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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  ___________________________________ 
FORM 10-Q
  ___________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number: 001-36127
   ______________________________
COOPER-STANDARD HOLDINGS INC.
(Exact name of registrant as specified in its charter)
   ______________________________
Delaware
 
20-1945088
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
40300 Traditions Drive
Northville, Michigan 48168
(Address of principal executive offices)
(Zip Code)
(248) 596-5900
(Registrant’s telephone number, including area code)
 ______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.001 per share
 
CPS
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of May 5, 2020, there were 16,884,542 shares of the registrant’s common stock, $0.001 par value, outstanding.




COOPER-STANDARD HOLDINGS INC.
Form 10-Q
For the period ended March 31, 2020
 


2



PART I — FINANCIAL INFORMATION
Item 1.         Financial Statements
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollar amounts in thousands except per share amounts) 
 
Three Months Ended March 31,
 
2020
 
2019
Sales
$
654,890

 
$
877,995

Cost of products sold
611,747

 
762,490

Gross profit
43,143

 
115,505

Selling, administration & engineering expenses
70,671

 
86,974

Amortization of intangibles
4,450

 
3,775

Restructuring charges
7,276

 
17,715

Impairment of assets held for sale
74,079

 

Other impairment charges
977

 

Operating (loss) profit
(114,310
)
 
7,041

Interest expense, net of interest income
(10,237
)
 
(11,932
)
Equity in earnings of affiliates
1,431

 
2,358

Other expense, net
(3,440
)
 
(796
)
Loss before income taxes
(126,556
)
 
(3,329
)
Income tax (benefit) expense
(14,117
)
 
2,034

Net loss
(112,439
)
 
(5,363
)
Net loss (income) attributable to noncontrolling interests
1,851

 
(52
)
Net loss attributable to Cooper-Standard Holdings Inc.
$
(110,588
)
 
$
(5,415
)
 
 
 
 
Loss per share:
 
 
 
Basic
$
(6.55
)
 
$
(0.31
)
Diluted
$
(6.55
)
 
$
(0.31
)
The accompanying notes are an integral part of these financial statements.


3



COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollar amounts in thousands) 
 
Three Months Ended March 31,
 
2020
 
2019
Net loss
$
(112,439
)
 
$
(5,363
)
Other comprehensive (loss) income:
 
 
 
Currency translation adjustment
(28,889
)
 
1,970

Benefit plan liabilities adjustment, net of tax
2,682

 
1,387

Fair value change of derivatives, net of tax
(10,076
)
 
1,253

Other comprehensive (loss) income, net of tax
(36,283
)
 
4,610

Comprehensive loss
(148,722
)
 
(753
)
Comprehensive loss (income) attributable to noncontrolling interests
2,358

 
(423
)
Comprehensive loss attributable to Cooper-Standard Holdings Inc.
$
(146,364
)
 
$
(1,176
)

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


4



COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except share amounts)
 
March 31, 2020
 
December 31, 2019
 
(unaudited)
 

Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
301,841

 
$
359,536

Accounts receivable, net
335,827

 
423,155

Tooling receivable, net
139,049

 
148,175

Inventories
168,036

 
143,439

Prepaid expenses
27,859

 
34,452

Other current assets
94,191

 
93,513

Assets held for sale
25,735

 

Total current assets
1,092,538

 
1,202,270

Property, plant and equipment, net
909,511

 
988,277

Operating lease right-of-use assets, net
113,090


83,376

Goodwill
141,870

 
142,187

Intangible assets, net
74,306

 
84,369

Other assets
152,948

 
135,103

Total assets
$
2,484,263

 
$
2,635,582

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Debt payable within one year
$
62,530

 
$
61,449

Accounts payable
357,003

 
426,055

Payroll liabilities
82,980

 
88,486

Accrued liabilities
120,383

 
119,841

Current operating lease liabilities
21,314


24,094

Liabilities held for sale
55,452

 

