NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
The principal maturities of debt, at nominal value, as of December 31, 2022 are as follows: | | | | | | | | |
Year | | Debt and Finance Lease Obligations* |
2023 | | $ | 374,819 | |
2024 | | 253,540 | |
2025 | | 3,573 | |
2026 | | 403,283 | |
2027 | | 3,207 | |
Thereafter | | 14,016 | |
Total | | $ | 1,052,438 | |
* Inclusive of imputed interest on finance leases As further described below, the Company refinanced certain of its debt instruments on January 27, 2023. The amounts in the table above do not reflect the impacts of that refinancing. As of December 31, 2022, the maturity date of the Term Loan Facility (as defined below) was November 2, 2023. Accordingly, the principal maturities of debt in 2023 noted in the table above include the Term Loan Facility. However, in accordance with ASC 470, Debt, the amount outstanding on the Term Loan Facility is reflected in long-term debt in the consolidated balance sheet as of December 31, 2022 because the Company refinanced the Term Loan Facility with other long-term debt on January 27, 2023.
The weighted average interest rate of our debt payable within one year was 4.1% as of December 31, 2022 and 3.9% as of December 31, 2021.
Refinancing Transaction
On January 27, 2023 (the “Settlement Date”), the Company, Cooper-Standard Automotive Inc. (the “Issuer”), a wholly-owned subsidiary of the Company, and certain other of the Company’s direct and indirect subsidiaries completed certain refinancing transactions (the “Refinancing Transactions”) consisting of: (i) the exchange (the “Exchange Offer”) of $357,446 aggregate principle amount of the Issuer’s then existing 5.625% Senior Notes due 2026 (the “2026 Senior Notes”) (representing 89.36% of the aggregate principal amount outstanding of the 2026 Senior Notes) for $357,446 aggregate principle amount of the Issuer’s newly issued 5.625% Cash Pay / 10.625% PIK Toggle Senior Secured Third Lien Notes due 2027 (the “Third Lien Notes”), (ii) the issuance by the Issuer (the “Concurrent Notes Offering”) of $580,000 aggregate principal amount of 13.50% Cash Pay / PIK Toggle Senior Secured First Lien Notes due 2027 (the “First Lien Notes” and, together with the Third Lien Notes, the “New Notes”) to holders of 2026 Senior Notes or their designees who participated in the Exchange Offer, including to certain backstop commitment parties who committed to purchase the First Lien Notes not otherwise subscribed for, (iii) the related consent solicitation (the “Consent Solicitation”) to remove substantially all of the covenants, certain events of default and certain other provisions contained in the 2026 Senior Notes and the indenture governing the 2026 Senior Notes and to release and discharge the guarantee of the 2026 Senior Notes by the Company, (iv) the effectiveness of the Third Amendment (as defined below) to the senior asset-based revolving credit facility (“ABL Facility”) and (v) the use of proceeds from the Concurrent Notes Offering, together with cash on hand, to prepay all amounts outstanding under the Term Loan Facility at par, plus any accrued and unpaid interest thereon, to redeem the Issuer’s existing 2024 Senior Secured Notes (as defined below), including the prepayment premium and any accrued and unpaid interest thereon, and to pay fees and expenses related to the Refinancing Transactions. As a result of the Refinancing Transactions, the Issuer extended the maturities of its indebtedness and reduced the amount of cash interest it is required to pay on such indebtedness for the next two years.
New Notes
On the Settlement Date, the Issuer issued $580,000 aggregate principal amount of First Lien Notes pursuant to an indenture, dated as of the Settlement Date (the “First Lien Notes Indenture”), by and among the Issuer, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (the “First Lien Collateral Agent”).
The First Lien Notes are senior secured obligations of the Issuer and are guaranteed by CS Intermediate Holdco 1 LLC (“Holdings”), each of the Issuer’s wholly owned domestic subsidiaries that guarantee certain other indebtedness, subject to certain exceptions (the “Domestic Guarantors”), and certain of the Issuer’s wholly owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands and Romania (the “Foreign Guarantors”). The First Lien Notes are guaranteed by Holdings and the Domestic Guarantors on a senior secured basis and by the Foreign Guarantors on a senior unsecured basis. The guarantees of the subsidiaries organized in France are limited guarantees.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
The First Lien Notes will mature on March 31, 2027. The First Lien Notes bear interest at the rate of 13.50% per annum, payable in cash; provided, however, that for the first four interest periods after the Settlement Date, the Issuer has the option, in its sole discretion, to pay up to 4.50% of such interest on the First Lien Notes, in such amount as specified by the Issuer, by increasing the principal amount of the outstanding First Lien Notes or, in limited circumstances as described in the First Lien Notes Indenture, by issuing additional First Lien Notes. Interest on the First Lien Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2023.
The Issuer may, at its option, redeem all or part of the First Lien Notes prior to maturity at the prices set forth in the First Lien Notes Indenture. Upon the occurrence of certain events constituting a Change of Control (as defined in the First Lien Notes Indenture), the Issuer will be required to make an offer to repurchase all of the First Lien Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
The First Lien Notes Indenture contains certain customary covenants that limit the Issuer’s and its restricted subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness or issue certain preferred stock; incur liens on assets; pay dividends or make other distributions in respect of, or repurchase or redeem, its capital stock or make another restricted payments; prepay, redeem or repurchase certain debt; make certain loans and investments; enter into agreements restricting certain subsidiaries’ ability to pay dividends; enter into transactions with affiliates; and sell certain assets or merge or consolidate with or into other companies. These covenants are subject to a number of important limitations and exceptions. The First Lien Notes Indenture also provides for customary events of default, which, if any occur, would permit or require the principal, premium, if any, interest and any other monetary obligations on all of the then outstanding First Lien Notes to be due and payable immediately.
On the Settlement Date, the Issuer issued $357,446 aggregate principal amount of Third Lien Notes pursuant to an indenture, dated as of the Settlement Date (the “Third Lien Notes Indenture”), by and among the Issuer, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent (the “Third Lien Collateral Agent”).
The Third Lien Notes are senior secured obligations of the Issuer and are guaranteed by Holdings, each of the Domestic Guarantors, and each of the Foreign Guarantors. The Third Lien Notes are guaranteed by Holdings and the Domestic Guarantors on a senior secured basis and by the Foreign Guarantors on a senior unsecured basis. The guarantees of the subsidiaries organized in France are limited guarantees.
The Third Lien Notes will mature on May 15, 2027. The Third Lien Notes bear interest at the rate of 5.625% per annum, payable in cash; provided, however, that for the first four interest periods after the Settlement Date, the Issuer has the option, in its sole discretion, to instead pay such interest at 10.625% per annum either by increasing the principal amount of the outstanding Third Lien Notes or, in limited circumstances as described the Third Lien Notes Indenture, by issuing additional Third Lien Notes. Interest on the Third Lien Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2023.
