U.S. base rate, Canadian prime rate and Canadian base rate borrowings. The applicable margin is subject, in each case, to quarterly pricing adjustments (based on average facility availability).
Fees. The Borrowers are required to pay a fee in respect of committed but unutilized commitments. The ABL Facility also requires the payment of customary agency and administrative fees.
Voluntary Prepayments. The Borrowers are able to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans, in each case, in whole or in part, at any time without premium or penalty (other than customary breakage and related reemployment costs with respect to repayments of LIBOR-based borrowings).
Covenants; Events of Default. The ABL Facility includes affirmative and negative covenants that will impose substantial restrictions on the Company’s financial and business operations, including its ability to incur and secure debt, make investments, sell assets, pay dividends or make acquisitions. The ABL Facility also includes a requirement to maintain a monthly fixed charge coverage ratio of no less than 1.0 to 1.0 when availability under the ABL Facility is less than specified levels. The ABL Facility also contains various events of default that are customary for comparable facilities.
Debt Issuance Costs. As of December 31, 2021 and 2020, the Company had $782 and $1,029, respectively, of unamortized debt issuance costs related to the ABL Facility.
Term Loan Facility
On November 2, 2016, CSA U.S., as borrower, entered into Amendment No. 1 to the Term Loan Facility, which provides for loans in an aggregate principal amount of $340,000. Subject to certain conditions, the Term Loan Facility, without the consent of the then-existing lenders (but subject to the receipt of commitments), may be expanded (or a new term loan or revolving facility added) by an amount that will not cause the consolidated secured net debt ratio to exceed 2.25 to 1.00 plus
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
$400,000 plus any voluntary prepayments (including revolving facility and ABL Facility to the extent commitments are reduced) not funded from proceeds of long-term indebtedness.
On May 2, 2017, the Company entered into Amendment No. 2 to the Term Loan Facility to modify the interest rate. Subsequently, on March 6, 2018, the Company entered into Amendment No. 3 to the Term Loan Facility to further modify the interest rate. In accordance with this amendment, borrowings under the Term Loan Facility bear interest, at the Company’s option, at either (1) with respect to Eurodollar rate loans, the greater of the applicable Eurodollar rate and 0.75% plus 2.00% per annum, or (2) with respect to base rate loans, the base rate, (which is the highest of the then current federal funds rate plus 0.50%, the prime rate most recently announced by the administrative agent under the term loan, and the one-month Eurodollar rate plus 1.0%) plus 1.0% per annum. As a result of Amendment No. 3, the Company recognized a loss on refinancing and extinguishment of debt of $770 in the twelve months ended December 31, 2018, which was due to the partial write off of new and unamortized debt issuance costs and unamortized original issue discount
Maturity. The Term Loan Facility matures on November 2, 2023, unless earlier terminated.
Guarantees. All obligations of the borrower under the Term Loan Facility are guaranteed jointly and severally on a senior secured basis by the direct parent company of the borrower and each existing and subsequently acquired or organized direct or indirect wholly owned U.S. restricted subsidiary of the borrower.
Security. The obligations under the Term Loan Facility are secured by (a) a first priority security interest (subject to permitted liens and other customary exceptions) on (i) all the capital stock in restricted subsidiaries directly held by the borrower and each of the guarantors, (ii) substantially all plant, material owned real property located in the U.S. and equipment of the borrower and the guarantors and (iii) all other personal property of the borrower and the guarantors, including, without limitation, accounts and investment property, contracts, patents, copyrights, trademarks, other general intangibles, intercompany notes and proceeds of the foregoing, and (b) a second priority security interest (subject to permitted liens and other customary exceptions) in accounts receivable of the borrowers and the guarantors arising from the sale of goods and services, inventory, tax refunds, cash, deposit accounts and books and records related to the foregoing and, in each case, proceeds thereof, in each case, excluding certain collateral and subject to certain limitations.
Interest. Borrowings under the Term Loan Facility bear interest, at the Company’s option, at either (1) with respect to Eurodollar rate loans, the greater of the applicable Eurodollar rate and 0.75%, plus 2.00% per annum, or (2) with respect to base rate loans, the base rate (which is the highest of the then-current federal funds rate plus 0.50%, the prime rate most recently announced by the administrative agent under the term loan, and the one-month Eurodollar rate plus 1.0%), plus 1.0% per annum.
Voluntary Prepayments. The borrower may voluntarily prepay loans in whole or in part, with prior notice and without premium or penalty, subject to the actual LIBOR breakage costs, payment of accrued and unpaid interest, and customary limitations as to minimum amounts of prepayments.
Covenants. The Term Loan Facility contains incurrence-based negative covenants customary for high yield senior secured debt securities, including, but not limited to, restrictions on the ability of the borrower and its restricted subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, pay dividends or make other restricted payments, sell or otherwise transfer assets, or enter into transactions with affiliates. These negative covenants are subject to exceptions, qualifications and certain carveouts.
Events of Default. The Term Loan Facility provides that, upon the occurrence of certain events of default, obligations thereunder may be accelerated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy proceedings, material money judgments, material pension-plan events, certain change of control events and other customary events of default.
Debt Issuance Costs. As of December 31, 2021 and 2020, the Company had $1,087 and $1,680, respectively, of unamortized debt issuance costs and $701 and $1,084, respectively, of unamortized original issue discount related to the Term Loan Facility. Both the debt issuance costs and the original issue discount are amortized into interest expense over the term of the Term Loan Facility.
Debt Covenants
The Company was in compliance with all covenants of the ABL Facility, Term Loan Facility, Senior Notes, and Senior Secured Notes, as of December 31, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Other
Other borrowings as of December 31, 2021 and 2020 reflect borrowings under local bank lines classified in debt payable within one year on the consolidated balance sheet.
11. Fair Value Measurements and Financial Instruments
Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy is utilized, which prioritizes the inputs used in measuring fair value as follows: | | | | | |
Level 1: | Observable inputs such as quoted prices in active markets; |
Level 2: | Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |
Level 3: | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Items Measured at Fair Value on a Recurring Basis
Estimates of the fair value of foreign currency and interest rate derivative instruments are determined using exchange traded prices and rates. The Company also considers the risk of non-performance in the estimation of fair value and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. In certain instances where market data is not available, the Company uses management judgment to develop assumptions that are used to determine fair value. 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, 2021 and 2020, was as follows: | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 | | Input |
Forward foreign exchange contracts - other current assets | | $ | 647 | | | $ | 1,826 | | | Level 2 |
| | | | | | |
Forward foreign exchange contracts - accrued liabilities | | $ | (1,535) | | | $ | (750) | | | Level 2 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Items Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, the Company measures certain assets and liabilities at fair value on a nonrecurring basis, which are not included in the table above. As these nonrecurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy. For further information on assets and liabilities measured at fair value on a nonrecurring basis see Note 2. “Basis of Presentation and Summary of Significant Accounting Policies”, Note 4. “Acquisition and Divestitures”, Note 8. “Property, Plant and Equipment.” and Note 9. “Goodwill and Intangible Assets”.
Items Not Carried at Fair Value
Fair values of the Company’s Senior Notes, Senior Secured Notes, and Term Loan Facility were as follows: | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Aggregate fair value | $ | 899,909 | | | $ | 965,052 | |
Aggregate carrying value (1) | $ | 973,000 | | | $ | 976,400 | |
(1) Excludes unamortized debt issuance costs and unamortized original issue discount.
Fair values were based on quoted market prices and are classified within Level 1 of the fair value hierarchy.