Total current liabilities
699,662

 
719,925

Long-term debt
744,745

 
746,179

Pension benefits
133,123

 
140,010

Postretirement benefits other than pensions
43,423

 
48,313

Long-term operating lease liabilities
90,947


60,234

Other liabilities
44,802

 
44,939

Total liabilities
1,756,702

 
1,759,600

7% Cumulative participating convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding

 

Equity:
 
 
 
Common stock, $0.001 par value, 190,000,000 shares authorized; 18,950,351 shares issued and 16,884,542 shares outstanding as of March 31, 2020, and 18,908,566 shares issued and 16,842,757 outstanding as of December 31, 2019
17

 
17

Additional paid-in capital
492,325

 
490,451

Retained earnings
507,287

 
619,448

Accumulated other comprehensive loss
(289,517
)
 
(253,741
)
Total Cooper-Standard Holdings Inc. equity
710,112

 
856,175

Noncontrolling interests
17,449

 
19,807

Total equity
727,561

 
875,982

Total liabilities and equity
$
2,484,263

 
$
2,635,582

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

5



COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(Dollar amounts in thousands except share amounts)
 
Total Equity
 
Common Shares
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Cooper-Standard Holdings Inc. Equity
 
Noncontrolling Interests
 
Total Equity
Balance as of December 31, 2019
16,842,757

 
$
17

 
$
490,451

 
$
619,448

 
$
(253,741
)
 
$
856,175

 
$
19,807

 
$
875,982

Cumulative effect of change in accounting principle

 

 

 
(1,573
)
 

 
(1,573
)
 

 
(1,573
)
Share-based compensation, net
41,785

 

 
1,874

 

 

 
1,874

 

 
1,874

Net loss

 

 

 
(110,588
)
 

 
(110,588
)
 
(1,851
)
 
(112,439
)
Other comprehensive loss

 

 

 

 
(35,776
)
 
(35,776
)
 
(507
)
 
(36,283
)
Balance as of March 31, 2020
16,884,542

 
$
17

 
$
492,325

 
$
507,287

 
$
(289,517
)
 
$
710,112

 
$
17,449

 
$
727,561


 
Total Equity
 
Common Shares
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Cooper-Standard Holdings Inc. Equity
 
Noncontrolling Interests
 
Total Equity
Balance as of December 31, 2018
17,554,737

 
$
17

 
$
501,511

 
$
569,215

 
$
(245,937
)
 
$
824,806

 
$
26,669

 
$
851,475

Cumulative effect of change in accounting principle

 

 

 
(2,607
)
 

 
(2,607
)
 

 
(2,607
)
Repurchase of common stock
(118,774
)
 

 
(2,057
)
 
(3,880
)
 

 
(5,937
)
 

 
(5,937
)
Share-based compensation, net
85,937

 

 
4

 
(214
)
 

 
(210
)
 

 
(210
)
Contribution from noncontrolling interests

 

 

 

 

 

 
2,112

 
2,112

Net (loss) income

 

 

 
(5,415
)
 

 
(5,415
)
 
52

 
(5,363
)
Other comprehensive income

 

 

 

 
4,239

 
4,239

 
371

 
4,610

Balance as of March 31, 2019
17,521,900

 
$
17

 
$
499,458

 
$
557,099

 
$
(241,698
)
 
$
814,876

 
$
29,204

 
$
844,080

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

6



COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
 
Three Months Ended March 31,
 
2020
 
2019
Operating Activities:
 
 
 
Net loss
$
(112,439
)
 
$
(5,363
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Depreciation
33,313

 
32,830

Amortization of intangibles
4,450

 
3,775

Impairment of assets held for sale
74,079

 

Other impairment charges
977

 

Share-based compensation expense
2,374

 
3,186

Equity in earnings of affiliates, net of dividends related to earnings
3,814

 
2,559

Deferred income taxes
(20,191
)
 
(964
)
Other
1,138

 
1,495

Changes in operating assets and liabilities
10,455

 
(39,366
)
Net cash used in operating activities
(2,030
)
 
(1,848
)
Investing activities:
 
 
 
Capital expenditures
(50,591
)
 
(59,633
)
Acquisition of businesses, net of cash acquired

 
(452
)
Proceeds from sale of fixed assets and other
482

 
102

Net cash used in investing activities
(50,109
)
 
