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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020
or
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☐ | 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)
______________________________
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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:
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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 October 30, 2020, there were 16,896,726 shares of the registrant’s common stock, $0.001 par value, outstanding.
COOPER-STANDARD HOLDINGS INC.
Form 10-Q
For the period ended September 30, 2020
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1A. | | |
Item 2. | | |
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Item 6. | | |
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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 September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Sales | $ | 683,200 | | | $ | 739,518 | | | $ | 1,678,557 | | | $ | 2,382,211 | |
Cost of products sold | 598,714 | | | 659,313 | | | 1,611,299 | | | 2,088,631 | |
Gross profit | 84,486 | | | 80,205 | | | 67,258 | | | 293,580 | |
Selling, administration & engineering expenses | 60,059 | | | 63,020 | | | 199,001 | | | 224,164 | |
Gain on sale of business, net | (2,314) | | | 1,730 | | | (2,314) | | | (188,180) | |
| | | | | | | |
Amortization of intangibles | 1,669 | | | 4,250 | | | 9,632 | | | 13,173 | |
Restructuring charges | 6,186 | | | 5,572 | | | 23,236 | | | 29,214 | |
Impairment of assets held for sale | — | | | — | | | 86,470 | | | — | |
Other impairment charges | 100 | | | 1,958 | | | 1,240 | | | 4,146 | |
Operating profit (loss) | 18,786 | | | 3,675 | | | (250,007) | | | 211,063 | |
Interest expense, net of interest income | (17,985) | | | (10,351) | | | (40,993) | | | (33,858) | |
Equity in earnings (losses) of affiliates | 738 | | | 1,515 | | | (842) | | | 5,764 | |
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Other income (expense), net | 2,784 | | | (514) | | | (5,357) | | | (3,091) | |
Income (loss) before income taxes | 4,323 | | | (5,675) | | | (297,199) | | | 179,878 | |
Income tax (benefit) expense | (2,386) | | | 745 | | | (55,485) | | | 47,001 | |
Net income (loss) | 6,709 | | | (6,420) | | | (241,714) | | | 132,877 | |
Net (income) loss attributable to noncontrolling interests | (2,328) | | | 1,543 | | | 1,288 | | | 2,036 | |
Net income (loss) attributable to Cooper-Standard Holdings Inc. | $ | 4,381 | | | $ | (4,877) | | | $ | (240,426) | | | $ | 134,913 | |
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Earnings (loss) per share: | | | | | | | |
Basic | $ | 0.26 | | | $ | (0.29) | | | $ | (14.22) | | | $ | 7.83 | |
Diluted | $ | 0.26 | | | $ | (0.29) | | | $ | (14.22) | | | $ | 7.80 | |
The accompanying notes are an integral part of these financial statements.
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollar amounts in thousands)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net income (loss) | $ | 6,709 | | | $ | (6,420) | | | $ | (241,714) | | | $ | 132,877 | |
Other comprehensive income (loss): | | | | | | | |
Currency translation adjustment | 17,488 | | | (29,065) | | | (4,612) | | | (32,923) | |
Benefit plan liabilities adjustment, net of tax | (853) | | | 2,246 | | | 1,113 | | | 686 | |
Fair value change of derivatives, net of tax | 2,072 | | | (1,558) | | | (1,766) | | | 523 | |
Other comprehensive income (loss), net of tax | 18,707 | | | (28,377) | | | (5,265) | | | (31,714) | |
Comprehensive income (loss) | 25,416 | | | (34,797) | | | (246,979) | | | 101,163 | |
Comprehensive (income) loss attributable to noncontrolling interests | (2,970) | | | 2,358 | | | 1,063 | | | 3,107 | |
Comprehensive income (loss) attributable to Cooper-Standard Holdings Inc. | $ | 22,446 | | | $ | (32,439) | | | $ | (245,916) | | | $ | 104,270 | |
The accompanying notes are an integral part of these financial statements.