The Issuer may, at its option, redeem all or part of the Third Lien Notes prior to maturity at the prices set forth in the Third Lien Notes Indenture. Upon the occurrence of certain events constituting a Change of Control (as defined in the Third Lien Notes Indenture), the Issuer will be required to make an offer to repurchase all of the Third Lien Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
The Third Lien Notes Indenture contains certain customary covenants that limit the Issuer’s and its restricted subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness or issue certain preferred stock; incur liens on assets; pay dividends or make other distributions in respect of, or repurchase or redeem, its capital stock or make other restricted payments; prepay, redeem or repurchase certain debt; make certain loans and investments; enter into agreements restricting certain subsidiaries’ ability to pay dividends; enter into transactions with affiliates; and sell certain assets or merge or consolidate with or into other companies. These covenants are subject to a number of important limitations and exceptions. The Third Lien Notes Indenture also provides for customary events of default, which, if any occur, would permit or require the principal, premium, if any, interest and any other monetary obligations on all of the then outstanding Third Lien Notes to be due and payable immediately.
In connection with the issuance of the New Notes, the First Lien Collateral Agent, the Third Lien Collateral Agent, the collateral agent under the ABL Facility, the Issuer, Holdings and the several other parties named therein entered into the First Lien and Third Lien Intercreditor Agreement, providing for the relative priorities of their respective security interests in the assets securing the First Lien Notes, the Third Lien Notes and the ABL Facility, and certain other matters relating to the administration of security interests.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
2026 Senior Notes
On November 2, 2016, the Issuer issued $400.0 million aggregate principal amount of 2026 Senior Notes. On the Settlement Date, in connection with the Refinancing Transactions, the Issuer completed the Exchange Offer and delivered $357,446 aggregate principal amount of the exchanged 2026 Senior Notes to the trustee for cancellation. Following the completion of the Exchange Offer, $42,554 aggregate principal amount of the 2026 Senior Notes remain outstanding.
Following receipt of the requisite consents in the Consent Solicitation, on January 20, 2023, the Issuer, the guarantors named therein and U.S. Bank Trust Company, National Association (successor in interest to U.S. Bank National Association), as trustee, entered into a supplemental indenture to the indenture governing the 2026 Senior Notes, which became effective on the Settlement Date. The supplemental indenture provides for the elimination of substantially all of the covenants, certain events of default and certain other provisions contained in the 2026 Senior Notes and the indenture governing the 2026 Senior Notes and released and discharged the guarantee of the 2026 Senior Notes by the Company.
The 2026 Senior Notes are guaranteed by 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 ABL Facility. The Issuer may, at its option, redeem all or part of the 2026 Senior Notes at various points in time prior to maturity, as described in the indenture governing the 2026 Senior Notes. The 2026 Senior Notes will mature on November 15, 2026. Interest on the 2026 Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year.
The Company paid approximately $7,055 of debt issuance costs in connection with the issuance of the 2026 Senior Notes. The debt issuance costs are being amortized into interest expense over the term of the 2026 Senior Notes. As of December 31, 2022 and 2021, the Company had $2,741 and $3,456, respectively, of unamortized debt issuance costs related to the 2026 Senior Notes, which is classified as a discount in the consolidated balance sheet.
2024 Senior Secured Notes
On May 29, 2020, the Issuer issued $250,000 aggregate principal amount of its 13.000% Senior Secured Notes due 2024 (the “2024 Senior Secured Notes”), pursuant to an indenture, dated as of May 29, 2020, by and among the Issuer, the other guarantors party thereto and U.S. Bank National Association, as trustee. The 2024 Senior Secured Notes would have matured on June 1, 2024. Interest on the 2024 Senior Secured Notes was payable semi-annually in arrears in cash on June 1 and December 1 of each year. Subsequent to the year ended December 31, 2022, in connection with the Refinancing Transactions, the Issuer redeemed all of the outstanding 2024 Senior Secured Notes on the Settlement Date at the redemption price of 106.500% of the principal amount thereof, plus accrued and unpaid interest thereon.
The Company paid approximately $6,431 of debt issuance costs in connection with the issuance of the 2024 Senior Secured Notes. Additionally, the 2024 Senior Secured Notes were issued at a discount of $5,000. As of December 31, 2022 and 2021, the Company had $3,021 and $4,594, respectively, of unamortized debt issuance costs and $2,508 and $3,723, respectively, of unamortized original issue discount related to the 2024 Senior Secured Notes, which are presented as direct deductions from the principal balance in the consolidated balance sheets. Both the debt issuance costs and the original issue discount were amortized into interest expense over the term of the 2024 Senior Secured Notes.
ABL Facility
On November 2, 2016, Holdings, Cooper-Standard Automotive Inc. (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 third amendment and restatement of the ABL Facility. In March 2020, the Borrowers entered into Amendment No. 1 to the Third Amended and Restated Loan Agreement (“the First Amendment”). As a result of the First Amendment, the ABL Facility maturity was extended to March 2025 and the aggregate revolving loan commitment was reduced to $180.0 million. In May 2020, the Borrowers entered into Amendment No. 2 to the Third Amended and Restated Loan Agreement (the “Second Amendment”), which Second Amendment modified certain covenants under the ABL Facility. In December 2022, the Borrowers entered into Amendment No. 3 to the Third Amended and Restated Loan Agreement (the “Third Amendment”), which became effective on the Settlement Date. The Third Amendment provides for the ABL Facility to be amended to:
•permit the U.S. Borrower to issue the New Notes in the Concurrent Notes Offering and Exchange Offer, including the granting of liens, subject to the restrictions set forth in the ABL Facility;
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
•provide for certain of the U.S. Borrower’s wholly-owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands, Romania and certain other jurisdictions specified from time to time to become guarantors under the ABL Facility;
•authorize the collateral agent under the ABL Facility to enter into an intercreditor agreement with the collateral trustees for the New Notes; and
•remove the Dutch Borrower as a borrower under the ABL Facility.
The aggregate revolving loan availability includes a $100.0 million letter of credit sub-facility and a $25.0 million swing line sub-facility. The ABL Facility also provides for an uncommitted $100.0 million incremental loan facility, for a potential total ABL Facility of $280.0 million (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 as of December 31, 2022 was $180,000. 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 $6,807 of outstanding letters of credit, the Company effectively had $155,193 available for borrowing under its ABL Facility.
As of December 31, 2022, there were no borrowings 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. As of the Settlement Date, the 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 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: $160,000 to the U.S. Borrower and $20,000 to the Canadian Borrower.