(59,983
)
Financing activities:
 
 
 
Principal payments on long-term debt
(1,498
)
 
(1,012
)
Increase in short-term debt, net
3,021

 
65,791

Repurchase of common stock

 
(6,550
)
Taxes withheld and paid on employees' share-based payment awards
(512
)
 
(2,706
)
Other
(625
)
 
1,827

Net cash provided by financing activities
386

 
57,350

Effects of exchange rate changes on cash, cash equivalents and restricted cash
(6,200
)
 
1,477

Changes in cash, cash equivalents and restricted cash
(57,953
)
 
(3,004
)
Cash, cash equivalents and restricted cash at beginning of period
361,742

 
267,399

Cash, cash equivalents and restricted cash at end of period
$
303,789

 
$
264,395

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet:
 
Balance as of
 
March 31, 2020
 
December 31, 2019
Cash and cash equivalents
$
301,841

 
$
359,536

Restricted cash included in other current assets
13

 
12

Restricted cash included in other assets
1,935

 
2,194

Total cash, cash equivalents and restricted cash shown in the statement of cash flows
$
303,789

 
$
361,742

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

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)


1. Overview
Basis of Presentation
Cooper-Standard Holdings Inc. (together with its consolidated subsidiaries, the “Company” or “Cooper Standard”), through its wholly-owned subsidiary, Cooper-Standard Automotive Inc. (“CSA U.S.”), is a leading manufacturer of sealing, fuel and brake delivery, and fluid transfer systems. The Company’s products are primarily for use in passenger vehicles and light trucks that are manufactured by global automotive original equipment manufacturers (“OEMs”) and replacement markets. The Company conducts substantially all of its activities through its subsidiaries.
During the first quarter of 2019 and in prior periods, the Company also operated an anti-vibration systems (“AVS”) product line. On April 1, 2019, the Company completed the divestiture of its AVS product line.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”), as filed with the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These financial statements include all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of the Company. The operating results for the interim period ended March 31, 2020 are not necessarily indicative of results for the full year. In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
Immaterial Correction of Errors
During the year ended December 31, 2019, the Company identified errors primarily related to periods prior to fiscal year 2019. The Company concluded these errors were not material individually or in the aggregate to any of the previously reported periods and, therefore, amendments of previously filed reports were not required. Corrections were made to the applicable prior periods reflected in the financial information herein.
The following table presents the impact of these corrections on the Company’s condensed consolidated statements of operations:
 
Three Months Ended March 31, 2019
 
As previously reported
 
Adjustment
 
As corrected
Sales
$
880,038

 
$
(2,043
)
 
$
877,995

Income tax expense
2,331

 
(297
)
 
2,034

Net income (loss) attributable to noncontrolling interests
157

 
(209
)
 
(52
)
Net loss attributable to Cooper-Standard Holdings Inc.
(3,460
)
 
(1,955
)
 
(5,415
)
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
Basic
$
(0.20
)
 
$
(0.11
)
 
$
(0.31
)
Diluted
$
(0.20
)
 
$
(0.11
)
 
$
(0.31
)
The following table presents the impact of these corrections on the Company’s condensed consolidated statements of comprehensive income (loss):
 
Three Months Ended March 31, 2019
 
As previously reported
 
Adjustment
 
As corrected
Currency translation adjustment
$
2,219

 
$
(249
)
 
$
1,970

Comprehensive loss (income) attributable to noncontrolling interests
(247
)
 
(176
)
 
(423
)
Comprehensive income (loss) attributable to Cooper-Standard Holdings Inc.
995

 
(2,171
)
 
(1,176
)
The impact of these corrections on the balance as of March 31, 2019 in the Company’s condensed consolidated statements of changes in equity includes a decrease to total equity of $10,022, which consists of a decrease to retained earnings of $8,765, increase to accumulated other comprehensive loss of $65, and decrease to noncontrolling interests of $1,192.