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except share amounts)
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| September 30, 2020 | | December 31, 2019 |
| (unaudited) | | |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 462,666 | | | $ | 359,536 | |
Accounts receivable, net | 389,044 | | | 423,155 | |
Tooling receivable, net | 88,364 | | | 148,175 | |
Inventories | 148,800 | | | 143,439 | |
Prepaid expenses | 31,873 | | | 34,452 | |
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Other current assets | 134,212 | | | 93,513 | |
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Total current assets | 1,254,959 | | | 1,202,270 | |
Property, plant and equipment, net | 882,476 | | | 988,277 | |
Operating lease right-of-use assets, net | 111,831 | | | 83,376 | |
Goodwill | 142,079 | | | 142,187 | |
Intangible assets, net | 69,690 | | | 84,369 | |
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Other assets | 176,956 | | | 135,103 | |
Total assets | $ | 2,637,991 | | | $ | 2,635,582 | |
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Liabilities and Equity | | | |
Current liabilities: | | | |
Debt payable within one year | $ | 54,294 | | | $ | 61,449 | |
Accounts payable | 372,845 | | | 426,055 | |
Payroll liabilities | 124,558 | | | 88,486 | |
Accrued liabilities | 106,847 | | | 119,841 | |
Current operating lease liabilities | 21,492 | | | 24,094 | |
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Total current liabilities | 680,036 | | | 719,925 | |
Long-term debt | 982,659 | | | 746,179 | |
Pension benefits | 140,573 | | | 140,010 | |
Postretirement benefits other than pensions | 44,690 | | | 48,313 | |
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Long-term operating lease liabilities | 91,782 | | | 60,234 | |
Other liabilities | 66,916 | | | 44,939 | |
Total liabilities | 2,006,656 | | | 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; 18,962,262 shares issued and 16,896,453 shares outstanding as of September 30, 2020, and 18,908,566 shares issued and 16,842,757 outstanding as of December 31, 2019 | 17 | | | 17 | |
Additional paid-in capital | 496,468 | | | 490,451 | |
Retained earnings | 377,449 | | | 619,448 | |
Accumulated other comprehensive loss | (259,231) | | | (253,741) | |
Total Cooper-Standard Holdings Inc. equity | 614,703 | | | 856,175 | |
Noncontrolling interests | 16,632 | | | 19,807 | |
Total equity | 631,335 | | | 875,982 | |
Total liabilities and equity | $ | 2,637,991 | | | $ | 2,635,582 | |
The accompanying notes are an integral part of these financial statements.
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(Dollar amounts in thousands except share amounts)
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| 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) | |
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Share-based compensation, net | 41,785 | | | — | | | 1,874 | | | — | | | — | | | 1,874 | | | — | | | 1,874 | |
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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 | |
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Share-based compensation, net | 9,548 | | | — | | | 2,303 | | | — | | | — | | | 2,303 | | | — | | | 2,303 | |
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Net loss | — | | | — | | | — | | | (134,219) | | | — | | | (134,219) | | | (1,765) | | | (135,984) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 12,221 | | | 12,221 | | | 90 | | | 12,311 | |
Balance as of June 30, 2020 | 16,894,090 | | | $ | 17 | | | $ | 494,628 | | | $ | 373,068 | | | $ | (277,296) | | | $ | 590,417 | | | $ | 15,774 | | | $ | 606,191 | |
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Share-based compensation, net | 2,363 | | | — | | | 1,840 | | | — | | | — | | | 1,840 | | | — | | | 1,840 | |
Deconsolidation of noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | (2,112) | | | (2,112) | |
Net income | — | | | — | | | — | | | 4,381 | | | — | | | 4,381 | | | 2,328 | | | 6,709 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 18,065 | | | 18,065 | | | 642 | | | 18,707 | |
Balance as of September 30, 2020 | 16,896,453 | | | $ | 17 | | | $ | 496,468 | | | $ | 377,449 | | | $ | (259,231) | | | $ | 614,703 | | | $ | 16,632 | | | $ | 631,335 | |
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| | 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 | |
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Repurchase of common stock | | (626,305) | | | — | | | (20,486) | | | (9,514) | | | — | | | (30,000) | | | — | | | (30,000) | |