Guarantees; Security. The obligations of the U.S. Borrower and the Canadian 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 Holdings and its U.S. subsidiaries (with certain exceptions) and certain wholly-owned subsidiaries organized in Costa Rica, France, Mexico, the Netherlands, Romania and certain other jurisdictions specified from time to time, 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 U.S. and Canadian guarantor’s existing and future personal property consisting of certain accounts receivable, inventory, documents, instruments, chattel paper, 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 (ii) no liens have been granted on any assets or properties of any 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, (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 and (3) a 65% pledge of the equity interest in the first-tier foreign subsidiaries of the U.S. 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, the forward-looking secured overnight funding rate for the applicable interest period (“Term SOFR”) (including a credit spread adjustment of 0.11448% or 0.26161%, depending on the applicable interest period) 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
The applicable margin may vary between 2.00% and 2.50% with respect to the Term SOFR or Canadian BA rate-based borrowings and between 1.00% and 1.50% 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 SOFR-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, 2022 and 2021, the Company had $535 and $782, respectively, of unamortized debt issuance costs related to the ABL Facility.
Term Loan Facility
On November 2, 2016, Cooper-Standard Automotive Inc., as borrower, entered into Amendment No. 1 to its senior term loan facility (the “Term Loan Facility”), which provided for loans in an aggregate principal amount of $340.0 million. Subject to certain conditions, the Term Loan Facility, without the consent of the then-existing lenders (but subject to the receipt of commitments), could have been expanded (or a new term loan or revolving facility added) by an amount that would not cause the consolidated secured net debt ratio to exceed 2.25 to 1.00 plus $400.0 million 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 bore 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.
Maturity. The Term Loan Facility would have matured on November 2, 2023.
Voluntary Prepayments. Subsequent to the year ended December 31, 2022, in connection with the Refinancing Transactions, Cooper-Standard Automotive Inc. repaid the Term Loan Facility in full on the Settlement Date and the Term Loan Facility was terminated.
Debt Issuance Costs. As of December 31, 2022 and 2021, the Company had $494 and $1,087, respectively, of unamortized debt issuance costs and $319 and $701, respectively, of unamortized original issue discount related to the Term Loan Facility. Both the debt issuance costs and the original issue discount were amortized into interest expense over the term of the Term Loan Facility.
Debt Covenants
The Company was in compliance with all applicable covenants of the ABL Facility, the Term Loan Facility, the 2026 Senior Notes, and 2024 Senior Secured Notes, as of December 31, 2022.
Other
Other borrowings as of December 31, 2022 and 2021 reflect borrowings under local bank lines classified in debt payable within one year on the consolidated balance sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
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, 2022 and 2021, was as follows: | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 | | Input |
Forward foreign exchange contracts - other current assets | | $ | 8,643 | | | $ | 647 | | | Level 2 |
| | | | | | |
Forward foreign exchange contracts - accrued liabilities | | $ | — | | | $ | (1,535) | | | 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. “Deconsolidations 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, 2022 | | December 31, 2021 |
Aggregate fair value | | $ | 744,010 | | | $ | 899,909 | |
Aggregate carrying value (1) | | $ | 969,600 | | | $ | 973,000 | |
(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. As further described in Note 10. “Debt”, the Company refinanced certain of its debt instruments on January 27, 2023. The amounts in the table above do not reflect the impacts of that refinancing.
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 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
cash flow hedge, the change in fair value of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”) in the consolidated balance sheet, to the extent that the hedges are effective, 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, 2022 and 2021, the notional amount of these contracts was $135,285 and $136,103, respectively, and consisted of hedges of transactions up to December 2023.
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, |
| 2022 | | 2021 |
Forward foreign exchange contracts | $ | 11,808 | | | $ | (545) | |
| | | |
| | | |
Pretax amounts related to the Company’s cash flow hedges that were reclassified from AOCI were as follows: | | | | | | | | | | | | | | | | | |
| | | Gain Reclassified from AOCI to Income |
| | | Year Ended December 31, |
| Classification | | 2022 | | 2021 |
Forward foreign exchange contracts | Cost of products sold | | $ | 2,287 | | | $ | 1,432 | |
| | | | | |
| | | | | |
12. Accounts Receivable Factoring
As a part of its working capital management, the Company sells certain receivables through a third-party financial institution (the “Factor”) in a pan-European program. 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 the indentures governing the New Notes, 2026 Senior Notes, and 2024 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, 2022 | | December 31, 2021 |
Off-balance sheet arrangements | $ | 52,491 | | | $ | 52,743 | |
| | | |
Accounts receivable factored and related costs throughout the period were as follows: | | | | | | | | | | | | | | | |
| Off-Balance Sheet Arrangements | | |
| Year Ended December 31, | | |
| 2022 | | 2021 | | | | |
Accounts receivable factored | $ | 355,295 | | | $ | 366,878 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Off-Balance Sheet Arrangements | | |
| Year Ended December 31, | | |
| 2022 | | 2021 | | 2020 | | | | | | |
Costs | $ | 710 | | | $ | 528 | | | $ | 776 | | | | | | | |
As of December 31, 2022 and 2021, cash collections on behalf of the Factor that had yet to be remitted were $3,772 and $673, 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.
On October 11, 2022, the Company’s Board of Directors (the “Board”) approved a resolution to merge certain of the Company’s U.S. defined benefit pension plans and terminate the resulting merged plan (“U.S. Pension Plan”) effective December 31, 2022. The termination of the U.S. Pension Plan is expected to take twelve to eighteen months to complete. As part of the termination process, the Company expects to settle benefit obligations under the U.S. Pension Plan through a combination of lump sum payments to eligible plan participants and the purchase of a group annuity contract, under which future benefit obligations and administration will be transferred to a third-party insurance company. Such settlements will be funded primarily from plan assets. Ultimate settlement of benefit obligations is dependent upon the participants’ elections. The U.S. Pension Plan was underfunded by $5,759 as of December 31, 2022 and overfunded by $29,804 as of December 31, 2021 under U.S. generally accepted accounting principles. Additionally, the Company recognized a curtailment loss of $3,092 during the year ended December 31, 2022 associated with the planned termination of the U.S. Pension Plan, primarily due to prior service cost resulting from a 2022 plan amendment impacting the benefits of certain participants in the U.S. Pension Plan.