8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

For the three months ended March 31, 2019, the impact of these corrections on the condensed consolidated statement of cash flow included a $1,746 decrease in net income offset by an increase of $1,746 in changes in operating assets and liabilities, resulting in no impact to net cash provided by operating activities.  
2. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
ASU 2016-13, Financial Instruments — Credit Losses (Topic 326)
On January 1, 2020, the Company adopted Accounting Standards Codification (“ASC”) 326, Financial Instruments – Credit Losses, and all related amendments using the modified retrospective method whereby the cumulative effect of adopting the standard was recognized in equity at the date of initial application. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The most prominent among the changes in the standard is the consideration of losses not yet incurred, but expected, based on current conditions and future forecasts. Adoption of the new standard resulted in an immaterial increase in the allowance for credit losses, which decreased the tooling receivable on the Company’s condensed consolidated balance sheet in 2020. The increase in credit loss expense was recorded as an adjustment to the opening balance of retained earnings. Adoption of the new standard had no impact on the Company’s condensed consolidated statement of operations or on cash provided by (used in) operating, financing or investing activities on its condensed consolidated cash flow statements.
The cumulative effects of the changes made to the Company’s condensed consolidated balance sheet as of January 1, 2020 were as follows:
 
Balance as of December 31, 2019
 
Adjustments due to adoption of ASC 326
 
Balance as of
January 1, 2020
 
 
 
 
 
 
Tooling receivable, net
$
148,175

 
$
(1,573
)
 
$
146,602

Retained earnings
619,448

 
(1,573
)
 
617,875


The Company adopted the following Accounting Standard Updates (“ASU”) during the three months ended March 31, 2020, which did not have a material impact on its condensed consolidated financial statements:
Standard
Description
Effective Date
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
Aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.
January 1, 2020
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.
January 1, 2020


9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

3. Assets Held for Sale and Divestiture
Assets Held for Sale
In the fourth quarter of 2019, management approved a plan to sell certain manufacturing facilities within its Europe and Asia Pacific segments. The Company expects to sell the manufacturing facilities in the second quarter of 2020. The manufacturing facilities and the associated assets and liabilities met the criteria for presentation as held for sale as of March 31, 2020, and as such, the assets and liabilities associated with the transaction are separately classified as held for sale in the condensed consolidated balance sheet and depreciation of long-lived assets ceased. The planned divestiture did not meet the criteria for presentation as a discontinued operation.
The major classes of assets and liabilities held for sale were as follows:
 
March 31, 2020
Accounts receivable, net
$
17,171

Tooling receivable, net
3,508

Inventories
18,157

Prepaid expenses
3,519

Other current assets
9,817

Property, plant and equipment, net
38,691

Operating lease right-of-use assets, net
2,782

Intangible assets, net
4,981

Other assets
1,188

Impairment of carrying value
(74,079
)
Total assets held for sale
$
25,735

 
 
Accounts payable
$
29,341

Payroll liabilities
5,642

Accrued liabilities
9,137

Current operating lease liabilities
955

Pension benefits
3,461

Postretirement benefits other than pensions
2,715

Long-term operating lease liabilities
2,363

Other liabilities
1,838

Total liabilities related to assets held for sale
$
55,452


Upon meeting the criteria for held for sale classification, the Company recorded a non-cash impairment charge of $74,079 to reduce the carrying value of the held for sale entities to fair value less costs to sell. Fair value, which is categorized within Level 3 of the fair value hierarchy, was determined using a market approach, estimated based on expected proceeds. The fair value less cost to sell must be assessed each reporting period that the asset group remains classified as held for sale.
The impairment charge, which is subject to adjustments as the transaction is finalized, includes the anticipated release of non-cash cumulative foreign currency translation losses, which were included as part of the carrying value of the held for sale entities. These losses will be reclassified from accumulated other comprehensive loss to net income (loss) upon closure of the transaction.
Divestiture
During the first quarter of 2019 and in prior periods, the Company also operated an AVS product line. On April 1, 2019, the Company completed its sale of the AVS product line to Continental AG.
Subsequent Event
Subsequent to the end of the Company's first quarter, on May 7, 2020, the Company entered into a definitive agreement to divest certain manufacturing facilities within its Europe and Asia Pacific segments. The planned divestiture of the facilities is expected to close in the second quarter of 2020 and is subject to customary closing conditions, including regulatory and third-party approvals.

