Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-123708

 

 

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.)

39550 Orchard Hill Place Drive

Novi, Michigan 48375

(Address of principal executive offices)

(Zip Code)

(248) 596-5900

(Registrant’s telephone number, including area code)

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Number of shares of common stock of registrant outstanding, at November 6, 2009:

3,482,612 shares of common stock, $0.01 par value

 

 

 


PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(Dollar amounts in thousands)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2008     2009     2008     2009  

Sales

   $ 599,656      $ 517,842      $ 2,121,316      $ 1,367,656   

Cost of products sold

     537,172        435,775        1,821,724        1,192,470   
                                

Gross profit

     62,484        82,067        299,592        175,186   

Selling, administration, & engineering expenses

     51,336        52,658        187,768        146,233   

Amortization of intangibles

     7,758        194        23,519        14,783   

Impairment charges

     —          —          —          362,699   

Restructuring

     13,477        4,378        17,115        32,871   
                                

Operating profit (loss)

     (10,087     24,837        71,190        (381,400

Interest expense, net of interest income

     (23,677     (11,914     (71,275     (53,632

Equity earnings

     370        1,228        4,574        1,701   

Reorganization items, net

     —          (5,642     —          (5,642

Other income (expense)

     (409     5,930        2,553        13,679   
                                

Income (loss) before income taxes

     (33,803     14,439        7,042        (425,294

Provision (benefit) for income tax expense

     (995     3,773        12,743        (31,339
                                

Consolidated net income (loss)

     (32,808     10,666        (5,701     (393,955

Add: Net loss attributable to noncontrolling interests

     213        181        365        496   
                                

Net income (loss) attributable to Cooper-Standard Holdings Inc.

   $ (32,595   $ 10,847      $ (5,336   $ (393,459
                                

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

 

2


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

 

     December 31,
2008
    September 30,
2009
 
           (Unaudited)  
Assets     

Current assets:

    

Cash and cash equivalents

   $ 111,521      $ 253,655   

Accounts receivable, net

     352,052        438,361   

Inventories, net

     116,952        114,174   

Prepaid expenses

     19,162        23,361   

Other

     23,867        24,636   
                

Total current assets

     623,554        854,187   

Property, plant, and equipment, net

     623,987        599,028   

Goodwill

     244,961        87,728   

Intangibles, net

     227,453        10,497   

Other assets

     98,296        99,793   
                
   $ 1,818,251      $ 1,651,233   
                
Liabilities and Equity (Deficit)     

Current liabilities:

    

Debt payable within one year

   $ 94,136      $ 16,978   

Debtor-in-possession financing

     —          124,687   

Accounts payable

     192,948        157,363   

Payroll liabilities

     69,601        75,880   

Accrued liabilities

     94,980        80,351   
                

Total current liabilities

     451,665        455,259   

Long-term debt

     1,049,959        12,349   

Pension benefits

     161,625        150,428   

Postretirement benefits other than pensions

     76,822        80,656   

Deferred tax liabilities

     28,265        11,329   

Other long-term liabilities

     30,253        20,332   

Liabilities subject to compromise

     —          1,262,296   
                

Total liabilities

     1,798,589        1,992,649   

Stockholders’ equity (deficit):

    

Common stock, $0.01 par value, 4,000,000 shares authorized at December 31, 2008 and September 30, 2009, 3,479,100 shares issued and outstanding at December 31, 2008, 3,482,612 shares issued and outstanding at September 30, 2009

     35        35   

Additional paid-in capital

     354,894        356,006   

Accumulated deficit

     (280,216     (673,675

Accumulated other comprehensive loss

     (59,536     (27,807
                

Total Cooper-Standard Holdings Inc. stockholders’ equity (deficit)

     15,177        (345,441

Noncontrolling interests

     4,485        4,025   
                

Total equity (deficit)

     19,662        (341,416
                

Total liabilities and equity (deficit)

   $ 1,818,251      $ 1,651,233   
                

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

 

3


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Dollar amounts in thousands)

 

     Nine Months Ended
September 30,
 
     2008     2009  

Operating Activities:

    

Consolidated net loss

   $ (5,701   $ (393,955

Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities:

    