Derivative Instruments and Hedging Activities
The Company is exposed to fluctuations in foreign currency exchange rates, interest rates and commodity prices. The Company enters into derivative instruments primarily to hedge portions of its forecasted foreign currency denominated cash flows and designates these derivative instruments as cash flow hedges in order to qualify for hedge accounting.
The Company formally documents its hedge relationships, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the cash flow hedges. The Company also
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
formally assesses whether a cash flow hedge is highly effective in offsetting changes in the cash flows of the hedged item. Derivatives are recorded at fair value in other current assets, other assets, accrued liabilities and other long-term liabilities. For a cash flow hedge, the effective portion of the change in fair value of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”) in the consolidated balance sheet and reclassified into earnings when the underlying hedged transaction is realized. The realized gains and losses are recorded on the same line as the hedged transaction in the consolidated statements of operations.
The Company is exposed to credit risk in the event of nonperformance by its counterparties on its derivative financial instruments. The Company mitigates this credit risk exposure by entering into agreements directly with major financial institutions with high credit standards that are expected to fully satisfy their obligations under the contracts.
Cash Flow Hedges
Forward Foreign Exchange Contracts – The Company uses forward contracts to mitigate the potential volatility to earnings and cash flow arising from changes in currency exchange rates that impact the Company’s foreign currency transactions. The principal currencies hedged by the Company include various European currencies other than the Euro, the Canadian Dollar, the Mexican Peso, and the Brazilian Real. As of December 31, 2021 and 2020, the notional amount of these contracts was $136,103 and $97,503, respectively, and consisted of hedges of transactions up to December 2022.
Pretax amounts related to the Company’s cash flow hedges that were recognized in other comprehensive income (loss) (“OCI”) were as follows: | | | | | | | | | | | |
| Gain (Loss) Recognized in OCI |
| Year Ended December 31, |
| 2021 | | 2020 |
Forward foreign exchange contracts | $ | (545) | | | $ | (6,280) | |
| | | |
| | | |
Pretax amounts related to the Company’s cash flow hedges that were reclassified from AOCI were as follows: | | | | | | | | | | | | | | | | | |
| | | Gain (Loss) Reclassified from AOCI to Income |
| | | Year Ended December 31, |
| Classification | | 2021 | | 2020 |
Forward foreign exchange contracts | Cost of products sold | | $ | 1,432 | | | $ | (6,945) | |
| | | | | |
| | | | | |
12. Accounts Receivable Factoring
As a part of its working capital management, the Company sells certain receivables through a third-party financial institution in a pan-European program (the “Factor”). The amount sold varies each month based on the amount of underlying receivables and cash flow needs of the Company. These are permitted transactions under the Company’s credit agreements governing the ABL Facility and Term Loan Facility and the indentures governing the Senior Notes and Senior Secured Notes. The European factoring facility, which was renewed in March 2020, allows the Company to factor up to €120 million of its Euro-denominated accounts receivable, accelerating access to cash and reducing credit risk. The factoring facility expires in December 2023.
Costs incurred on the sale of receivables are recorded in other expense, net in the consolidated statements of operations. Liabilities related to the factoring program are recorded in accrued liabilities in the consolidated balance sheet. The sale of receivables under this contract is considered an off-balance sheet arrangement to the Company and is accounted for as a true sale and excluded from accounts receivable in the consolidated balance sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Amounts outstanding under receivable transfer agreements entered into by various locations as of the period end were as follows: | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Off-balance sheet arrangements | $ | 52,743 | | | $ | 85,108 | |
| | | |
Accounts receivable factored and related costs throughout the period were as follows: | | | | | | | | | | | | | | | |
| Off-Balance Sheet Arrangements | | |
| Year Ended December 31, | | |
| 2021 | | 2020 | | | | |
Accounts receivable factored | $ | 366,878 | | | $ | 476,405 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Off-Balance Sheet Arrangements | | |
| Year Ended December 31, | | |
| 2021 | | 2020 | | 2019 | | | | | | |
Costs | $ | 528 | | | $ | 776 | | | $ | 1,007 | | | | | | | |
As of December 31, 2021 and 2020, cash collections on behalf of the Factor that had yet to be remitted were $673 and $1,786, respectively, and are reflected in other current assets as restricted cash in the consolidated balance sheet.
13. Pension
The Company maintains defined benefit pension plans covering employees located in the United States as well as certain international locations. The majority of these plans are frozen, and all are closed to new employees. Benefits generally are based on compensation, length of service and age for salaried employees and on length of service for hourly employees. The Company’s policy is to fund pension plans such that sufficient assets will be available to meet future benefit requirements and contribute amounts deductible for United States federal income tax purposes or amounts required by local statute.
The Company also sponsors voluntary defined contribution plans for certain salaried and hourly U.S. employees of the Company. The Company matches contributions of participants, up to various limits in all plans. The Company also sponsors retirement plans that include Company non-elective contributions. Non-elective and matching contributions under these plans totaled $12,809, $13,537 and $14,514 for the years ended December 31, 2021, 2020 and 2019, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Information related to the Company’s defined benefit pension plans was as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Change in projected benefit obligations: | | | | | | | |
Projected benefit obligations at beginning of period | $ | 271,397 | | | $ | 195,407 | | | $ | 255,935 | | | $ | 184,364 | |
Service cost | 891 | | | 3,345 | | | 853 | | | 3,992 | |
Interest cost | 6,516 | | | 2,558 | | | 8,132 | | | 3,200 | |
Net actuarial (gain) loss | (8,589) | | | (12,976) | | | 19,755 | | | 8,704 | |
Benefits paid | (13,107) | | | (5,324) | | | (13,278) | | | (6,925) | |
Foreign exchange translation | — | | | (9,610) | | | — | | | 11,582 | |
Settlements | — | | | (8,210) | | | — | | | (5,170) | |
Divestiture | — | | | — | | | — | | | (4,392) | |
Other | — | | | (233) | | | — | | | 52 | |
Projected benefit obligations at end of period | $ | 257,108 | | | $ | 164,957 | | | $ | 271,397 | | | $ | 195,407 | |
| | | | | | | |
Change in plan assets: | | | | | | | |
Fair value of plan assets at beginning of period | $ | 267,343 | | | $ | 54,548 | | | $ | 244,613 | | | $ | 54,806 | |
Actual return on plan assets | 18,175 | | | 1,280 | | | 34,971 | | | 5,313 | |
Employer contributions | 1,037 | | | 5,526 | | | 1,037 | | | 5,673 | |
Benefits paid | (13,107) | | | (5,324) | | | (13,278) | | | (6,925) | |
Foreign exchange translation | — | | | 225 | | | — | | | 940 | |
Settlements | — | | | (8,210) | | | — | | | (5,170) | |
Divestiture | — | | | — | | | — | | | (108) | |
Other | — | | | 2 | | | — | | | 19 | |
Fair value of plan assets at end of period | $ | 273,448 | | | $ | 48,047 | | | $ | 267,343 | | | $ | 54,548 | |
| | | | | | | |
Funded status of the plans | $ | 16,340 | | | $ | (116,910) | | | $ | (4,054) | | | $ | (140,859) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Amounts recognized in the consolidated balance sheet: | | | | | | | |
Other assets | $ | 29,804 | | | $ | 4,245 | | | $ | 10,513 | | | $ | 1,921 | |
Accrued liabilities | (1,018) | | | (3,721) | | | (1,020) | | | (4,097) | |
Pension benefits (long term) | (12,446) | | | (117,434) | | | (13,547) | | | (138,683) | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Pre-tax amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit (income) cost as of December 31, 2021 and 2020 were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Prior service costs | $ | (56) | | | $ | (185) | | | $ | (76) | | | $ | (497) | |
Actuarial losses | (43,574) | | | (33,742) | | | (57,731) | | | (53,657) | |
The Company uses the corridor approach when amortizing actuarial gains or losses. Under the corridor approach, net unrecognized actuarial losses in excess of 10% of the greater of i) the projected benefit obligation or ii) the fair value of plan assets are amortized over future periods.