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 $12,015, $12,809 and $13,537 for the years ended December 31, 2022, 2021 and 2020, 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, |
| 2022 | | 2021 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Change in projected benefit obligations: | | | | | | | |
Projected benefit obligations at beginning of period | $ | 257,108 | | | $ | 164,957 | | | $ | 271,397 | | | $ | 195,407 | |
Service cost | 771 | | | 2,755 | | | 891 | | | 3,345 | |
Interest cost | 7,062 | | | 2,782 | | | 6,516 | | | 2,558 | |
Net actuarial gain | (41,026) | | | (34,354) | | | (8,589) | | | (12,976) | |
Benefits paid | (14,283) | | | (5,535) | | | (13,107) | | | (5,324) | |
Foreign exchange translation | — | | | (10,012) | | | — | | | (9,610) | |
Settlements | — | | | (1,760) | | | — | | | (8,210) | |
| | | | | | | |
Plan amendments | 3,056 | | | — | | | — | | | — | |
Other | — | | | (2,180) | | | — | | | (233) | |
Projected benefit obligations at end of period | $ | 212,688 | | | $ | 116,653 | | | $ | 257,108 | | | $ | 164,957 | |
| | | | | | | |
Change in plan assets: | | | | | | | |
Fair value of plan assets at beginning of period | $ | 273,448 | | | $ | 48,047 | | | $ | 267,343 | | | $ | 54,548 | |
Actual return on plan assets | (63,769) | | | (9,774) | | | 18,175 | | | 1,280 | |
Employer contributions | 1,038 | | | 4,970 | | | 1,037 | | | 5,526 | |
Benefits paid | (14,283) | | | (5,535) | | | (13,107) | | | (5,324) | |
Foreign exchange translation | — | | | (3,138) | | | — | | | 225 | |
Settlements | — | | | (1,759) | | | — | | | (8,210) | |
| | | | | | | |
Other | — | | | — | | | — | | | 2 | |
Fair value of plan assets at end of period | $ | 196,434 | | | $ | 32,811 | | | $ | 273,448 | | | $ | 48,047 | |
| | | | | | | |
Funded status of the plans | $ | (16,254) | | | $ | (83,842) | | | $ | 16,340 | | | $ | (116,910) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Amounts recognized in the consolidated balance sheet: | | | | | | | |
Other assets | $ | — | | | $ | 3,239 | | | $ | 29,804 | | | $ | 4,245 | |
Accrued liabilities | (1,005) | | | (3,849) | | | (1,018) | | | (3,721) | |
Pension benefits (long term) | (15,249) | | | (83,232) | | | (12,446) | | | (117,434) | |
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, 2022 and 2021 were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Prior service costs | $ | — | | | $ | (31) | | | $ | (56) | | | $ | (185) | |
Actuarial losses | (74,744) | | | (6,910) | | | (43,574) | | | (33,742) | |
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 for a particular plan are amortized over the average future service period of the employees in that plan.
The accumulated benefit obligation for all domestic and international defined benefit pension plans was $212,688 and $112,963 as of December 31, 2022 and $257,108 and $158,074 as of December 31, 2021, respectively. As of December 31, 2022, the fair value of plan assets for one of the Company’s defined benefit plans exceeded the projected benefit obligations of $18,109 by $3,239.
The components of net periodic benefit (income) cost for the Company’s defined benefit plans were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Service cost | $ | 771 | | | $ | 2,755 | | | $ | 891 | | | $ | 3,345 | | | $ | 853 | | | $ | 3,992 | |
Interest cost | 7,062 | | | 2,782 | | | 6,516 | | | 2,558 | | | 8,132 | | | 3,200 | |
Expected return on plan assets | (9,293) | | | (949) | | | (14,257) | | | (1,320) | | | (13,683) | | | (2,415) | |
Amortization of prior service cost and actuarial loss | 886 | | | 1,574 | | | 1,670 | | | 2,635 | | | 1,940 | | | 3,478 | |
Settlement (gain) loss | — | | | (410) | | | — | | | 1,279 | | | — | | | 184 | |
Curtailment loss | 3,092 | | | — | | | — | | | — | | | — | | | — | |
Other | — | | | — | | | — | | | 118 | | | — | | | (11) | |
Net periodic benefit (income) cost | $ | 2,518 | | | $ | 5,752 | | | $ | (5,180) | | | $ | 8,615 | | | $ | (2,758) | | | $ | 8,428 | |
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.
Plan Assumptions
Weighted average assumptions used to determine benefit obligations as of December 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Discount rate | 4.55 | % | | 4.45 | % | | 2.84 | % | | 1.83 | % |
Rate of compensation increase | N/A | | 1.58 | % | | N/A | | 1.44 | % |
Cash balance interest credit rate | 2.41 | % | | N/A | | 4.50 | % | | N/A |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Weighted average assumptions used to determine net periodic benefit costs for the years ended December 31, 2022, 2021 and 2020 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Discount rate | 2.84 | % | | 2.39 | % | | 2.48 | % | | 1.63 | % | | 3.28 | % | | 2.33 | % |
Expected return on plan assets | 3.50 | % | | 2.15 | % | | 5.50 | % | | 2.48 | % | | 5.75 | % | | 3.73 | % |
Rate of compensation increase | N/A | | 2.39 | % | | N/A | | 1.99 | % | | N/A | | 3.99 | % |
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.
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, 2022 and 2021 was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2022 | | Level 1 | | Level 2 | | | | Assets measured at NAV (1) | | Total |
Equity funds | | $ | 5,661 | | | $ | 7,418 | | | | | $ | — | | | $ | 13,079 | |
Equity funds measured at net asset value | | — | | | — | | | | | 5,638 | | | 5,638 | |
Bond funds | | — | | | 25,098 | | | | | — | | | 25,098 | |
Bond funds measured at net asset value | | — | | | — | | | | | 173,092 | | | 173,092 | |
Real estate measured at net asset value | | — | | | — | | | | | 10,331 | | | 10,331 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Cash and cash equivalents | | 2,007 | | | — | | | | | — | | | 2,007 | |
Total | | $ | 7,668 | | | $ | 32,516 | | | | | $ | 189,061 | | | $ | 229,245 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
(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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
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 |
2023 | $ | 81,213 | | | $ | 5,901 | | | $ | 87,114 | |
2024 | 133,186 | | | 6,277 | | | 139,463 | |
2025 | 1,001 | | | 7,047 | | | 8,048 | |
2026 | 982 | | | 7,800 | | | 8,782 | |
2027 | 960 | | | 8,488 | | | 9,448 | |
2028 - 2032 | 4,404 | | | 45,844 | | | 50,248 | |
As previously noted, as part of the planned termination of the U.S. Pension Plan, the Company expects to settle benefit obligations under the U.S. Pension Plan through a combination of lump sum payments to eligible participants and the purchase of a group annuity contract. These expected payments and group annuity purchase are reflected in the table above during the years 2023 and 2024.
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 $4,400 to its non-U.S. pension plans in 2023.