Depreciation

     82,686        73,343   

Amortization of intangibles

     23,519        14,783   

Impairment charges

     —          362,699   

Reorganization items

     —          5,642   

Non-cash restructuring charges

     3,690        182   

Gain on bond repurchase

     (1,696     (9,096

Amortization of debt issuance cost

     3,646        5,407   

Changes in operating assets and liabilities

     (22,680     (28,776
                

Net cash provided by operating activities

     83,464        30,229   

Investing activities:

    

Property, plant, and equipment

     (66,836     (25,526

Acquisition of business, net of cash acquired

     4,937        —     

Gross proceeds from sale-leaseback transaction

     8,556        —     

Other

     4,368        308   
                

Net cash used in investing activities

     (48,975     (25,218

Financing activities:

    

Proceeds from issuance of debtor-in-possession financing, net of debt issuance cost

     —          108,012   

Payments on debtor-in-possession financing

     —          (313

Increase (decrease) in short term debt, net

     (18,584     22,943   

Principal payments on long-term debt

     (13,616     (11,310

Repurchase of common stock

     (540     —     

Repurchase of bonds

     (5,306     (737

Other

     (373     259   
                

Net cash (used in) provided by financing activities

     (38,419     118,854   

Effects of exchange rate changes on cash

     (3,064     18,269   
                

Changes in cash and cash equivalents

     (6,994     142,134   

Cash and cash equivalents at beginning of period

     40,877        111,521   
                

Cash and cash equivalents at end of period

   $ 33,883      $ 253,655   
                

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

 

4


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share amounts)

1. Overview

Description of business

Cooper-Standard Holdings Inc. (the “Company”), through its wholly-owned subsidiary Cooper-Standard Automotive Inc., is a leading global manufacturer of fluid handling, body sealing, and noise, vibration and harshness control (“NVH”) components, systems, subsystems, and modules primarily for use in passenger vehicles and light trucks for global original equipment manufacturers (“OEMs”) and replacement markets. The Company conducts substantially all of its activities through its subsidiaries.

Bankruptcy filings

On August 3, 2009, the Company, and each of its direct and indirect wholly-owned U.S. subsidiaries (collectively with the Company, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Debtors’ Chapter 11 Cases (the “Chapter 11 Cases”) are being jointly administered under Case No. 09-12743(PJW). The Debtors continue to operate their businesses and manage their properties as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

On August 4, 2009, the Company’s Canadian subsidiary, Cooper-Standard Automotive Canada Limited, a corporation incorporated under the laws of Ontario (the “Canadian Debtor”), commenced proceedings (the “Canadian Proceedings”) seeking relief from its creditors under Canada’s Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice in Toronto, Canada (Commercial List) (the “Canadian Court”), court file no. 09-8307-00CL. The Company’s subsidiaries and operations outside the United States are not included in the Chapter 11 Cases or the Canadian Proceedings (other than the Canadian Debtor) and continue to operate in the ordinary course of business. See Note 2, Reorganization Under Chapter 11 of the Bankruptcy Code, for additional information on the Chapter 11 Cases, the Canadian Proceedings and related matters.

American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (Accounting Standards Codification (“ASC”) Topic 852-10), which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Amounts that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the statements of operations beginning in the quarter ending September 30, 2009. The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a chapter 11 plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by reorganization items must be disclosed separately in the statement of cash flows. The Company applied ASC Topic 852-10 effective on August 3, 2009 and will segregate those items as outlined above for all reporting periods subsequent to such date.

 

5


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

Change in operating structure and reporting segments

On March 26, 2009, the Company announced the implementation of a comprehensive plan involving the discontinuation of its global product line operating divisions, formerly called the Body & Chassis Systems division (which included the body sealing and NVH product lines) and the Fluid Systems division, and the establishment of a new operating structure organized on the basis of geographic regions. The Company now operates from two divisions, North America and International (covering Europe, South America and Asia Pacific). The Company’s reporting segments have changed, as of April 1, 2009, to reflect the new operating structure of the Company. Certain prior period amounts have been restated to conform to the current period financial statement presentation.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“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 fiscal year ended December 31, 2008, 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 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, 2009 are not necessarily indicative of results for the full year.