The accumulated benefit obligation for all domestic and international defined benefit pension plans was $257,108 and $158,074 as of December 31, 2021 and $271,397 and $186,652 as of December 31, 2020, respectively. As of December 31, 2021, the fair value of plan assets for three of the Company’s defined benefit plans exceeded the projected benefit obligations of $270,296 by $34,049.
The components of net periodic benefit (income) cost for the Company’s defined benefit plans were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Service cost | $ | 891 | | | $ | 3,345 | | | $ | 853 | | | $ | 3,992 | | | $ | 809 | | | $ | 3,893 | |
Interest cost | 6,516 | | | 2,558 | | | 8,132 | | | 3,200 | | | 10,955 | | | 4,037 | |
Expected return on plan assets | (14,257) | | | (1,320) | | | (13,683) | | | (2,415) | | | (16,353) | | | (2,400) | |
Amortization of prior service cost and actuarial loss | 1,670 | | | 2,635 | | | 1,940 | | | 3,478 | | | 2,914 | | | 2,373 | |
Settlements | — | | | 1,279 | | | — | | | 184 | | | 15,247 | | | 572 | |
Other | — | | | 118 | | | — | | | (11) | | | — | | | 956 | |
Net periodic benefit (income) cost | $ | (5,180) | | | $ | 8,615 | | | $ | (2,758) | | | $ | 8,428 | | | $ | 13,572 | | | $ | 9,431 | |
Pension Settlements
In addition to the settlements shown in the table above, the Company recognized $744 of Non-U.S. pension net settlement and curtailment charges due to the divestiture of certain businesses in Europe and India during the year ended December 31, 2020 that are recorded as a reduction to gain on sale of business, net in the consolidated statements of operations. The Company also recognized $836 of Non-U.S. pension settlement charges during the year ended December 31, 2020 that are recorded as restructuring in the consolidated statements of operations.
The Company recognized $2,730 of Non-U.S. pension settlement charges due to the divestiture of the Company’s AVS product line during the year ended December 31, 2019. The charges are recorded as a reduction to gain on sale of business, net in the consolidated statements of operations.
During the year ended December 31, 2019, the Company undertook an initiative to de-risk pension obligations in the U.S. by purchasing a bulk annuity policy utilizing plan assets, which was designed to match the liabilities of the plan. The resulting non-cash settlement charge of $15,247 was recorded in pension settlement charges, and administrative expenses of $178 were recorded in selling, administration & engineering expenses in the consolidated statements of operations. As a result of the settlement, the Company’s overall projected benefit obligation as of December 31, 2019 was reduced by $58,198.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Plan Assumptions
Weighted average assumptions used to determine benefit obligations as of December 31, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Discount rate | 2.84 | % | | 1.83 | % | | 2.48 | % | | 1.36 | % |
Rate of compensation increase | N/A | | 1.44 | % | | N/A | | 1.23 | % |
Cash balance interest credit rate | 4.50 | % | | N/A | | 4.50 | % | | N/A |
Weighted average assumptions used to determine net periodic benefit costs for the years ended December 31, 2021, 2020 and 2019 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Discount rate | 2.48 | % | | 1.63 | % | | 3.28 | % | | 2.33 | % | | 4.25 | % | | 2.40 | % |
Expected return on plan assets | 5.50 | % | | 2.48 | % | | 5.75 | % | | 3.73 | % | | 6.50 | % | | 4.63 | % |
Rate of compensation increase | N/A | | 1.99 | % | | N/A | | 3.99 | % | | N/A | | 3.31 | % |
To develop the expected return on plan assets assumption, the Company considered the historical returns and the future expected returns for each asset class, as well as the target asset allocation of the pension portfolio. As the U.S. plans are frozen, the rate of compensation increase was not applicable in determining net periodic benefit cost.
Plan Assets
The goals and investment objectives of the asset strategy are to ensure that there is an adequate level of assets to meet benefit obligations to participants and retirees over the life of the participants and maintain liquidity in the plan assets sufficient to cover monthly benefit obligations. Risk is managed by investing in a broad range of investment vehicles, e.g., equity mutual funds, bond mutual funds, real estate mutual funds, hedge funds, etc. There are no equity securities of the Company in the equity asset category.
Investments in equity securities and debt securities are valued at fair value using a market approach and observable inputs, such as quoted market prices in active markets (Level 1). Investments in balanced funds are valued at fair value using a market approach and inputs that are primarily directly or indirectly observable (Level 2). Investments in equity securities and balanced funds in which the Company holds participation units in a fund, the net asset value of which is based on the underlying assets and liabilities of the respective fund, are considered an unobservable input (Level 3). Investments in real estate funds are primarily valued at net asset value depending on the investment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
The fair value of the Company’s pension plan assets by category using the three-level hierarchy (see Note 11. “Fair Value Measurements and Financial Instruments”) as of December 31, 2021 and 2020 was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2021 | | Level 1 | | Level 2 | | | | Assets measured at NAV (1) | | Total |
Equity funds | | $ | 1,231 | | | $ | 11,586 | | | | | $ | — | | | $ | 12,817 | |
Equity funds measured at net asset value | | — | | | — | | | | | 41,032 | | | 41,032 | |
Bond funds | | — | | | 36,133 | | | | | — | | | 36,133 | |
Bond funds measured at net asset value | | — | | | — | | | | | 210,492 | | | 210,492 | |
Real estate measured at net asset value | | — | | | — | | | | | 11,270 | | | 11,270 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Cash and cash equivalents | | 9,751 | | | — | | | | | — | | | 9,751 | |
Total | | $ | 10,982 | | | $ | 47,719 | | | | | $ | 262,794 | | | $ | 321,495 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2020 | | Level 1 | | Level 2 | | | | Assets measured at NAV (1) | | Total |
Equity funds | | $ | 18,218 | | | $ | 16,647 | | | | | $ | — | | | $ | 34,865 | |
Equity funds measured at net asset value | | — | | | — | | | | | 117,309 | | | 117,309 | |
Bond funds | | — | | | 37,901 | | | | | — | | | 37,901 | |
Bond funds measured at net asset value | | — | | | — | | | | | 104,880 | | | 104,880 | |
Real estate measured at net asset value | | — | | | — | | | | | 25,070 | | | 25,070 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Cash and cash equivalents | | 1,866 | | | — | | | | | — | | | 1,866 | |
Total | | $ | 20,084 | | | $ | 54,548 | | | | | $ | 247,259 | | | $ | 321,891 | |
(1) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. These assets are included in this table to present total pension plan assets at fair value.
There were no transfers of Level 3 assets and no Level 3 assets in the ending balance for the years ended December 31, 2021 and December 31, 2020.