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

4. Revenue
Revenue is recognized for manufactured parts at a point in time, generally when products are shipped or delivered. The Company usually enters into agreements with customers to produce products at the beginning of a vehicle’s life. Blanket purchase orders received from customers and related documents generally establish the annual terms, including pricing, related to a vehicle model. Customers typically pay for parts based on customary business practices with payment terms generally between 30 and 90 days.
Revenue by customer group for the three months ended March 31, 2020 was as follows:
 
North America
 
Europe
 
Asia Pacific
 
South America
 
Corporate, Eliminations and Other
 
Consolidated
Passenger and Light Duty
$
325,982

 
$
170,781

 
$
78,742

 
$
20,439

 
$

 
$
595,944

Commercial
3,178

 
5,557

 
546

 
10

 
1,134

 
10,425

Other
5,641

 
8,904

 
56

 
22

 
33,898

 
48,521

Revenue
$
334,801

 
$
185,242

 
$
79,344

 
$
20,471

 
$
35,032

 
$
654,890


Revenue by customer group for the three months ended March 31, 2019 was as follows:
 
North America
 
Europe
 
Asia Pacific
 
South America
 
Corporate, Eliminations and Other
 
Consolidated
Passenger and Light Duty
$
436,866

 
$
225,451

 
$
125,355

 
$
23,192

 
$

 
$
810,864

Commercial
5,792

 
8,425

 

 
23

 
547

 
14,787

Other
5,060

 
8,524

 
97

 
22

 
38,641

 
52,344

Revenue
$
447,718

 
$
242,400

 
$
125,452

 
$
23,237

 
$
39,188

 
$
877,995

The passenger and light duty group consists of sales to automotive OEMs and automotive suppliers, while the commercial group represents sales to OEMs of on- and off-highway commercial equipment and vehicles. The other customer group includes sales related to specialty and adjacent markets.
Substantially all of the Company’s revenues were generated from sealing, fuel and brake delivery, fluid transfer and anti-vibration systems for use in passenger vehicles and light trucks manufactured by global OEMs. On April 1, 2019, the Company completed the divestiture of its AVS product line.
A summary of the Company’s products is as follows:
Product Line
 
Description
Sealing Systems
 
Protect vehicle interiors from weather, dust and noise intrusion for improved driving experience; provide aesthetic and functional class-A exterior surface treatment
Fuel & Brake Delivery Systems
 
Sense, deliver and control fluids to fuel and brake systems
Fluid Transfer Systems
 
Sense, deliver and control fluids and vapors for optimal powertrain & HVAC operation
Anti-Vibration Systems (Divested on April 1, 2019)
 
Control and isolate vibration and noise in the vehicle to improve ride and handling
Revenue by product line for the three months ended March 31, 2020 was as follows:
 
North America
 
Europe
 
Asia Pacific
 
South America
 
Corporate, Eliminations and Other
 
Consolidated
Sealing systems
$
124,556

 
$
127,246

 
$
49,024

 
$
13,549

 
$

 
$
314,375

Fuel and brake delivery systems
104,934

 
28,562

 
19,818

 
5,747

 

 
159,061

Fluid transfer systems
105,311

 
21,945

 
10,502

 
1,175

 

 
138,933

Other

 
7,489

 

 

 
35,032

 
42,521

Consolidated
$
334,801

 
$
185,242

 
$
79,344

 
$
20,471

 
$
35,032

 
$
654,890



11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

Revenue by product line for the three months ended March 31, 2019 was as follows:
 
North America
 
Europe
 
Asia Pacific
 
South America
 
Corporate, Eliminations and Other
 
Consolidated
Sealing systems
$
145,646

 
$
155,391

 
$
83,529

 
$
17,829

 
$

 
$
402,395

Fuel and brake delivery systems
131,703

 
35,298

 
25,168

 
5,335

 

 
197,504

Fluid transfer systems
113,448

 
22,798

 
15,302

 
73

 