Effective January 1, 2009 the Company implemented the Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” ASC Topic 810-10-65 establishes accounting and reporting standards for noncontrolling interests in subsidiaries. This statement requires the reporting of all noncontrolling interests as a separate component of equity, the reporting of consolidated net income (loss) as the amount attributable to both the parent and the noncontrolling interests and the separate disclosure of net income (loss) attributable to the parent and to the noncontrolling interests. In addition, this statement provides accounting and reporting guidance related to changes in noncontrolling ownership interests. Upon adoption, certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on our previously reported results of operations. Refer to Note 10, Comprehensive Income (Loss) and Equity (Deficit) and Note 11, Other Income (Expense) for additional information on the adoption of ASC Topic 810-10-65.

Recent accounting pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) approved the “FASB Accounting Standards Codification” (“the Codification” or “ASC”) as the single source of authoritative nongovernmental U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the Codification will be considered nonauthoritative. The Codification is effective for interim and annual periods ending after September 15, 2009. The adoption of the Codification changed the Company’s references to U.S. GAAP accounting standards but did not impact the Company’s results of operating financial position or liquidity.

In May 2009, FASB issued SFAS No. 165, “Subsequent Events” (ASC Topic 855), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC Topic 855 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. ASC Topic 855 is effective for interim and annual periods ending after June 15, 2009. The Company adopted this statement effective June 30, 2009. See Note 18, Subsequent Events for additional information.

 

6


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

In April, 2009, FASB issued FASB Staff Position (“FSP”) No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (ASC Topic 820-10-65). This FSP amends SFAS No. 157 (ASC Topic 820) to provide additional guidance on disclosure requirements and estimating fair value when the volume and level of activity for the asset or liability have significantly decreased in relation to normal market activity. This FSP requires interim disclosure of the inputs and valuation techniques used to measure fair value. The provisions of this FSP are effective for interim and annual reporting periods ending after June 15, 2009. The effects of adoption were not significant.

In April 2009, FASB issued FSP No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (ASC Topic 320-10-65). This FSP extends the disclosure requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” (ASC Topic 320) to interim reporting periods. The provisions of this FSP are effective for interim and annual reporting periods ending after June 15, 2009. The effects of adoption were not significant. See Note 15, Financial Instruments, for additional disclosures related to the fair value of the Company’s pre-petition primary credit facility and senior notes.

In August 2009, FASB issued ASU No. 2009-05 which amends Fair Value Measurements and Disclosures – Overall (ASC Topic 820-10) to provide guidance on the fair value measurement of liabilities. This update requires clarification for circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: 1) a valuation technique that uses either the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as an asset; or 2) another valuation technique that is consistent with the principles in ASC Topic 820 such as the income and market approach to valuation. The amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. This update further clarifies that if the fair value of a liability is determined by reference to a quoted price in an active market for an identical liability, that price would be considered a Level 1 measurement in the fair value hierarchy. Similarly, if the identical liability has a quoted price when traded as an asset in an active market, it is also a Level 1 fair value measurement if no adjustments to the quoted price of the asset are required. This update is effective for the fourth quarter 2009.

In December 2008, FASB issued FSP No. 132(R)-1, “ Employers’ Disclosures about Postretirement Benefit Plan Assets” (ASC Topic 715-20-65). This guidance will expand disclosure by requiring the following new disclosures: 1) how investment allocation decisions are made by management; 2) major categories of plan assets; and 3) significant concentrations of risk. Additionally, ASC 715-20-65 will require an employer to disclose information about the valuation of plan assets similar to that required in ASC Topic 820 Fair Value Measurements and Disclosures. This guidance is effective for fiscal year ending December 31, 2009. The principal impact will be expanded disclosure regarding the Company’s benefit plan assets.

In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities-an Amendment of FASB Statement No. 133” (ASC Topic 815). ASC Topic 815 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit risk related contingent features contained within derivatives. ASC Topic 815 also requires entities to disclose additional information about the amounts and locations of derivatives located within the financial statements, how the provisions of SFAS No. 133 have been applied and the impact that hedges have on an entity’s financial position, financial performance, and cash flows. ASC Topic 815 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company adopted this statement as of January 1, 2009.

 

7


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

In December 2007, FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (ASC Topic 805). This statement significantly changes the financial accounting and reporting of business combination transactions. The provisions of this statement are to be applied prospectively to business combination transactions entered into by the Company on or after January 1, 2009.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements’ (ASC Topic 820). ASC Topic 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement. This statement applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The Company adopted ASC Topic 820 as of January 1, 2008 except for non-financial assets and liabilities recognized or disclosed at fair value on a non-recurring basis, for which the effective date was fiscal years beginning after November 15, 2008. See Note 15, Financial Instruments, for additional discussion of ASC Topic 820.