Expected Future Benefit Payments
The Company estimates its benefit payments for domestic and foreign pension plans during the next ten years to be as follows: | | | | | | | | | | | | | | | | | |
Years Ending December 31, | U.S. | | Non-U.S. | | Total |
2022 | $ | 16,902 | | | $ | 5,785 | | | $ | 22,687 | |
2023 | 16,482 | | | 6,069 | | | 22,551 | |
2024 | 15,497 | | | 21,944 | | | 37,441 | |
2025 | 15,275 | | | 7,325 | | | 22,600 | |
2026 | 16,092 | | | 7,165 | | | 23,257 | |
2027 - 2031 | 74,195 | | | 40,825 | | | 115,020 | |
Contributions
The Company estimates it will make minimum funding cash contributions of approximately $1,000 to its U.S. pension plans and minimum funding cash contributions of approximately $4,100 to its non-U.S. pension plans in 2022.
14. Postretirement Benefits Other Than Pensions
The Company provides certain retiree health care and life insurance benefits covering certain U.S. salaried and hourly employees and employees in Canada. Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. The Company’s policy is to fund the cost of these postretirement benefits as these benefits become payable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Information related to the Company’s postretirement benefit plans was as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Change in benefit obligation: | | | | | | | |
Benefit obligations at beginning of year | $ | 23,419 | | | $ | 27,032 | | | $ | 22,436 | | | $ | 23,949 | |
Service cost | 105 | | | 357 | | | 103 | | | 404 | |
Interest cost | 531 | | | 701 | | | 680 | | | 726 | |
Net actuarial (gain) loss | (1,717) | | | (5,065) | | | 1,603 | | | 2,221 | |
Benefits paid | (1,127) | | | (716) | | | (1,403) | | | (663) | |
| | | | | | | |
| | | | | | | |
Foreign currency exchange rate effect | — | | | 167 | | | — | | | 395 | |
Benefit obligation at end of year | $ | 21,211 | | | $ | 22,476 | | | $ | 23,419 | | | $ | 27,032 | |
| | | | | | | |
Funded status of the plan | $ | (21,211) | | | $ | (22,476) | | | $ | (23,419) | | | $ | (27,032) | |
| | | | | | | |
Net amount recognized as of December 31 | $ | (21,211) | | | $ | (22,476) | | | $ | (23,419) | | | $ | (27,032) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Amounts recognized in the consolidated balance sheet: | | | | | | | |
Accrued liabilities | $ | (1,576) | | | $ | (766) | | | $ | (1,648) | | | $ | (968) | |
Postretirement benefits other than pension (long term) | (19,635) | | | (21,710) | | | (21,771) | | | (26,064) | |
Pre-tax amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit (income) cost as of December 31, 2021 and 2020 were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | | | | | | |
Actuarial gains (losses) | $ | 11,339 | | | $ | (3,760) | | | $ | 11,018 | | | $ | (9,563) | |
The components of net periodic benefit (income) costs for the Company’s other postretirement benefit plans were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Service cost | $ | 105 | | | $ | 357 | | | $ | 103 | | | $ | 404 | | | $ | 118 | | | $ | 397 | |
Interest cost | 531 | | | 701 | | | 680 | | | 726 | | | 864 | | | 752 | |
Amortization of prior service credit and recognized actuarial (gain) loss | (1,396) | | | 752 | | | (1,930) | | | 448 | | | (2,441) | | | 320 | |
Other | — | | | — | | | — | | | — | | | — | | | 48 | |
Net periodic benefit (income) cost | $ | (760) | | | $ | 1,810 | | | $ | (1,147) | | | $ | 1,578 | | | $ | (1,459) | | | $ | 1,517 | |
During the year ended December 31, 2019, the Company recognized a gain of $3,452 for the U.S. plan and a net charge of $453 for the Non-U.S. plan, related to settlements and curtailments due to the divestiture of the Company’s AVS product line. See Note 4. “Acquisition and Divestitures.” The amounts are recorded in gain on sale of business, net in the consolidated statements of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Plan Assumptions
Weighted average assumptions used to determine benefit obligations as of December 31, 2021 and 2020 were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Discount rate | 2.75 | % | | 3.05 | % | | 2.35 | % | | 2.65 | % |
Weighted average assumptions used to determine net periodic benefit costs for the years ended December 31, 2021, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Discount rate | 2.35 | % | | 2.65 | % | | 3.15 | % | | 3.05 | % | | 4.20 | % | | 3.65 | % |
The assumed health care cost trend rates used to measure the postretirement benefit obligation as of December 31, 2021 were as follows: | | | | | | | | | | | |
| U.S. | | Non-U.S. |
Health care cost trend rate | 5.19 | % | | 5.00 | % |
Ultimate health care cost trend rate | 4.50 | % | | 5.00 | % |
Year that the rate reaches the ultimate trend rate | 2027 | | N/A |
Expected Future Postretirement Benefit Payments
The Company estimates its benefit payments for its postretirement benefit plans during the next ten years to be as follows: | | | | | | | | | | | | | | | | | |
| U.S. | | Non-U.S. | | Total |
2022 | $ | 1,598 | | | $ | 778 | | | $ | 2,376 | |
2023 | 1,597 | | | 777 | | | 2,374 | |
2024 | 1,569 | | | 812 | | | 2,381 | |
2025 | 1,542 | | | 825 | | | 2,367 | |
2026 | 1,509 | | | 846 | | | 2,355 | |
2027 - 2031 | 6,766 | | | 4,631 | | | 11,397 | |
Other
Other postretirement benefits recorded in the Company’s consolidated balance sheets include $2,153 and $1,778 as of December 31, 2021 and 2020, respectively, for termination indemnity plans in Europe.
15. Other Expense, net
The components of other expense, net were as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Foreign currency losses | $ | (6,887) | | | $ | (1,429) | | | $ | (3,022) | |
Components of net periodic benefit income (cost) other than service cost | 1,610 | | | (576) | | | (1,069) | |
| | | | | |
Factoring costs | (528) | | | (776) | | | (1,007) | |
Miscellaneous income | 963 | | | 201 | | | 838 | |
| | | | | |
Other expense, net | $ | (4,842) | | | $ | (2,580) | | | $ | (4,260) | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
16. Income Taxes
Components of the Company’s (loss) income before income taxes and adjustment for noncontrolling interests were as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Domestic | $ | (142,883) | | | $ | (235,574) | | | $ | 53,425 | |
Foreign | (146,569) | | | (94,647) | | | 44,877 | |
| $ | (289,452) | | | $ | (330,221) | | | $ | 98,302 | |
The Company’s income tax expense (benefit) consists of the following: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Current | | | | | |
Federal | $ | 5,158 | | | $ | (65,565) | | | $ | (227) | |
State | 68 | | | (196) | | | (171) | |
Foreign | (1,590) | | | 13,636 | | | 20,613 | |
| | | | | |
Deferred | | | | | |
Federal | 12,217 | | | (15,060) | | | 4,405 | |
State | (484) | | | 1,297 | | | (767) | |
Foreign | 24,023 | | | 5,041 | | | 12,236 | |
| $ | 39,392 | | | $ | (60,847) | | | $ | 36,089 | |
A reconciliation of the U.S. statutory federal rate to the income tax provision was as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Tax at U.S. statutory rate | $ | (60,785) | | | $ | (69,346) | | | $ | 20,643 | |
State and local taxes | (3,276) | | | (4,933) | | | 209 | |
Tax credits and incentives | (7,634) | | | (5,750) | | | (8,034) | |
Changes in tax law, other | (361) | | | 352 | | | 2,909 | |
U.S. tax reform/Global Intangible Low-Taxed Income ("GILTI")/foreign derived intangible income | — | | | (1,046) | | | 1,102 | |
Effect of foreign tax rates | (13,525) | | | (15,432) | | | (1,656) | |
Nonrecurring permanent items | (3,710) | | | (3,069) | | | (5,250) | |
| | | | | |
CARES Act | — | | | (27,844) | | | — | |
Foreign branch | 1,641 | | | (1,215) | | | (2,258) | |
Stock compensation (ASU 2016-09) | 1,257 | | | 1,640 | | | 1,596 | |
Non deductible expenses | 6,618 | | | 9,335 | | | 2,820 | |
Tax reserves/audit settlements | (5,043) | | | 1,071 | | | (206) | |
Valuation allowance | 124,228 | | | 51,609 | | | 24,625 | |
Other, net | (18) | | | 3,781 | | | (411) | |
Income tax expense (benefit) | $ | 39,392 | | | $ | (60,847) | | | $ | 36,089 | |
Effective income tax rate | (13.6) | % | | 18.4 | % | | 36.7 | % |
In the first quarter of 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law. The CARES Act allows net operating losses generated by the Company to be carried back up to five years at the tax rates in effect during those periods, rather than carried forward at current federal tax rates of 21%. The Company recorded a $27,844 benefit for this CARES Act provision in the period ended December 31, 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Nonrecurring permanent items in 2021 relate to an intercompany legal entity sale. In 2020, nonrecurring permanent items were the result of the divestiture of our European rubber, fluid transfer, and specialty sealing businesses as well as our Indian operation, including a worthless security deduction and in 2019, a result of the sale of the AVS product line.