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, |
| 2022 | | 2021 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Change in benefit obligation: | | | | | | | |
Benefit obligations at beginning of year | $ | 21,211 | | | $ | 22,476 | | | $ | 23,419 | | | $ | 27,032 | |
Service cost | 89 | | | 216 | | | 105 | | | 357 | |
Interest cost | 561 | | | 628 | | | 531 | | | 701 | |
Net actuarial gain | (4,924) | | | (5,663) | | | (1,717) | | | (5,065) | |
Benefits paid | (1,125) | | | (722) | | | (1,127) | | | (716) | |
| | | | | | | |
Other | — | | | 14 | | | — | | | — | |
Foreign currency exchange rate effect | — | | | (1,476) | | | — | | | 167 | |
Benefit obligation at end of year | $ | 15,812 | | | $ | 15,473 | | | $ | 21,211 | | | $ | 22,476 | |
| | | | | | | |
Funded status of the plan | $ | (15,812) | | | $ | (15,473) | | | $ | (21,211) | | | $ | (22,476) | |
| | | | | | | |
Net amount recognized as of December 31 | $ | (15,812) | | | $ | (15,473) | | | $ | (21,211) | | | $ | (22,476) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Amounts recognized in the consolidated balance sheet: | | | | | | | |
Accrued liabilities | $ | (1,452) | | | $ | (709) | | | $ | (1,576) | | | $ | (766) | |
Postretirement benefits other than pension (long term) | (14,360) | | | (14,764) | | | (19,635) | | | (21,710) | |
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, 2022 and 2021 were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Prior service cost | $ | — | | | $ | (14) | | | $ | — | | | $ | — | |
Actuarial gains (losses) | $ | 14,686 | | | $ | 2,328 | | | $ | 11,339 | | | $ | (3,760) | |
The components of net periodic benefit (income) costs for the Company’s other postretirement benefit plans were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Service cost | $ | 89 | | | $ | 216 | | | $ | 105 | | | $ | 357 | | | $ | 103 | | | $ | 404 | |
Interest cost | 561 | | | 628 | | | 531 | | | 701 | | | 680 | | | 726 | |
Amortization of prior service credit and recognized actuarial (gain) loss | (1,577) | | | 157 | | | (1,396) | | | 752 | | | (1,930) | | | 448 | |
| | | | | | | | | | | |
Net periodic benefit (income) cost | $ | (927) | | | $ | 1,001 | | | $ | (760) | | | $ | 1,810 | | | $ | (1,147) | | | $ | 1,578 | |
Plan Assumptions
Weighted average assumptions used to determine benefit obligations as of December 31, 2022 and 2021 were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Discount rate | 5.45 | % | | 5.20 | % | | 2.75 | % | | 3.05 | % |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
Weighted average assumptions used to determine net periodic benefit costs for the years ended December 31, 2022, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
Discount rate | 2.75 | % | | 3.05 | % | | 2.35 | % | | 2.65 | % | | 3.15 | % | | 3.05 | % |
The assumed health care cost trend rates used to measure the postretirement benefit obligation as of December 31, 2022 were as follows: | | | | | | | | | | | |
| U.S. | | Non-U.S. |
Health care cost trend rate | 6.17 | % | | 5.00 | % |
Ultimate health care cost trend rate | 4.50 | % | | 5.00 | % |
Year that the rate reaches the ultimate trend rate | 2028 | | 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: | | | | | | | | | | | | | | | | | |
Years Ending December 31, | U.S. | | Non-U.S. | | Total |
2023 | $ | 1,491 | | | $ | 727 | | | $ | 2,218 | |
2024 | 1,491 | | | 760 | | | 2,251 | |
2025 | 1,489 | | | 772 | | | 2,261 | |
2026 | 1,471 | | | 792 | | | 2,263 | |
2027 | 1,428 | | | 807 | | | 2,235 | |
2028 - 2032 | 6,426 | | | 4,497 | | | 10,923 | |
Other
Other postretirement benefits recorded in the Company’s consolidated balance sheets include $1,890 and $2,153 as of December 31, 2022 and 2021, respectively, for termination indemnity plans in Europe.
15. Other Expense, net
The components of other expense, net were as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Deconsolidation of joint venture (1) | $ | (2,257) | | | $ | — | | | $ | — | |
Foreign currency losses | (1,131) | | | (6,887) | | | (1,429) | |
Components of net periodic benefit income (cost) other than service cost | (1,831) | | | 1,610 | | | (576) | |
| | | | | |
Factoring costs | (710) | | | (528) | | | (776) | |
Miscellaneous income | 444 | | | 963 | | | 201 | |
| | | | | |
Other expense, net | $ | (5,485) | | | $ | (4,842) | | | $ | (2,580) | |
(1) Loss attributable to deconsolidation of a joint venture in the Asia Pacific region, which required adjustment to fair value.
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, |
| 2022 | | 2021 | | 2020 |
Domestic | $ | (154,779) | | | $ | (142,883) | | | $ | (235,574) | |
Foreign | (45,721) | | | (146,569) | | | (94,647) | |
| $ | (200,500) | | | $ | (289,452) | | | $ | (330,221) | |
The Company’s income tax expense (benefit) consists of the following: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Current | | | | | |
Federal | $ | (2,280) | | | $ | 5,158 | | | $ | (65,565) | |
State | 154 | | | 68 | | | (196) | |
Foreign | 13,764 | | | (1,590) | | | 13,636 | |
| | | | | |
Deferred | | | | | |
Federal | 74 | | | 12,217 | | | (15,060) | |
State | 106 | | | (484) | | | 1,297 | |
Foreign | 5,473 | | | 24,023 | | | 5,041 | |
| $ | 17,291 | | | $ | 39,392 | | | $ | (60,847) | |
A reconciliation of the U.S. statutory federal rate to the income tax provision was as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Tax at U.S. statutory rate | $ | (42,105) | | | $ | (60,785) | | | $ | (69,346) | |
State and local taxes | (2,700) | | | (3,276) | | | (4,933) | |
Tax credits and incentives | (8,413) | | | (7,634) | | | (5,750) | |
Changes in tax law, other | (17) | | | (361) | | | 352 | |
U.S. tax reform/Global Intangible Low-Taxed Income ("GILTI")/foreign derived intangible income | 1,382 | | | — | | | (1,046) | |
Effect of foreign tax rates | (1,614) | | | (13,525) | | | (15,432) | |
Nonrecurring permanent items | (2,189) | | | (3,710) | | | (3,069) | |
| | | | | |
CARES Act | — | | | — | | | (27,844) | |
Foreign branch | 279 | | | 1,641 | | | (1,215) | |
Stock compensation (ASU 2016-09) | 1,258 | | | 1,257 | | | 1,640 | |
Non deductible expenses | 7,192 | | | 6,618 | | | 9,335 | |
Tax reserves/audit settlements | 3,854 | | | (5,043) | | | 1,071 | |
Valuation allowance | 65,559 | | | 124,228 | | | 51,609 | |
Other, net | (5,195) | | | (18) | | | 3,781 | |
Income tax expense (benefit) | $ | 17,291 | | | $ | 39,392 | | | $ | (60,847) | |
Effective income tax rate | (8.6) | % | | (13.6) | % | | 18.4 | % |
For the year ended December 31, 2022, the Company received $54,273 in cash payments from the United States Internal Revenue Service (“IRS”) for tax refunds related to net operating loss carrybacks.
On August 16, 2022, the U.S. enacted the Inflation Reduction Action of 2022, which, among other things, implements a 15% minimum tax on financial statement income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on its current analysis of the provisions, the Company does not believe this
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
legislation will have a material impact on its consolidated financial statements, but the Company is continuing to evaluate the implications.
Nonrecurring permanent item in 2022 relates to a withholding tax refund related to prior periods. In 2021, the nonrecurring permanent item relates to an intercompany legal entity sale, and in 2020, nonrecurring permanent items were the result of the divestiture of the Company’s European rubber, fluid transfer, and specialty sealing businesses.