Share-based compensation, net | | 5,738 | | | — | | | 3,522 | | | 1 | | | — | | | 3,523 | | | — | | | 3,523 | |
Purchase of noncontrolling interest | | — | | | — | | | 1,298 | | | — | | | — | | | 1,298 | | | (6,057) | | | (4,759) | |
Dividends declared to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (233) | | | (233) | |
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Net income (loss) | | — | | | — | | | — | | | 145,205 | | | — | | | 145,205 | | | (545) | | | 144,660 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (7,320) | | | (7,320) | | | (627) | | | (7,947) | |
Balance as of June 30, 2019 | | 16,901,333 | | | $ | 17 | | | $ | 483,792 | | | $ | 692,791 | | | $ | (249,018) | | | $ | 927,582 | | | $ | 21,742 | | | $ | 949,324 | |
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Repurchase of common stock | | (72,875) | | | — | | | 1,084 | | | (1,084) | | | — | | | — | | | — | | | — | |
Share-based compensation, net | | 10,266 | | | — | | | 3,986 | | | 4 | | | — | | | 3,990 | | | — | | | 3,990 | |
Contribution from noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | 1,686 | | | 1,686 | |
Net loss | | — | | | — | | | — | | | (4,877) | | | — | | | (4,877) | | | (1,543) | | | (6,420) | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (27,562) | | | (27,562) | | | (815) | | | (28,377) | |
Balance as of September 30, 2019 | | 16,838,724 | | | $ | 17 | | | $ | 488,862 | | | $ | 686,834 | | | $ | (276,580) | | | $ | 899,133 | | | $ | 21,070 | | | $ | 920,203 | |
The accompanying notes are an integral part of these financial statements.
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
Operating Activities: | | | |
Net (loss) income | $ | (241,714) | | | $ | 132,877 | |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | | |
Depreciation | 107,095 | | | 98,795 | |
Amortization of intangibles | 9,632 | | | 13,173 | |
Gain on sale of business, net | (2,314) | | | (188,180) | |
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Impairment of assets held for sale | 86,470 | | | — | |
Other impairment charges | 1,240 | | | 4,146 | |
Share-based compensation expense | 6,977 | | | 10,293 | |
Equity in earnings of affiliates, net of dividends related to earnings | 6,087 | | | (847) | |
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Deferred income taxes | (32,308) | | | 20,581 | |
Other | 4,354 | | | 2,628 | |
Changes in operating assets and liabilities | 27,949 | | | (63,559) | |
Net cash (used in) provided by operating activities | (26,532) | | | 29,907 | |
Investing activities: | | | |
Capital expenditures | (73,407) | | | (131,085) | |
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Acquisition of businesses, net of cash acquired | — | | | (452) | |
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Proceeds from sale of business, net of cash divested | (17,006) | | | 243,362 | |
Proceeds from sale of fixed assets and other | 963 | | | 2,084 | |
Net cash (used in) provided by investing activities | (89,450) | | | 113,909 | |
Financing activities: | | | |
Proceeds from issuance of long-term debt, net of discount
| 245,000 | | | — | |
Principal payments on long-term debt | (4,792) | | | (3,556) | |
Decrease in short-term debt, net | (6,897) | | | (32,737) | |
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Debt issuance costs | (6,722) | | | — | |
Purchase of noncontrolling interests | — | | | (4,797) | |
Repurchase of common stock | — | | | (36,550) | |
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Taxes withheld and paid on employees' share-based payment awards | (533) | | | (2,757) | |
Other | (925) | | | 2,132 | |
Net cash provided by (used in) financing activities | 225,131 | | | (78,265) | |
Effects of exchange rate changes on cash, cash equivalents and restricted cash | (5,718) | | | (6,997) | |
Changes in cash, cash equivalents and restricted cash | 103,431 | | | 58,554 | |
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Cash, cash equivalents and restricted cash at beginning of period | 361,742 | | | 267,399 | |
Cash, cash equivalents and restricted cash at end of period | $ | 465,173 | | | $ | 325,953 | |
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Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet: |
| Balance as of |
| September 30, 2020 | | December 31, 2019 |
Cash and cash equivalents | $ | 462,666 | | | $ | 359,536 | |
Restricted cash included in other current assets | 11 | | | 12 | |
Restricted cash included in other assets | 2,496 | | | 2,194 | |
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 465,173 | | | $ | 361,742 | |
The accompanying notes are an integral part of these financial statements.