Deferred tax assets and liabilities reflect the estimated tax effect of accumulated temporary differences between the basis of assets and liabilities for tax and financial reporting purposes, as well as net operating losses, tax credit and other carryforwards. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2021 and 2020 were as follows: | | | | | | | | | | | |
| 2021 | | 2020 |
Deferred tax assets: | | | |
Pension, postretirement and other benefits | $ | 40,026 | | | $ | 53,229 | |
Capitalized expenditures | 12,521 | | | 14,411 | |
Net operating loss and tax credit carryforwards | 275,222 | | | 215,980 | |
Operating lease | 27,934 | | | 26,160 | |
| | | |
All other items | 61,785 | | | 53,290 | |
Total deferred tax assets | 417,488 | | | 363,070 | |
Deferred tax liabilities: | | | |
Property, plant and equipment | (21,745) | | | (29,415) | |
Operating lease right-of-use | (26,863) | | | (26,160) | |
All other items | (14,506) | | | (15,597) | |
Total deferred tax liabilities | (63,114) | | | (71,172) | |
Valuation allowances | (334,983) | | | (234,425) | |
Net deferred tax assets | $ | 19,391 | | | $ | 57,473 | |
As of December 31, 2021, the Company’s U.S. and foreign subsidiaries, primarily in France, Brazil, Italy and Germany, had operating loss carryforwards aggregating $639,000, with indefinite expiration periods. Other foreign subsidiaries in China, Mexico, Netherlands, Spain, Czech Republic and Korea had operating losses aggregating $303,000, with expiration dates beginning in 2022. The Company has research tax credit carryforwards and foreign tax credit carryforwards totaling $39,000 in the U.S. with expiration dates beginning in 2029. The Company and its domestic subsidiaries have anticipated tax benefits of state net operating losses and credit carryforwards of $12,300 with expiration dates beginning in 2022.
As of December 31, 2021, the Company has consolidated deferred tax assets of $417,488 with valuation allowances of $334,983 related to tax losses, credit carryforwards, and other deferred tax assets in the U.S. and certain foreign jurisdictions. The Company’s valuation allowance increased in 2021 primarily from current year losses generated in certain foreign jurisdictions as well as new valuation allowances established during 2021 in the U.S., France and Canada. Current and future provision for income taxes is significantly impacted by the initial recognition of and changes in valuation allowances in certain countries. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. In the future, provision for income taxes will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated.
As of December 31, 2021, no material deferred income taxes have been recorded on the undistributed earnings of foreign subsidiaries, since a majority of these earnings will not be taxable upon repatriation to the United States. These earnings will be primarily treated as previously taxed income from either the one time transition tax or GILTI, or they will be offset with a 100% dividends received deduction. The Company has not recorded a deferred tax liability for foreign withholding taxes or state income taxes that may be incurred upon repatriation in the future as such undistributed foreign earnings are considered permanently reinvested or could be remitted with no tax implications.
As of December 31, 2021, the Company had $3,571 ($4,281 including interest and penalties) of total unrecognized tax benefits, of which $2,004 represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
| | | | | | | | | | | |
| |
| 2021 | | 2020 |
Balance at beginning of period | $ | 11,272 | | | $ | 10,123 | |
Tax positions related to the current period | | | |
Gross additions | 337 | | | 1,115 | |
Gross reductions | — | | | — | |
Tax positions related to prior years | | | |
Gross additions | 10 | | | 342 | |
Gross reductions | (5,143) | | | — | |
Settlements | (2,905) | | | (232) | |
Lapses on statutes of limitations | — | | | (76) | |
Balance at end of period | $ | 3,571 | | | $ | 11,272 | |
The Company, or one of its subsidiaries, files income tax returns in the United States and other foreign jurisdictions. The Internal Revenue Service has effectively settled the examination of the Company’s U.S. income tax returns from 2014 through 2018 during 2021. As a result, unrecognized tax benefits were either settled or released related to those tax years during 2021.
The statute of limitations for U.S. state and local jurisdictions is closed for taxable years ending prior to 2014. The Company’s major foreign jurisdictions are Brazil, Canada, China, France, Germany, Italy, Mexico, and Poland. The Company is no longer subject to income tax examinations in major foreign jurisdictions for years prior to 2017.
During the next twelve months, it is reasonably possible that, as a result of audit settlements and the completion of current examinations, the Company may decrease the amount of its gross unrecognized tax benefits by approximately $1,359, all of which, if recognized, would impact the effective tax rate.
The Company classifies all income tax related interest and penalties as income tax expense. The Company has liabilities of $710 and $1,277 recorded as of December 31, 2021 and 2020, respectively, for tax related interest and penalties on its consolidated balance sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
17. Net (Loss) Income Per Share Attributable to Cooper-Standard Holdings Inc.
Basic net (loss) income per share attributable to Cooper-Standard Holdings Inc. was computed by dividing net (loss) income attributable to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share attributable to Cooper-Standard Holdings Inc. was computed using the treasury stock method by dividing diluted net (loss) income available to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding, including the dilutive effect of common stock equivalents, using the average share price during the period.