Goodwill

Goodwill is not amortized but is tested annually for impairment or when events or circumstances indicate that impairment may exist by reporting unit which are determined in accordance with ASC Topic 350 “Goodwill and Other Intangible Assets”. The Company utilizes an income approach to estimate the fair value of each of its reporting units. The income approach is based on projected debt-free cash flow which is discounted to the present value using discount factors that consider the timing and risk of cash flows. The Company believes that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. This approach also mitigates the impact of cyclical trends that occur in the industry. Fair value is estimated using recent automotive industry and specific platform production volume projections, which are based on both third-party and internally-developed forecasts, as well as commercial, wage and benefit, inflation and discount rate assumptions. Other significant assumptions include the weighted average cost of capital, terminal value growth rate, terminal value margin rates, future capital expenditures and changes in future working capital requirements. While there are inherent uncertainties related to the assumptions used and to management’s application of these assumptions to this analysis, the Company believes that the income approach provides a reasonable estimate of the fair value of its reporting units. The Company conducts its annual goodwill impairment analysis as of October 1st of each fiscal year. Refer to Note 4, Goodwill and Intangibles, for details on goodwill.

Long-lived assets

The Company evaluates the recoverability of long-lived assets when events and circumstances indicate that the assets may be impaired and the undiscounted net cash flows estimated to be generated by those assets are less than their carrying value. If the net carrying value exceeds the fair value, an impairment loss exists and is calculated based on a discounted cash flow analysis or estimated salvage value. Discounted cash flows are estimated using internal budgets and assumptions regarding discount rates and other factors. During the second quarter of 2009, the Company determined that impairment indicators existed at certain operating locations and that it was necessary to evaluate the recoverability of its long-lived assets. It was determined that fixed assets of three of these operating locations were impaired. As a result, impairment charges and a reduction to Property, Plant & Equipment of $488 was recorded in our North America segment and $2,540 was recorded in our International segment. Refer to Note 4, Goodwill and Intangibles for details on the intangible assets.

 

8


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

2. Reorganization Under Chapter 11 of the Bankruptcy Code

On August 3, 2009, the Debtors filed voluntary petitions for relief under Chapter 11 of Title 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors’ Chapter 11 Cases are being jointly administered under Case No. 09-12743(PJW). On August 14, 2009, the Official Committee of Unsecured Creditors was appointed in the Chapter 11 Cases. The Debtors continue to operate their businesses and manage their properties as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

On August 4, 2009, the Canadian Debtor, commenced the Canadian Proceedings seeking relief from its creditors under Canada’s Companies’ Creditors Arrangement Act in the Canadian Court, court file no. 09-8307-00CL. The Canadian court granted the Canadian debtors a stay of any Canadian proceedings up to and including January 15, 2010, to allow the Debtors to pursue confirmation of a plan of reorganization in the U.S. proceedings. The Company (and its legal counsel) believe the Canadian court will continue to issue this stay through completion of the Chapter 11 proceedings. The Company’s subsidiaries and operations outside the United States and Canada are not included in the Chapter 11 Cases or the Canadian Proceedings (other than the Canadian Debtor) and continue to operate in the ordinary course of business.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon its ability to comply with the financial and other covenants contained in the DIP Credit Agreement (as defined in Note 7, Debt) and the Bankruptcy Court’s approval of the Company’s chapter 11 plan of reorganization, among other things. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession under Chapter 11, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the DIP Credit Agreement), in amounts other than those reflected in the accompanying condensed consolidated financial statements. Further, a chapter 11 plan of reorganization could materially change the amounts and classifications in the historical condensed consolidated financial statements. The accompanying condensed consolidated financial statements do not include any direct adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases.

On October 2, 2009, the Debtors filed their schedules of assets and liabilities (the “Schedules”) and statements of financial affairs with the Bankruptcy Court. On October 27, 2009, the Bankruptcy Court entered an order establishing December 4, 2009 as the deadline (the “General Bar Date”) for all entities, other than governmental agencies, to file proofs of claim against the Debtors stating the amounts to which the claimants contend that they are entitled, subject to the rights of the Debtors to contest both the validity and amount of the claims. The Bankruptcy Court also set February 1, 2010 as the deadline for governmental entities to file their proofs of claim (the “Governmental Bar Date” and, together with the General Bar Date, the “Bar Dates”). The Debtors will continue to evaluate all claims asserted in the Chapter 11 Cases and may file periodic motions seeking to modify, reject, liquidate or allow such claims.