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 September 30, 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:
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| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
| As previously reported | | Adjustment | | As corrected | | As previously reported | | Adjustment | | As corrected |
Sales | $ | 729,021 | | | $ | 10,497 | | | $ | 739,518 | | | $ | 2,373,865 | | | $ | 8,346 | | | $ | 2,382,211 | |
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Income tax expense (benefit) | (574) | | | 1,319 | | | 745 | | | 45,996 | | | 1,005 | | | 47,001 | |
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Net loss attributable to noncontrolling interests | 1,745 | | | (202) | | | 1,543 | | | 2,447 | | | (411) | | | 2,036 | |
Net income (loss) attributable to Cooper-Standard Holdings Inc. | (13,853) | | | 8,976 | | | (4,877) | | | 127,983 | | | 6,930 | | | 134,913 | |
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Earnings (loss) per share: | | | | | | | | | | | |
Basic | $ | (0.82) | | | $ | 0.53 | | | $ | (0.29) | | | $ | 7.42 | | | $ | 0.41 | | | $ | 7.83 | |
Diluted | $ | (0.82) | | | $ | 0.53 | | | $ | (0.29) | | | $ | 7.40 | | | $ | 0.40 | | | $ | 7.80 | |
The following table presents the impact of these corrections on the Company’s condensed consolidated statements of comprehensive income (loss):
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| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
| As previously reported | | Adjustment | | As corrected | | As previously reported | | Adjustment | | As corrected |
| | | | | | | | | | | |
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Currency translation adjustment | $ | (29,513) | | | $ | 448 | | | $ | (29,065) | | | $ | (33,407) | | | $ | 484 | | | $ | (32,923) | |
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Comprehensive loss attributable to noncontrolling interests | 2,606 | | | (248) | | | 2,358 | | | 3,558 | | | (451) | | | 3,107 | |
Comprehensive income (loss) attributable to Cooper-Standard Holdings Inc. | (41,817) | | | 9,378 | | | (32,439) | | | 96,896 | | | 7,374 | | | 104,270 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
The impact of these corrections on the balance as of September 30, 2019 in the Company’s condensed consolidated statements of changes in equity includes a decrease to total equity of $202, which consists of an increase to retained earnings of $120, a decrease to accumulated other comprehensive loss of $595, and a decrease to noncontrolling interests of $917.
For the nine months ended September 30, 2019, the impact of these corrections on the condensed consolidated statements of cash flows included a $7,341 increase in net income, a $1,005 increase in deferred income taxes, and a $8,346 decrease in changes in operating assets and liabilities, resulting in no impact to net cash provided by operating activities.
2. New Accounting Pronouncements
Recently Issued 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 considered the issued accounting pronouncement summarized as follows, which will have an immaterial impact on its consolidated financial statements:
| | | | | | | | | | | |
Standard | Description | Impact | Effective Date |
ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans
| Modifies the disclosure requirements for ASC Topic 715 by removing and modifying existing disclosure requirements while also adding new disclosures.