 
151,621

Anti-vibration systems
56,457

 
20,649

 
1,453

 

 

 
78,559

Other
464

 
8,264

 

 

 
39,188

 
47,916

Consolidated
$
447,718

 
$
242,400

 
$
125,452

 
$
23,237

 
$
39,188

 
$
877,995


Contract Estimates
The amount of revenue recognized is usually based on the purchase order price and adjusted for variable consideration, including pricing concessions. The Company accrues for pricing concessions by reducing revenue as products are shipped or delivered. The accruals are based on historical experience, anticipated performance and management’s best judgment. The Company also generally has ongoing adjustments to customer pricing arrangements based on the content and cost of its products. Such pricing accruals are adjusted as they are settled with customers. Customer returns are usually related to quality or shipment issues and are recorded as a reduction of revenue. The Company generally does not recognize significant return obligations due to their infrequent nature.
Contract Balances
The Company’s contract assets consist of unbilled amounts associated with variable pricing arrangements in its Asia Pacific region. Once pricing is finalized, contract assets are transferred to accounts receivable. As a result, the timing of revenue recognition and billings, as well as changes in foreign exchange rates, will impact contract assets on an ongoing basis. Contract assets were not materially impacted by any other factors during the three months ended March 31, 2020.
The Company’s contract liabilities consist of advance payments received and due from customers. Net contract assets (liabilities) consisted of the following:
 
 
March 31, 2020
 
December 31, 2019
 
Change
Contract assets
 
$
9,130

 
$
1,100

 
$
8,030

Contract liabilities
 
(43
)
 
(61
)
 
18

Net contract assets
 
$
9,087


$
1,039


$
8,048


Other
The Company at times enters into agreements that provide for lump sum payments to customers. These payment agreements are recorded as a reduction of revenue during the period the commitment is made. Amounts related to commitments of future payments to customers on the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 were current liabilities of $11,954 and $12,916, respectively, and long-term liabilities of $7,360 and $9,502, respectively.
The Company provides assurance-type warranties to its customers. Such warranties provide customers with assurance that the related product will function as intended and complies with any agreed-upon specifications, and are recognized in costs of products sold.
5. Restructuring
On an ongoing basis, the Company evaluates its business and objectives to ensure that it is properly configured and sized based on changing market conditions. Accordingly, the Company has implemented several restructuring initiatives, including closure or consolidation of facilities throughout the world and the reorganization of its operating structure.
The Company’s restructuring charges consist of severance, retention and outplacement services, and severance-related postemployment benefits (collectively, “employee separation costs”), other related exit costs and asset impairments related to restructuring activities. Employee separation costs are recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy.

12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

Restructuring expense by segment for the three months ended March 31, 2020 and 2019 was as follows:
 
Three Months Ended March 31,
 
2020
 
2019
North America
$
3,703

 
$
5,208

Europe
2,193

 
6,103

Asia Pacific
133

 
2,513

South America
1,202

 
16

Total Automotive
7,231

 
13,840

Corporate and other
45

 
3,875

Total
$
7,276

 
$
17,715


Restructuring activity for the three months ended March 31, 2020 was as follows:
 
Employee Separation Costs
 
Other Exit Costs
 
Total
Balance as of December 31, 2019
$
22,990

 
$
4,005

 
$
26,995

Expense
4,415

 
2,861

 
7,276

Cash payments
(6,362
)
 
(3,037
)
 
(9,399
)
Foreign exchange translation and other
(626
)
 
(38
)
 
(664
)
Balance as of March 31, 2020
$
20,417

 
$
3,791

 
$
24,208


6. Inventories
Inventories consist of the following:
 
March 31, 2020
 
December 31, 2019
Finished goods
$
54,135

 
$
57,070

Work in process
36,741

 
33,753

Raw materials and supplies
77,160

 
52,616

 
$
168,036

 
$
143,439


7. Leases
The Company primarily has operating and finance leases for certain manufacturing facilities, corporate offices and certain equipment. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities and long-term operating lease liabilities on the Company’s condensed consolidated balance sheet as of March 31, 2020. Finance leases are included in property, plant and equipment, net, debt payable within one year, and long-term debt on the Company’s condensed consolidated balance sheets.
The components of lease expense were as follows:
 