In addition, under the priority scheme established by the Bankruptcy Code, generally, post-petition liabilities and secured claims must be satisfied before pre-petition unsecured creditors and interest holders can receive any distribution or retain any property under a chapter 11 plan of reorganization. The ultimate recovery, if any, to the holders of the Notes and other interest holders will not be determined until confirmation of a chapter 11 plan or plans of reorganization. No assurance can be given as to what values, if any,

 

9


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

will be ascribed in the Chapter 11 Cases to each of these constituencies or what types or amounts of distributions, if any, they would receive. A chapter 11 plan of reorganization could result in holders of the Company’s Notes receiving no distribution on account of their claims and cancellation of their existing Notes. If certain requirements of the Bankruptcy Code are met, a chapter 11 plan of reorganization can be confirmed notwithstanding its rejection by such holders and notwithstanding the fact that such holders do not receive or retain any property on account of their interests under the chapter 11 plan. Accordingly, the Company urges that the appropriate caution be exercised with respect to existing and future investments in the Company’s securities as the value and prospects are highly speculative.

Under the Bankruptcy Code, the exclusive period in which the Debtors may file a chapter 11 plan or plans of reorganization is 120-days from the date of the filing of the petition. The exclusive period in which the Debtors may solicit acceptances for any chapter 11 plan or plans of reorganization is 180-days from the date of the filing of the petition. The Bankruptcy Code also provides that the Bankruptcy Court may extend the 120-day plan exclusivity period up to 18 months after the petition date and the 180-day solicitation exclusivity period up to 20 months after the petition date. The Debtors’ 120-day exclusive period to file a chapter 11 plan or plans of reorganization expires on December 1, 2009. The Debtors’ 180-day exclusive period to solicit any plan or plans expires on February 1, 2010. If the Debtors’ exclusivity periods expire, other parties in interest will be allowed to file their own plans and solicit acceptances in connection therewith. The Debtors have filed a motion seeking to extend both the plan exclusivity period and the solicitation exclusivity period by an additional 120 days, which is currently pending before the Bankruptcy Court.

Under the supervision of the Bankruptcy Court, the Company may decide to pursue various strategic alternatives as deemed appropriate by our Board of Directors to serve the best interests of the Company and its stakeholders, including asset sales or strategic partnerships.

DIP Credit Agreement

In August 2009, the Bankruptcy Court approved the Company’s debtor-in-possession financing. This facility provides funding to continue the Company’s operations without disruption and meet their obligations to suppliers, customers and employees during the Chapter 11 reorganization process. See Note 7, Debt, for additional information.

Liabilities Subject to Compromise

The majority of the Debtors’ pre-petition debt is in default and is classified as “Liabilities Subject to Compromise” in the accompanying condensed consolidated balance sheet at September 30, 2009.

 

10


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

In addition to the Debtors pre-petition debt which is in default, liabilities subject to compromise reflects the Debtors other liabilities incurred prior to the commencement of the bankruptcy proceedings. These amounts represent the Company’s estimate of known or potential pre-petition claims to be resolved in connection with the bankruptcy proceedings. Such claims remain subject to future adjustments. Future adjustments may result from: (i) negotiations; (ii) actions of the Bankruptcy Court; (iii) further developments with respect to disputed claims; (iv) rejection of executory contracts and leases; (v) the determination of value of any collateral securing claims; (vi) proofs of claims; or (vii) other events. Payment terms for these claims will be established in connection with a plan of reorganization. The Debtors liabilities subject to compromise consist of the following:

 

     September 30,
2009

Pre-petition debt (including accrued interest of $27,092)

   $ 1,138,562

Accounts payable

     15,756

Pension and deferred compensation

     16,872

Derivatives

     18,089

Other

     73,017
      

Debtor liabilities subject to compromise

   $ 1,262,296
      

Effective August 3, 2009, the Company ceased recording interest expense on outstanding pre-petition debt instruments classified as liabilities subject to compromise. An additional $11,973 of interest expense would have been recorded from August 3, 2009 to September 30, 2009 if the Company had continued to accrue interest on these instruments.