Information used to compute basic and diluted net (loss) income per share attributable to Cooper-Standard Holdings Inc. was as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
Net (loss) income available to Cooper-Standard Holdings Inc. common stockholders | $ | (322,835) | | | $ | (267,605) | | | $ | 67,529 | |
| | | | | |
Basic weighted average shares of common stock outstanding | 17,045,353 | | | 16,913,850 | | | 17,146,124 | |
Dilutive effect of common stock equivalents | — | | | — | | | 62,644 | |
Diluted weighted average shares of common stock outstanding | 17,045,353 | | | 16,913,850 | | | 17,208,768 | |
| | | | | |
Basic net (loss) income per share attributable to Cooper-Standard Holdings Inc. | $ | (18.94) | | | $ | (15.82) | | | $ | 3.94 | |
| | | | | |
Diluted net (loss) income per share attributable to Cooper-Standard Holdings Inc. | $ | (18.94) | | | $ | (15.82) | | | $ | 3.92 | |
Approximately 166,000 and 71,000 securities were excluded from the calculation of diluted (loss) earnings per share for the years ended December 31, 2021 and 2020, because the inclusion of such securities in the calculation would have been anti-dilutive. There were no anti-dilutive securities during the year ended December 31, 2019.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
18. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component, net of related tax, were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative currency translation adjustment | | Benefit plan liabilities | | Fair value change of derivatives | | Total |
Balance as of December 31, 2019 | $ | (153,933) | | | $ | (100,160) | | | $ | 352 | | | $ | (253,741) | |
Other comprehensive income (loss) before reclassifications | 15,708 | | (1) | (11,254) | | (2) | (4,700) | | (3) | (246) | |
Amounts reclassified from accumulated other comprehensive income (loss) | 1,646 | | | 5,335 | | (4) | 5,110 | | (5) | 12,091 | |
Balance as of December 31, 2020 | (136,579) | | | (106,079) | | | 762 | | | (241,896) | |
Other comprehensive income (loss) before reclassifications | (2,316) | | (1) | 35,506 | | (2) | (843) | | (3) | 32,347 | |
Amounts reclassified from accumulated other comprehensive income (loss) | 144 | | | 5,270 | | (6) | (1,049) | | (5) | 4,365 | |
Balance as of December 31, 2021 | $ | (138,751) | | | $ | (65,303) | | | $ | (1,130) | | | $ | (205,184) | |
(1)Includes $(5,077) and $4,430 of other comprehensive income (loss) for the years ended December 31, 2021 and 2020, respectively, that are related to intra-entity foreign currency balances that are of a long-term investment nature.
(2)Net of tax benefit of $248 and $571 for the years ended December 31, 2021 and 2020, respectively.
(3)Net of tax expense (benefit) of $298 and $(1,580) for the years ended December 31, 2021 and 2020, respectively.
(4)Includes the effect of the amortization of actuarial losses of $3,851, settlement losses of $1,020, net losses of $744 related to the divestiture of certain businesses in Europe and India, and the amortization of prior service costs of $106, net of tax of $386.
(5)Net of tax expense (benefit) of $383 and $(1,835) for the years ended December 31, 2021 and 2020, respectively.
(6)Includes the effect of the amortization of actuarial losses of $3,484, net settlement losses of $1,291, net curtailment losses of $305, and the amortization of prior service costs of $205, net of tax of $15.
19. Equity
Common Stock
The Company is authorized to issue up to 190,000,000 shares of common stock, par value $0.001 per share. As of December 31, 2021, an aggregate of 19,057,788 shares of its common stock were issued, and 16,991,979 shares were outstanding.
Holders of shares of common stock are entitled to one vote for each share on each matter on which holders of common stock are entitled to vote. Holders of common stock are entitled to ratably receive dividends and other distributions when, as and if declared by the Company’s board of directors out of assets or funds legally available therefore. The ABL Facility, the Term Loan Facility, the Senior Notes, and the Senior Secured Notes each contain covenants that restrict the Company’s ability to pay dividends or make distributions on the common stock, subject to certain exceptions.
In the event of the liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share ratably in the Company assets, if any, remaining after the payment of all the Company’s debts and liabilities.
Share Repurchase Program
In June 2018, the Company’s Board of Directors approved a common stock repurchase program (the “2018 Program”) authorizing the Company to repurchase, in the aggregate, up to $150,000 of its outstanding common stock. Under the 2018 Program, repurchases may be made on the open market, through private transactions, accelerated share repurchases, round lot or block transactions on the New York Stock Exchange or otherwise, as determined by management and in accordance with prevailing market conditions and federal securities laws and regulations. The Company expects to fund any future repurchases from cash on hand and future cash flows from operations. The Company is not obligated to acquire a particular amount of securities, and the 2018 Program may be discontinued at any time at the Company’s discretion. The 2018 Program was effective beginning November 2018. As of December 31, 2021, the Company had approximately $98,720 of repurchase authorization under the 2018 Program.
The Company did not make any repurchases during the years ended December 31, 2021 or 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
20. Share-Based Compensation
The Company’s long-term incentive plans allow for the grant of various types of share-based awards to key employees and directors of the Company and its affiliates. The Company generally awards grants on an annual basis. There are 1,453,092 shares of common stock authorized for awards granted under the current plan. Under previous plans, a total of 5,873,103 shares were authorized for awards. The plans provide for the grant of stock options, stock appreciation rights, shares of common stock, restricted stock, restricted stock units (“RSUs”), performance-vested restricted stock units (“PUs”), incentive awards and certain other types of awards to key employees and directors of the Company and its affiliates.
The Company measures share-based compensation expense at fair value and recognizes such expense on a straight-line basis over the vesting period of the share-based employee awards. The compensation expense related to stock options, restricted stock and performance units granted to key employees and directors of the Company, which is quantified below, does not represent payments actually made to these employees. Rather, the amounts represent the non-cash compensation expense recognized by the Company in connection with these awards for financial reporting purposes. The actual value of these awards to the recipients will depend on the trading price of the Company’s stock when the awards vest. In accordance with the Company’s long-term incentive plans, share-based compensation awards that settle in shares of Company stock may be delivered on a gross settlement basis or a net settlement basis, as determined by the recipient.
Share-based compensation expense (income) was as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
PUs | $ | (916) | | | $ | 916 | | | $ | 277 | |
RSUs | 4,201 | | | 6,994 | | | 8,432 | |
Stock options | 2,289 | | | 2,525 | | | 3,156 | |
Total | $ | 5,574 | | | $ | 10,435 | | | $ | 11,865 | |
Stock Options
Stock option awards are granted at the fair market value of the Company’s stock price at the date of the grant and have a 10 year term. The stock option grants vest over three years from the date of grant.
Stock option transactions and related information for the year ended December 31, 2021 was as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
Outstanding as of January 1, 2021 | 741,419 | | | $ | 62.64 | | | | | |
Granted | 145,815 | | | $ | 35.74 | | | | | |
Exercised | (13,811) | | | $ | 25.19 | | | | | |
Forfeited | (53,646) | | | $ | 34.40 | | | | | |
Expired | (19,758) | | | $ | 91.56 | | | | | |
Outstanding as of December 31, 2021 | 800,019 | | | $ | 59.57 | | | 5.1 | | $ | — | |
Exercisable as of December 31, 2021 | 518,479 | | | $ | 72.25 | | | 4.0 | | $ | — | |
The weighted-average grant date fair value of stock options granted during the years ended December 31, 2021, 2020 and 2019 was $16.46, $8.85 and $24.22, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2021 and 2019 was $142 and $243, respectively. There were no stock options exercised during the year ended December 31, 2020.
As of December 31, 2021, unrecognized compensation expense for stock options amounted to $2,129. Such cost is expected to be recognized over a weighted average period of approximately 1.8 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
The fair value of the options was estimated at the date of the grant using the Black-Scholes option pricing model. Expected volatility was based on the historical volatility of the Company’s common stock. The expected option life was calculated using the simplified method. The risk-free rate is based on the U.S. Treasury zero-coupon issues with a term equal to the expected option life on the date the stock options were granted. The fair value of each option was estimated using the following assumptions: | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Expected volatility | 48.65% - 50.50% | | 33.74 | % | | 29.48% - 31.10% |
Dividend yield | 0.00 | % | | 0.00 | % | | 0.00 | % |
Expected option life - years | 6.0 | | 6.0 | | 6.0 |
Risk-free rate | 0.6% - 0.9% | | 1.50 | % | | 1.8% - 2.5% |
Restricted Stock and Restricted Stock Units
The fair value of the restricted stock and restricted stock units is determined based on the closing price of the common stock on the date of grant. The restricted stock and restricted stock units vest over one or three years.