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, 2022 and 2021 were as follows: | | | | | | | | | | | |
| 2022 | | 2021 |
Deferred tax assets: | | | |
Pension, postretirement and other benefits | $ | 40,060 | | | $ | 40,026 | |
Capitalized expenditures | 31,746 | | | 12,521 | |
Net operating loss and tax credit carryforwards | 279,755 | | | 275,222 | |
Operating lease liabilities | 24,059 | | | 27,934 | |
Interest expense carryforwards | 28,610 | | | 14,341 | |
All other items | 37,392 | | | 47,444 | |
Total deferred tax assets | 441,622 | | | 417,488 | |
Deferred tax liabilities: | | | |
Property, plant and equipment | (9,896) | | | (21,745) | |
Operating lease right-of-use | (23,106) | | | (26,863) | |
All other items | (11,028) | | | (14,506) | |
Total deferred tax liabilities | (44,030) | | | (63,114) | |
Valuation allowances | (384,792) | | | (334,983) | |
Net deferred tax assets | $ | 12,800 | | | $ | 19,391 | |
As of December 31, 2022, the Company’s U.S. and foreign subsidiaries, primarily in France, Brazil, Italy and Germany, had operating loss carryforwards aggregating $646,000, with indefinite expiration periods. Other foreign subsidiaries in China, Mexico, Netherlands, Spain, Czech Republic and Korea had operating loss carryforwards aggregating $298,000, with expiration dates beginning in 2023. The Company has research tax credit carryforwards and foreign tax credit carryforwards totaling $44,000 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 $12,000 with expiration dates beginning in 2023.
As of December 31, 2022, the Company has consolidated deferred tax assets of $441,622 with valuation allowances of $384,792 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 2022 primarily from current year losses generated in the U.S. and certain foreign jurisdictions as well as new valuation allowances established during 2022 in Poland. 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, 2022, 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, 2022, the Company had $5,930 ($6,100 including interest and penalties) of total unrecognized tax benefits, of which $3,753 represents the amount of unrecognized tax benefits that, if recognized, would impact 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:
| | | | | | | | | | | |
| 2022 | | 2021 |
Balance at beginning of period | $ | 3,571 | | | $ | 11,272 | |
Tax positions related to the current period | | | |
Gross additions | 336 | | | 337 | |
| | | |
Tax positions related to prior years | | | |
Gross additions | 2,692 | | | 10 | |
Gross reductions | (669) | | | (5,143) | |
Settlements | — | | | (2,905) | |
| | | |
Balance at end of period | $ | 5,930 | | | $ | 3,571 | |
The Company, or one of its subsidiaries, files income tax returns in the United States and other foreign jurisdictions. During the examination of our 2015 and 2016 U.S. federal income tax filings, the IRS asserted that income earned by a Netherlands subsidiary from its Mexican branch operations should be categorized as foreign based company sales income under Section 954(d) of the Internal Revenue Code and should be recognized currently as taxable income on our 2015 and 2016 U.S. federal income tax filings. As a result of this assertion, the IRS issued a Notice of Proposed Adjustment (“NOPA”). The Company believes the proposed adjustment is without merit and we have begun the process of contesting the matter. Currently, our protest for the 2015 and 2016 tax years has been submitted to the IRS’s administrative appeals office. We believe, after consultation with tax and legal counsel, that it is more likely than not that we will ultimately be successful in defending our position. As such, we have not recorded any impact of the IRS’s proposed adjustment in our consolidated financial statements as of and for the year ended December 31, 2022. In the event the Company is not successful in defending its position, the potential income tax expense impact, including interest, related to tax years 2015 through 2022 is less than $15 million. We intend to vigorously contest the conclusions reached in the NOPA through the IRS’s administrative appeals process, and, if necessary, through litigation.
The statute of limitations for U.S. state and local jurisdictions is closed for taxable years ending prior to 2015. 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 $3,141, 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 $170 and $710 recorded as of December 31, 2022 and 2021, 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, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Net loss available to Cooper-Standard Holdings Inc. common stockholders | $ | (215,384) | | | $ | (322,835) | | | $ | (267,605) | |
| | | | | |
Basic weighted average shares of common stock outstanding | 17,190,958 | | | 17,045,353 | | | 16,913,850 | |
Dilutive effect of common stock equivalents | — | | | — | | | — | |
Diluted weighted average shares of common stock outstanding | 17,190,958 | | | 17,045,353 | | | 16,913,850 | |
| | | | | |
Basic net loss per share attributable to Cooper-Standard Holdings Inc. | $ | (12.53) | | | $ | (18.94) | | | $ | (15.82) | |
| | | | | |
Diluted net loss per share attributable to Cooper-Standard Holdings Inc. | $ | (12.53) | | | $ | (18.94) | | | $ | (15.82) | |
Approximately 24,000, 166,000, and 71,000 securities were excluded from the calculation of diluted (loss) earnings per share for the years ended December 31, 2022, 2021, and 2020 because the inclusion of such securities in the calculation would have been anti-dilutive.
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, 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 | | (4) | (1,049) | | (5) | 4,365 | |
Balance as of December 31, 2021 | (138,751) | | | (65,303) | | | (1,130) | | | (205,184) | |
Other comprehensive income (loss) before reclassifications | (18,978) | | (1) | 4,419 | | (2) | 11,029 | | (3) | (3,530) | |
Amounts reclassified from accumulated other comprehensive income (loss) | (294) | | | 633 | | (6) | (1,596) | | (5) | (1,257) | |
Balance as of December 31, 2022 | $ | (158,023) | | | $ | (60,251) | | | $ | 8,303 | | | $ | (209,971) | |
(1)Includes $(15,619) and $(5,077) of other comprehensive loss for the years ended December 31, 2022 and 2021, respectively, that are related to intra-entity foreign currency balances that are of a long-term investment nature.
(2)Net of tax expense (benefit) of $250 and $(248) for the years ended December 31, 2022 and 2021, respectively.
(3)Net of tax expense of $779 and $298 for the years ended December 31, 2022 and 2021, respectively.
(4)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.
(5)Net of tax expense of $691 and $383 for the years ended December 31, 2022 and 2021, respectively.
(6)Includes the effect of the amortization of actuarial losses of $862, net settlement gains of $(416), and the amortization of prior service costs of $190, net of tax of $3.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
19. Equity
Shareholder Rights Plan
On November 7, 2022, the Company’s Board of Directors adopted a Section 382 rights plan and declared a dividend of one right (a “Right”) for each outstanding share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), to stockholders of record at the close of business on November 17, 2022 (“Shareholder Rights Plan”). Each Right entitles its holder, under certain circumstances described below, to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock of the Company, par value $0.001 per share (the “Series A Preferred Stock”), at an exercise price of $50.00 per Right, subject to adjustment.