Three Months Ended March 31,
 
2020
 
2019
Operating lease expense
$
8,605

 
$
8,680

Short-term lease expense
1,010

 
679

Variable lease expense
250

 
215

Finance lease expense:
 
 
 
Amortization of right-of-use assets
681

 
443

Interest on lease liabilities
385

 
455

Total lease expense
$
10,931

 
$
10,472



13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

Other information related to leases was as follows:
 
Three Months Ended March 31,
 
2020
 
2019
Supplemental Cash Flows Information
 
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
     Operating cash flows for operating leases
$
7,933

 
$
8,656

     Operating cash flows for finance leases
410

 
323

     Financing cash flows for finance leases
648

 
267

Non-cash right-of-use assets obtained in exchange for lease obligations:
 
 
 
     Operating leases
37,205

 
164

     Finance leases
61

 
9,452

 
 
 
 
Weighted Average Remaining Lease Term (in years)
 
 
 
Operating leases
8.2

 
5.5

Finance leases
11.1

 
12.0

 
 
 
 
Weighted Average Discount Rate
 
 
 
Operating leases
5.3
%
 
4.7
%
Finance leases
6.1
%
 
9.6
%

Future minimum lease payments under non-cancellable leases as of March 31, 2020 were as follows:
Year
 
Operating Leases
 
Finance
Leases
Remainder of 2020
 
$
21,117

 
$
2,696

2021
 
23,120

 
3,543

2022
 
18,019

 
3,301

2023
 
15,143

 
3,047

2024
 
12,385

 
3,190

Thereafter
 
56,959

 
23,988

    Total future minimum lease payments
 
146,743

 
39,765

Less imputed interest
 
(31,164
)
 
(11,059
)
    Total
 
$
115,579

 
$
28,706


Amounts recognized on the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 were as follows:
 
March 31, 2020
 
December 31, 2019
Operating Leases
 
 
 
Assets held for sale
$
2,782

 
$

Operating lease right-of-use assets, net
113,090

 
83,376

Current operating lease liabilities
21,314

 
24,094

Liabilities held for sale
3,318

 

Long-term operating lease liabilities
90,947

 
60,234

 
 
 
 
Finance Leases
 
 
 
Debt payable within one year
2,284

 
2,343

Long-term debt
26,422

 
27,430



14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

As of March 31, 2020 and December 31, 2019, assets recorded under finance leases, net of accumulated depreciation were $31,705 and $32,571, respectively. As of March 31, 2020, the Company had additional operating leases, primarily for real estate, that have not yet commenced with undiscounted lease payments of approximately $1,725. These operating leases will commence in 2020 with lease terms up to 10 years.
8. Property, Plant and Equipment
Property, plant and equipment consists of the following:
 
March 31, 2020
 
December 31, 2019
Land and improvements
$
56,571

 
$
66,670

Buildings and improvements
278,531

 
310,797

Machinery and equipment
1,163,390

 
1,204,457

Construction in progress
149,995

 
161,951

 
1,648,487

 
1,743,875

Accumulated depreciation
(738,976
)
 
(755,598
)
Property, plant and equipment, net
$
909,511

 
$
988,277


Due to the deterioration of financial results in a certain Asia Pacific location, the Company recorded an impairment charge of $977 during the three months ended March 31, 2020. The fair value was determined using estimated orderly liquidation value, which was deemed the highest and best use of the assets. Based on the Company’s interim impairment assessment, the Company has determined there were no additional indicators of impairment identified during the three months ended March 31, 2020. However, the Company continues to monitor the impacts of COVID-19 on its business and a lack of recovery of production volumes could result in an impairment charge in future periods.
9. Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill by reporting unit for the three months ended March 31, 2020 were as follows:
 
North America
 
Industrial Specialty Group
 
Total
Balance as of December 31, 2019
$
142,187

 
$

 
$
142,187

Reorganization
(14,036
)
 
14,036

 

Foreign exchange translation
(317
)
 