Restricted stock and restricted stock units transactions and related information for the year ended December 31, 2021 was as follows: | | | | | | | | | | | |
| Restricted Stock and Restricted Units | | Weighted Average Grant Date Fair Value |
Non-vested as of January 1, 2021 | 385,635 | | | $ | 54.10 | |
Granted | 87,513 | | | $ | 32.38 | |
Vested | (199,473) | | | $ | 46.62 | |
Forfeited | (31,661) | | | $ | 51.14 | |
Non-vested as of December 31, 2021 | 242,014 | | | $ | 48.38 | |
The weighted-average grant date fair value of restricted stock and restricted stock units granted during the years ended December 31, 2021, 2020 and 2019 was $32.38, $17.62 and $66.12, respectively. The total fair value of restricted stock and restricted stock units vested during the years ended December 31, 2021, 2020 and 2019 was $9,299, $7,786 and $9,859, respectively.
As of December 31, 2021, unrecognized compensation expense for restricted stock and restricted stock units amounted to $2,223. Such cost is expected to be recognized over a weighted-average period of approximately 1.3 years.
Performance-Vested Restricted Stock Units
The actual number of performance units that will vest depends on the Company’s achievement of target performance goals related to the Company’s ROIC and total shareholder return over a performance period, which may range from 0% to 200% of the target award amount. The PUs cliff vest at the end of their three-year performance period or vest ratably over three years after their initial two-year performance period. PUs that are expected to be settled in shares of the Company’s common stock are accounted for as equity awards, and the fair value is determined based on the closing price of the common stock on the date of grant. PUs that are expected to be settled in cash are accounted for as liability awards.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
A summary of activity for performance-vested restricted stock units transactions and related information for the year ended December 31, 2021 was as follows: | | | | | | | | | | | | | | | | | |
| Stock Settled Performance Units | | Cash Settled Performance Units | | Weighted Average Grant Date Fair Value |
Non-vested as of January 1, 2021 | 131,751 | | | 126,489 | | | $ | 51.45 | |
Granted | — | | | 94,856 | | | $ | 39.70 | |
Vested at 0% payout | (43,038) | | | (602) | | | $ | 111.45 | |
Forfeited | (7,703) | | | (31,857) | | | $ | 46.81 | |
Non-vested as of December 31, 2021 | 81,010 | | | 188,886 | | | $ | 51.19 | |
The weighted-average grant date fair value of performance units granted during the years ended December 31, 2021, 2020 and 2019 was $39.70, $10.10 and $78.41, respectively. The total fair value of PUs vested during the years ended December 31, 2021, 2020 and 2019 was $4,864, $5,243, and $5,450, respectively. Actual payout of units vested was 0% and no cash was paid to settle PUs during the years ended December 31, 2021 and 2020. Cash paid to settle PUs during the year ended December 31, 2019 was $3,345.
As of December 31, 2021, there was no unrecognized compensation expense for the PUs.
The fair value of the performance units is estimated using a Monte Carlo simulation. Expected volatility was calculated based on historical stock price volatility over the previous year. The risk-free rate was based on the U.S. Treasury yield curve, generally represented by U.S. Treasury securities, with a term equal to the expected life of the performance units. The dividend yield was assumed to be zero based on Company’s historical patterns and future expectation. The fair value of the performance units were estimated using the following assumptions: | | | | | | | | | | | |
| 2021 | | 2020 |
Expected volatility | 99.40 | % | | 116.60 | % |
Dividend yield | 0.00 | % | | 0.00 | % |
| | | |
Risk-free rate | 0.14 | % | | 0.10 | % |
21. Contingent Liabilities
Litigation and Claims
Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted against the Company. The Company accrues for matters when losses are deemed probable and reasonably estimable. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified. As of December 31, 2021, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already accrued for matters, if any, has been incurred. However, the ultimate resolutions of these matters are inherently unpredictable and could require payment substantially in excess of the amounts that have been accrued or disclosed.
Environmental
The Company is subject to a broad range of federal, state and local environmental and occupational safety and health laws and regulations in the United States and other countries, including those governing: emissions to air, discharges to water, noise and odor emissions; the generation, handling, storage, transportation, treatment, reclamation and disposal of chemicals and waste materials; the cleanup of contaminated properties; and human health and safety. The Company may incur substantial costs associated with hazardous substance contamination or exposure, including cleanup costs, fines, and civil or criminal sanctions, third party property or natural resource damage, personal injury claims or costs to upgrade or replace existing equipment as a result of violations of or liabilities under environmental laws or the failure to maintain or comply with environmental permits required at their locations. In addition, many of the Company’s current and former facilities are located on properties with long histories of industrial or commercial operations, and some of these properties have been subject to certain environmental investigations and remediation activities. The Company maintains environmental reserves for certain of these sites. As of December 31, 2021 and 2020, the Company had $9,965 and $13,302, respectively, reserved in accrued liabilities and other liabilities on the consolidated balance sheet on an undiscounted basis, which it believes are adequate. Because some environmental laws (such as the Comprehensive Environmental Response, Compensation and Liability Act and analogous state laws) can impose liability retroactively and regardless of fault on potentially responsible parties for the entire cost of cleanup at
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
currently or formerly owned or operated facilities, as well as sites at which such parties disposed or arranged for disposal of hazardous waste, the Company could become liable for investigating or remediating contamination at their current or former properties or other properties (including offsite waste disposal locations). The Company may not always be in complete compliance with all applicable requirements of environmental laws or regulation, and the Company may receive notices of violation or become subject to enforcement actions or incur material costs or liabilities in connection with such requirements. In addition, new environmental requirements or changes to interpretations of existing requirements, or in their enforcement, could have a material adverse effect on the Company’s business, results of operations, and financial condition. The Company has made and will continue to make expenditures to comply with environmental requirements. While the Company’s costs to defend and settle known claims arising under environmental laws have not been material in the past and are not currently estimated to have a material adverse effect on the Company’s financial condition, such costs may be material to the Company’s financial statements in the future.
Brazil Indirect Tax Claim
In 2019, the Superior Judicial Court of Brazil rendered a favorable decision on a case challenging whether a certain state value-added tax should be included in the calculation of federal gross receipts taxes. The decision will allow the Company the right to recover, through offset of federal tax liabilities, amounts collected by the government. As a result of the favorable decision, the Company recorded pre-tax recoveries of $8,000 in the South America segment and in cost of products sold for the year ended December 31, 2019. As of December 31, 2021, the Company had $5,375 of pre-tax recoveries remaining. Timing on realization of these remaining recoveries is dependent upon generation of federal tax liabilities eligible for offset.
22. Business Segments
The Company’s automotive business is organized in the following reportable segments: North America, Europe, Asia Pacific and South America. All other business activities are reported in Corporate, eliminations and other. The Company’s principal products within each of the reportable segments are sealing, fuel and brake delivery, and fluid transfer systems.
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. The results of each segment include certain allocations for general, administrative and other shared costs. Segment adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
The accounting policies of the Company’s segments are consistent with those described in Note 2. “Basis of Presentation and Summary of Significant Accounting Policies.”