| The Company expects this standard will primarily result in additional pension disclosures while also removing certain other disclosures. Specifically, the weighted-average interest crediting rate for the cash balance plan and, if needed, an explanation for significant gains and losses related to changes in the benefit obligation for the period will be added while accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the effects of a one-percentage-point change in the assumed health care cost trend rate will be removed. | January 1, 2021 |
3. Divestitures
2020 Divestiture
In the fourth quarter of 2019, management approved a plan to sell its European rubber fluid transfer and specialty sealing businesses, as well as its Indian operations. The entities and the associated assets and liabilities met the criteria for presentation as held for sale as of March 31, 2020, and depreciation of long-lived assets ceased. The divestiture did not meet the criteria for presentation as a discontinued operation.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
Upon meeting the criteria for held for sale classification, the Company recorded non-cash impairment charges of $86,470 during the six months ended June 30, 2020 to reduce the carrying value of the held for sale entities to fair value less costs to sell. Fair value, which is categorized within Level 3 of the fair value hierarchy, was determined using a market approach, estimated based on expected proceeds. The fair value less costs to sell were assessed each reporting period that the asset group remained classified as held for sale. The difference between the impairment of the carrying value on the divested assets compared to the impairment recorded in the statements of operations is due to foreign currency translation offset by costs to sell incurred in the second quarter. The impairment charge includes the non-cash cumulative foreign currency translation losses recorded in equity related to the divested entities.
On July 1, 2020, the Company completed the divestiture of its European rubber fluid transfer and specialty sealing businesses, as well as its Indian operations, to Mutares SE & Co. KGaA (“Mutares”). The transaction included payment denominated in Euro of €9,000, which consisted of €6,500 in cash paid and €2,500 in deferred payment obligations, payable in December 2021.
Upon finalizing the sale, the Company recorded a loss on deconsolidation of the businesses of $167. In addition, at closing, the Company and Mutares entered into certain ancillary agreements providing for the transition of the European rubber fluid transfer and specialty sealing businesses and Indian operations.
The major classes of assets and liabilities divested were as follows:
| | | | | |
| July 1, 2020 |
Cash and cash equivalents | $ | 11,162 | |
Accounts receivable, net | 18,825 | |
Tooling receivable, net | 4,770 | |
Inventories | 17,022 | |
Prepaid expenses | 2,728 | |
Other current assets | 8,873 | |
Property, plant and equipment, net | 39,913 | |
Operating lease right-of-use assets, net | 2,946 | |
Intangible assets, net | 4,992 | |
Other assets | 4,114 | |
Impairment of carrying value | (85,622) | |
Total assets divested | $ | 29,723 | |
| |
Accounts payable | $ | 13,219 | |
Payroll liabilities | 7,135 | |
Accrued liabilities | 5,744 | |
Current operating lease liabilities | 918 | |
Pension benefits | 3,574 | |
Postretirement benefits other than pensions | 2,778 | |
Long-term operating lease liabilities | 2,286 | |
Other liabilities | 1,934 | |
Total liabilities divested | $ | 37,588 | |
2020 Joint Venture Deconsolidation
In the third quarter of 2020, management approved and completed a plan to sell the Company’s entire controlling equity interest of a joint venture in the Asia Pacific region. Upon finalizing the sale, the Company recorded a gain on deconsolidation of the business of $1,334.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
2019 Divestiture
During the first quarter of 2019 and in prior periods, the Company also operated an AVS product line. On April 1, 2019, the Company completed its sale of the AVS product line to Continental AG. The total sale price of the transaction was $265,500, subject to certain adjustments. Cash proceeds received in the second quarter of 2019 were $243,362 after adjusting for certain liabilities assumed by the purchaser. The Company recognized a gain on the divestiture of $188,180 during the nine months ended September 30, 2019. In the third quarter of 2020, the Company finalized adjustments to the gain recorded in 2019 by recording an additional gain on divestiture of $1,147, primarily due to working capital adjustments.
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 September 30, 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe | | Asia Pacific | | South America | | Corporate, Eliminations and Other | | Consolidated |
Passenger and Light Duty | $ | 350,016 | | | $ | 141,754 | | | $ | 129,822 | | | $ | 17,558 | | | $ | — | | | $ | 639,150 | |
Commercial | 3,179 | | | 4,066 | | | 1,190 | | | 6 | | | 911 | | | 9,352 | |
Other | |