 
(317
)
Balance as of March 31, 2020
$
127,834

 
$
14,036

 
$
141,870


The Company’s organizational structure changed on January 1, 2020. See Note 22. “Segment Reporting” for further detail on this reorganization of the Company’s business. Prior to this reorganization, the Company’s North America operating segment was the only reporting unit in which goodwill was recorded. As a result of the reorganization, a portion of the goodwill that was previously attributable to the North America reporting unit was reallocated to the Industrial Specialty Group reporting unit based on the relative fair value approach. The Industrial Specialty Group reporting unit is a component of the Advanced Technology Group operating segment, which is reflected in “Corporate, eliminations and other”.
The reorganization of the business represented a triggering event to test goodwill for impairment as of January 1, 2020. No impairment was identified as a result of completing the goodwill impairment test.
Goodwill is tested for impairment by reporting unit annually or more frequently if events or circumstances indicate that an impairment may exist. Other than the reorganization event noted above, there were no other indicators of potential impairment during the three months ended March 31, 2020. The Company continues to monitor the significant global economic uncertainty as a result of COVID-19 to assess the outlook for demand for products and the impact on the Company’s business and overall financial performance. A lack of recovery or further deterioration in market conditions and production volumes, among other factors, as a result of the COVID-19 pandemic could result in an impairment charge in future periods.



15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

Intangible Assets
Intangible assets and accumulated amortization balances as of March 31, 2020 and December 31, 2019 were as follows:
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships
$
154,345

 
$
(116,066
)
 
$
38,279

Other
43,595

 
(7,568
)
 
36,027

Balance as of March 31, 2020
$
197,940

 
$
(123,634
)
 
$
74,306

 
 
 
 
 
 
Customer relationships
$
156,557

 
$
(113,871
)
 
$
42,686

Other
49,556

 
(7,873
)
 
41,683

Balance as of December 31, 2019
$
206,113

 
$
(121,744
)
 
$
84,369

10. Debt
A summary of outstanding debt as of March 31, 2020 and December 31, 2019 is as follows:
 
March 31, 2020
 
December 31, 2019
Senior Notes
$
395,293

 
$
395,114

Term Loan
325,455

 
326,061

ABL Facility

 

Finance leases
28,706

 
29,773

Other borrowings
57,821

 
56,680

Total debt
807,275

 
807,628

Less current portion
(62,530
)
 
(61,449
)
Total long-term debt
$
744,745

 
$
746,179


5.625% Senior Notes due 2026
In November 2016, the Company issued $400,000 aggregate principal amount of its 5.625% Senior Notes due 2026 (the “Senior Notes”). The Senior Notes mature on November 15, 2026. Interest on the Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year.
Debt issuance costs related to the Senior Notes are amortized into interest expense over the term of the Senior Notes. As of March 31, 2020 and December 31, 2019, the Company had $4,707 and $4,886 of unamortized debt issuance costs, respectively, related to the Senior Notes, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheets.
Term Loan Facility
Also in November 2016, the Company entered into Amendment No. 1 to its senior term loan facility (“Term Loan Facility”), which provides for loans in an aggregate principal amount of $340,000. Subject to certain conditions, the Term Loan Facility, without the consent of the then-existing lenders (but subject to the receipt of commitments), may be expanded (or a new term loan or revolving facility added) by an amount that will not cause the consolidated secured net debt ratio to exceed 2.25 to 1.00 plus $400,000 plus any voluntary prepayments, including the ABL Facility (as defined below) to the extent commitments are reduced, not funded from proceeds of long-term indebtedness. The Term Loan Facility matures on November 2, 2023, unless earlier terminated.
On May 2, 2017, the Company entered into Amendment No. 2 to the Term Loan Facility to modify the interest rate. Subsequently, on March 6, 2018, the Company entered into Amendment No. 3 to the Term Loan Facility to further modify the interest rate. In accordance with this amendment, borrowings under the Term Loan Facility bear interest, at the Company’s option, at either (1) with respect to Eurodollar rate loans, the greater of the applicable Eurodollar rate and 0.75% plus 2.0% 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 0.5%, 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.

16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)