Certain financial information on the Company’s reportable segments was as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Sales to external customers | | | | | |
North America | $ | 1,148,257 | | | $ | 1,141,368 | | | $ | 1,543,845 | |
Europe | 518,245 | | | 586,739 | | | 826,335 | |
Asia Pacific | 458,306 | | | 468,042 | | | 503,953 | |
South America | 61,713 | | | 60,754 | | | 94,535 | |
Total Automotive | 2,186,521 | | | 2,256,903 | | | 2,968,668 | |
Corporate, eliminations and other | 143,670 | | | 118,536 | | | 139,732 | |
Consolidated | $ | 2,330,191 | | | $ | 2,375,439 | | | $ | 3,108,400 | |
| | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Intersegment sales | | | | | |
North America | $ | 9,775 | | | $ | 12,267 | | | $ | 19,701 | |
Europe | 9,502 | | | 9,569 | | | 11,744 | |
Asia Pacific | 1,863 | | | 2,406 | | | 3,050 | |
South America | 15 | | | 72 | | | 193 | |
Total Automotive | 21,155 | | | 24,314 | | | 34,688 | |
Corporate, eliminations and other | (21,155) | | | (24,314) | | | (34,688) | |
Consolidated | $ | — | | | $ | — | | | $ | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Adjusted EBITDA | | | | | |
North America | $ | 54,616 | | | $ | 90,638 | | | $ | 213,250 | |
Europe | (49,599) | | | (39,004) | | | 22,922 | |
Asia Pacific | (16,756) | | | 12,472 | | | (27,497) | |
South America | (9,852) | | | (13,841) | | | (3,446) | |
Total Automotive | (21,591) | | | 50,265 | | | 205,229 | |
Corporate, eliminations and other | 13,557 | | | (14,588) | | | (3,621) | |
Consolidated | $ | (8,034) | | | $ | 35,677 | | | $ | 201,608 | |
| | | | | |
Net interest expense | | | | | |
North America | $ | 470 | | | $ | 504 | | | $ | 96 | |
Europe | 1,274 | | | 1,082 | | | 318 | |
Asia Pacific | 1,445 | | | 2,205 | | | 4,139 | |
South America | 362 | | | 225 | | | 3 | |
Total Automotive | 3,551 | | | 4,016 | | | 4,556 | |
Corporate, eliminations and other | 68,960 | | | 55,151 | | | 39,557 | |
Consolidated | $ | 72,511 | | | $ | 59,167 | | | $ | 44,113 | |
| | | | | |
Depreciation and amortization expense | | | | | |
North America | $ | 54,779 | | | $ | 60,193 | | | $ | 62,604 | |
Europe | 32,655 | | | 36,707 | | | 38,572 | |
Asia Pacific | 32,426 | | | 31,789 | | | 31,881 | |
South America | 2,531 | | | 2,392 | | | 2,658 | |
Total Automotive | 122,391 | | | 131,081 | | | 135,715 | |
Corporate, eliminations and other | 16,617 | | | 23,148 | | | 16,238 | |
Consolidated | $ | 139,008 | | | $ | 154,229 | | | $ | 151,953 | |
| | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Capital expenditures | | | | | |
North America | $ | 36,370 | | | $ | 30,921 | | | $ | 64,887 | |
Europe | 27,384 | | | 25,369 | | | 34,587 | |
Asia Pacific | 20,473 | | | 21,809 | | | 40,214 | |
South America | 3,959 | | | 2,476 | | | 7,340 | |
Total Automotive | 88,186 | | | 80,575 | | | 147,028 | |
Corporate, eliminations and other | 7,921 | | | 11,219 | | | 17,438 | |
Consolidated | $ | 96,107 | | | $ | 91,794 | | | $ | 164,466 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Adjusted EBITDA | $ | (8,034) | | | $ | 35,677 | | | $ | 201,608 | |
Impairment charges | (25,609) | | | (103,887) | | | (23,139) | |
Restructuring charges | (36,950) | | | (39,482) | | | (51,102) | |
Pension settlement charges | (1,279) | | | (184) | | | (15,997) | |
Lease termination costs | (748) | | | (771) | | | (1,167) | |
Gain on sale of business, net | 696 | | | 2,834 | | | 191,571 | |
Project costs | — | | | (5,648) | | | (2,090) | |
Divested noncontrolling interest debt extinguishment | — | | | (3,595) | | | — | |
EBITDA | $ | (71,924) | | | $ | (115,056) | | | $ | 299,684 | |
Income tax (expense) benefit | (39,392) | | | 60,847 | | | (36,089) | |
Interest expense, net of interest income | (72,511) | | | (59,167) | | | (44,113) | |
Depreciation and amortization | (139,008) | | | (154,229) | | | (151,953) | |
Net (loss) income attributable to Cooper-Standard Holdings Inc. | $ | (322,835) | | | $ | (267,605) | | | $ | 67,529 | |
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Segment assets | | | |
North America | $ | 885,517 | | | $ | 907,652 | |
Europe | 372,097 | | | 465,031 | |
Asia Pacific | 510,524 | | | 587,610 | |
South America | 61,479 | | | 64,800 | |
Total Automotive | 1,829,617 | | | 2,025,093 | |
Corporate, eliminations and other | 396,876 | | | 586,851 | |
Consolidated | $ | 2,226,493 | | | $ | 2,611,944 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Geographic Information
Geographic information for revenues, based on country of origin, and property, plant and equipment, net, is as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Revenues | | | | | |
Mexico | $ | 592,777 | | | $ | 578,790 | | | $ | 723,228 | |
United States | 539,528 | | | 518,497 | | | 729,866 | |
China | 371,811 | | | 364,207 | | | 355,667 | |
Poland | 168,357 | | | 191,530 | | | 270,197 | |
Canada | 116,854 | | | 125,729 | | | 188,652 | |
Germany | 116,509 | | | 114,221 | | | 151,441 | |
France | 94,334 | | | 97,289 | | | 159,859 | |
Other | 330,021 | | | 385,176 | | | 529,490 | |
Consolidated | $ | 2,330,191 | | | $ | 2,375,439 | | | $ | 3,108,400 | |
| | | | | |
| | | December 31, |
| | | 2021 | | 2020 |
Property, plant and equipment, net | | | | | |
China | | | $ | 182,298 | | | $ | 192,005 | |
United States | | | 161,780 | | | 188,246 | |
Mexico | | | 139,630 | | | 145,452 | |
Poland | | | 67,521 | | | 77,789 | |
Germany | | | 47,885 | | | 72,979 | |
Canada | | | 29,482 | | | 29,500 | |
France | | | 21,921 | | | 33,087 | |
Other | | | 133,831 | | | 153,251 | |
Consolidated | | | $ | 784,348 | | | $ | 892,309 | |
Customer Concentration
Sales to customers of the Company which contributed 10% or more of its total consolidated sales and the related percentage of consolidated Company sales for 2021, 2020 and 2019 are as follows: | | | | | | | | | | | | | | | | | |
| 2021 Percentage of Net Sales | | 2020 Percentage of Net Sales | | 2019 Percentage of Net Sales |
Customer | | | | | |
Ford | 24 | % | | 24 | % | | 25 | % |
General Motors | 17 | % | | 19 | % | | 18 | % |
Stellantis (1) | 14 | % | | 14 | % | | 17 | % |
(1) 2019 and 2020 percentages include FCA and Groupe PSA