If the Rights become exercisable, each Right would allow its holder to purchase from the Company one one-hundredth of a share of the Series A Preferred Stock for a purchase price of $50.00. Each fractional share of Series A Preferred Stock would give the stockholder approximately the same dividend, voting and liquidation rights as does one share of Common Stock. Prior to exercise, however, a Right does not give its holder any dividend, voting or liquidation rights. The exercisability of the Rights are described in further detail in the rights agreement.
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of preferred stock, par value $0.001 per share, of which 2,000,000 shares were designated as 7% Cumulative Participating Convertible Preferred Stock (the “7% Preferred Stock”). On November 7, 2022, the Company filed a Certificate of Elimination to its Third Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware eliminating from the Certificate of Incorporation all matters set forth in the Certificate of Designation with respect to the Company’s 7% Preferred Stock. No shares of the 7% Preferred Stock were outstanding and none will be issued subject to the Certificate of Designation for the 7% Preferred Stock. All shares that were designated as 7% Preferred Stock have been returned to the status of authorized but unissued shares of preferred stock of the Company, without designation as to series.
On November 7, 2022, in connection with the adoption of the Shareholder Rights Plan, the Company filed a Certificate of Designation of Series A Junior Participating Preferred Stock of Cooper-Standard Holdings Inc. (the “Certificate of Designation”) to its Certificate of Incorporation with the Secretary of State of the State of Delaware, designating 2,000,000 shares of preferred stock as Series A Preferred Stock. As of December 31, 2022, no shares of Series A Preferred Stock were issued or outstanding.
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, 2022, 19,173,838 shares of its Common Stock were issued, and 17,108,029 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 Board out of assets or funds legally available therefore. The ABL Facility, the New Notes, the 2026 Senior Notes, and the 2024 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, 2022, the Company had approximately $98,720 of repurchase authorization under the 2018 Program.
The Company did not make any repurchases under the 2018 Program during the years ended December 31, 2022, 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, |
| 2022 | | 2021 | | 2020 |
PUs | $ | 248 | | | $ | (916) | | | $ | 916 | |
RSUs | 1,738 | | | 4,201 | | | 6,994 | |
Stock options | 1,273 | | | 2,289 | | | 2,525 | |
Total | $ | 3,259 | | | $ | 5,574 | | | $ | 10,435 | |
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, 2022 was as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
Outstanding as of January 1, 2022 | 800,019 | | | $ | 59.57 | | | | | |
| | | | | | | |
| | | | | | | |
Forfeited | (913) | | | $ | 22.90 | | | | | |
Expired | (13,262) | | | $ | 71.06 | | | | | |
Outstanding as of December 31, 2022 | 785,844 | | | $ | 59.41 | | | 4.1 | | $ | — | |
Exercisable as of December 31, 2022 | 648,982 | | | $ | 65.32 | | | 3.6 | | $ | — | |
There were no stock options granted during the year ended December 31, 2022. The weighted-average grant date fair value of stock options granted during the years ended December 31, 2021 and 2020 was $16.46 and $8.85, respectively. The total intrinsic value of stock options exercised during the year ended December 31, 2021 was $142. There were no stock options exercised during the years ended December 31, 2022 or 2020.
As of December 31, 2022, unrecognized compensation expense for stock options amounted to $846. Such cost is expected to be recognized over a weighted average period of approximately 1.2 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 |
Expected volatility | | | 48.65% - 50.50% | | 33.74 | % |
Dividend yield | | | 0.00 | % | | 0.00 | % |
Expected option life - years | | | 6.0 | | 6.0 |
Risk-free rate | | | 0.6% - 0.9% | | 1.50 | % |
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, 2022 was as follows: | | | | | | | | | | | |
| Restricted Stock and Restricted Units | | Weighted Average Grant Date Fair Value |
Non-vested as of January 1, 2022 | 242,014 | | | $ | 48.38 | |
Granted | 313,161 | | | $ | 9.46 | |
Vested | (155,400) | | | $ | 58.90 | |
Forfeited | (10,739) | | | $ | 46.10 | |
Non-vested as of December 31, 2022 | 389,036 | | | $ | 11.98 | |
The weighted-average grant date fair value of restricted stock and restricted stock units granted during the years ended December 31, 2022, 2021 and 2020 was $9.46, $32.38 and $17.62, respectively. The total fair value of restricted stock and restricted stock units vested during the years ended December 31, 2022, 2021 and 2020 was $9,153, $9,299 and $7,786, respectively.
As of December 31, 2022, unrecognized compensation expense for restricted stock and restricted stock units amounted to $2,371. Such cost is expected to be recognized over a weighted-average period of approximately 1.7 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 and a contemporaneous valuation by an independent valuation specialist with respect to the total shareholder return performance units. 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, 2022 was as follows: | | | | | | | | | | | | | | | | | |
| Stock Settled Performance Units | | Cash Settled Performance Units | | Weighted Average Grant Date Fair Value |
Non-vested as of January 1, 2022 | 81,010 | | | 188,886 | | | $ | 51.19 | |
Granted | 200,031 | | | — | | | $ | 9.41 | |
Vested at 0% payout | (81,010) | | | (107,310) | | | $ | 56.17 | |
Forfeited | (4,374) | | | 2,240 | | | $ | (22.38) | |
Non-vested as of December 31, 2022 | 195,657 | | | 83,816 | | | $ | 18.50 | |
The weighted-average grant date fair value of performance units granted during the years ended December 31, 2022, 2021 and 2020 was $9.41, $39.70 and $10.10, respectively. The total fair value of PUs vested during the years ended December 31, 2022, 2021 and 2020 was $10,578, $4,864, and $5,243, respectively. Actual payout of units vested was 0% and no cash was paid to settle PUs during the years ended December 31, 2022, 2021, and 2020.
As of December 31, 2022, unrecognized compensation expense for the PUs granted in 2022 was $1,118. Such cost is expected to be recognized over a weighted-average period of approximately 2 years.
The fair value of certain 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: | | | | | | | | | | | |
| 2022 | | 2021 |
Expected volatility | 88.24 | % | | 99.40 | % |
Dividend yield | 0.00 | % | | 0.00 | % |
| | | |
Risk-free rate | 1.71 | % | | 0.14 | % |
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, 2022, 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, 2022 and 2021, the Company had $10,817 and $9,965, 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, 2022, the Company had $4,608 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, |
| 2022 | | 2021 | | 2020 |
Sales to external customers | | | | | |
North America | $ | 1,341,099 | | | $ | 1,148,257 | | | $ | 1,141,368 | |
Europe | 503,672 | | | 518,245 | | | 586,739 | |
Asia Pacific | 443,126 | | | 458,306 | | | 468,042 | |
South America | 100,420 | | | 61,713 | | | 60,754 | |
Total Automotive | 2,388,317 | | | 2,186,521 | | | 2,256,903 | |
Corporate, eliminations and other | 137,074 | | | 143,670 | | | 118,536 | |
Consolidated | $ | 2,525,391 | | | $ | 2,330,191 | | | $ | 2,375,439 | |
| | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Intersegment sales | | | | | |
North America | $ | 11,979 | | | $ | 9,775 | | | $ | 12,267 | |
Europe | 7,272 | | | 9,502 | | | 9,569 | |
Asia Pacific | 3,847 | | | 1,863 | | | 2,406 | |
South America | 54 | | | 15 | | | 72 | |
Total Automotive | 23,152 | | | 21,155 | | | 24,314 | |
Corporate, eliminations and other | (23,152) | | | (21,155) | | | (24,314) | |
Consolidated | $ | — | | | $ | — | | | $ | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Adjusted EBITDA | | | | | |
North America | $ | 70,819 | | | $ | 54,616 | | | $ | 90,638 | |
Europe | (37,137) | | | (49,599) | | | (39,004) | |
Asia Pacific | 1,556 | | | (16,756) | | | 12,472 | |
South America | 97 | | | (9,852) | | | (13,841) | |
Total Automotive | 35,335 | | | (21,591) | | | 50,265 | |
Corporate, eliminations and other | 2,533 | | | 13,557 | | | (14,588) | |
Consolidated | $ | 37,868 | | | $ | (8,034) | | | $ | 35,677 | |
| | | | | |
Net interest expense | | | | | |
North America | $ | 365 | | | $ | 470 | | | $ | 504 | |
Europe | 560 | | | 1,274 | | | 1,082 | |
Asia Pacific | 1,602 | | | 1,445 | | | 2,205 | |
South America | 1,659 | | | 362 | | | 225 | |
Total Automotive | 4,186 | | | 3,551 | | | 4,016 | |
Corporate, eliminations and other | 74,328 | | | 68,960 | | | 55,151 | |
Consolidated | $ | 78,514 | | | $ | 72,511 | | | $ | 59,167 | |
| | | | | |
Depreciation and amortization expense | | | | | |
North America | $ | 51,592 | | | $ | 54,779 | | | $ | 60,193 | |
Europe | 26,694 | | | 32,655 | | | 36,707 | |
Asia Pacific | 27,509 | | | 32,426 | | | 31,789 | |
South America | 2,701 | | | 2,531 | | | 2,392 | |
Total Automotive | 108,496 | | | 122,391 | | | 131,081 | |
Corporate, eliminations and other | 13,980 | | | 16,617 | | | 23,148 | |
Consolidated | $ | 122,476 | | | $ | 139,008 | | | $ | 154,229 | |
| | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands except per share and share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Capital expenditures | | | | | |
North America | $ | 39,276 | | | $ | 36,370 | | | $ | 30,921 | |
Europe | 7,965 | | | 27,384 | | | 25,369 | |
Asia Pacific | 15,374 | | | 20,473 | | | 21,809 | |
South America | 6,107 | | | 3,959 | | | 2,476 | |
Total Automotive | 68,722 | | | 88,186 | | | 80,575 | |
Corporate, eliminations and other | 2,428 | | | 7,921 | | | 11,219 | |
Consolidated | $ | 71,150 | | | $ | 96,107 | | | $ | 91,794 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Adjusted EBITDA | $ | 37,868 | | | $ | (8,034) | | | $ | 35,677 | |
Impairment charges | (43,710) | | | (25,609) | | | (103,887) | |
Restructuring charges | (18,304) | | | (36,950) | | | (39,482) | |
Pension settlement and curtailment charges | (2,682) | | | (1,279) | | | (184) | |
Lease termination costs | — | | | (748) | | | (771) | |
Gain on sale of business, net | — | | | 696 | | | 2,834 | |
Gain on sale of fixed assets, net | 33,391 | | | — | | | — | |
Deconsolidation of joint venture | (2,257) | | | — | | | — | |
Project costs | — | | | — | | | (5,648) | |
Indirect tax and customs adjustments | (1,409) | | | — | | | — | |
| | | | | |
Divested noncontrolling interest debt extinguishment | — | | | — | | | (3,595) | |
EBITDA | $ | 2,897 | | | $ | (71,924) | | | $ | (115,056) | |
Income tax (expense) benefit | (17,291) | | | (39,392) | | | 60,847 | |
Interest expense, net of interest income | (78,514) | | | (72,511) | | | (59,167) | |
Depreciation and amortization | (122,476) | | | (139,008) | | | (154,229) | |
Net loss attributable to Cooper-Standard Holdings Inc. | $ | (215,384) | | | $ | (322,835) | | | $ | (267,605) | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Segment assets | | | |
North America | $ | 851,623 | | | $ | 885,517 | |
Europe | 338,225 | | | 372,097 | |
Asia Pacific | 447,257 | | | 510,524 | |
South America | 73,403 | | | 61,479 | |
Total Automotive | 1,710,508 | | | 1,829,617 | |
Corporate, eliminations and other | 253,021 | | | 396,876 | |
Consolidated | $ | 1,963,529 | | | $ | 2,226,493 | |
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, |
| 2022 | | 2021 | | 2020 |
Revenues | | | | | |
Mexico | $ | 696,755 | | | $ | 592,777 | | | $ | 578,790 | |
United States | 589,801 | | | 539,528 | | | 518,497 | |
China | 354,741 | | | 371,811 | | | 364,207 | |
Poland | 166,114 | | | 168,357 | | | 191,530 | |
Canada | 144,890 | | | 116,854 | | | 125,729 | |
Germany | 116,153 | | | 116,509 | | | 114,221 | |
France | 90,711 | | | 94,334 | | | 97,289 | |
Other | 366,226 | | | 330,021 | | | 385,176 | |
Consolidated | $ | 2,525,391 | | | $ | 2,330,191 | | | $ | 2,375,439 | |
| | | | | |
| | | December 31, |
| | | 2022 | | 2021 |
Property, plant and equipment, net | | | | | |
China | | | $ | 140,182 | | | $ | 182,298 | |
United States | | | 134,978 | | | 161,780 | |
Mexico | | | 132,956 | | | 139,630 | |
Poland | | | 45,100 | | | 67,521 | |
Germany | | | 30,606 | | | 47,885 | |
Canada | | | 26,416 | | | 29,482 | |
France | | | 18,834 | | | 21,921 | |
Other | | | 113,788 | | | 133,831 | |
Consolidated | | | $ | 642,860 | | | $ | 784,348 | |
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 2022, 2021 and 2020 are as follows: | | | | | | | | | | | | | | | | | |
| 2022 Percentage of Net Sales | | 2021 Percentage of Net Sales | | 2020 Percentage of Net Sales |
Customer | | | | | |
Ford | 25 | % | | 24 | % | | 24 | % |
General Motors | 19 | % | | 17 | % | | 19 | % |
Stellantis (1) | 14 | % | | 14 | % | | 14 | % |
(1) 2020 percentage includes FCA and Groupe PSA