Reorganization Items

ASC Topic 852-10 requires reorganization items such as revenues, expenses such as professional fees directly related to the process of reorganizing the Debtors under chapter 11, realized gains and losses, provisions for losses, and interest income resulting from the reorganization and restructuring of the business to be separately disclosed. The Debtors’ reorganization items consist of the following:

 

     (Income)/Expense
     Three Months Ended
September 30, 2009

Professional fees directly related to reorganization

   $ 5,642
      

Total reorganization items

   $ 5,642
      

3. Debtor-in-Possession Financial Statements

The financial statements contained within this note represent the condensed combined financial statements for the Debtors’ and Canadian Debtor only. The Company’s non-Debtor subsidiaries are treated as non-consolidated affiliates in these financial statements and as such their net income is included as “Equity income (loss) from non-Debtor affiliates, net of tax” in the statement of operations and their assets are included as “Investments in non-Debtor affiliates” in the balance sheet. The Debtors’ and Canadian Debtor financial statements contained herein have been prepared in accordance with the guidance in ASC Topic 852-10.

 

11


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

DEBTOR-IN-POSSESSION CONDENSED COMBINED

STATEMENTS OF OPERATIONS

 

     Three Months Ended
September 30,
2009
    Nine Months Ended
September 30,
2009
 

Sales

   $ 242,720      $ 610,007   

Cost of products sold

     195,431        530,682   
                

Gross profit

     47,289        79,325   

Selling, administration, & engineering expenses

     25,843        67,786   

Amortization of intangibles

     104        10,986   

Impairment charges

     —          242,212   

Restructuring

     (1,784     9,653   
                

Operating profit (loss)

     23,126        (251,312

Interest expense, net of interest income

     (9,526     (45,706

Equity earnings (losses)

     548        (7

Reorganization items, net

     (5,642     (5,642

Other income

     9,170        20,348   
                

Income (loss) before income taxes

     17,676        (282,319

Provision (benefit) for income tax expense

     20,662        (16,774

Equity income (loss) from non-Debtor affiliates, net of tax

     13,833        (127,914
                

Consolidated net income (loss)

     10,847        (393,459

Add: Net loss attributable to noncontrolling interests

     —          —     
                

Net income (loss) attributable to Debtors

   $ 10,847      $ (393,459
                

 

12


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

DEBTOR-IN-POSSESSION CONDENSED COMBINED

BALANCE SHEET

 

     September 30,
2009
 
     (Unaudited)  
Assets   

Current assets:

  

Cash and cash equivalents

   $ 166,679   

Accounts receivable, net

     182,694   

Inventories, net

     48,880   

Prepaid expenses

     4,418   

Receivable from non-Debtor affiliates, net

     15,239   

Other

     24,555   
        

Total current assets

     442,465   

Property, plant, and equipment, net

     224,705   

Goodwill

     87,728   

Investment in non-Debtor affiliates

     261,431   

Intangibles, net

     1,785   

Notes receivable from non-Debtor affiliates, net

     262,087   

Other assets

     40,430   
        
   $ 1,320,631   
        
Liabilities and Deficit   

Current liabilities:

  

Debt payable within one year

   $ 47   

Debtor-in-possession financing

     124,687   

Accounts payable

     66,221   

Payroll liabilities

     25,787   

Accrued liabilities

     17,863   
        

Total current liabilities

     234,605   

Pension benefits

     73,422   

Postretirement benefits other than pensions

     69,217   

Deferred tax liabilities

     12,329   

Other long-term liabilities

     14,203   

Liabilities subject to compromise

     1,262,296   
        

Total liabilities

     1,666,072   

Stockholders’ deficit:

  
        

Total deficit

     (345,441
        

Total liabilities and deficit

   $ 1,320,631   
        

 

13


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

DEBTOR-IN-POSSESSION CONDENSED COMBINED

STATEMENTS OF CASH FLOW

 

     Nine Months Ended
September 30,
2009
 

Operating Activities:

  

Net cash used in operating activities

     (37,776

Investing activities:

  

Property, plant, and equipment

     (8,060

Other

     205   
        

Net cash used in investing activities

     (7,855

Financing activities:

  

Proceeds from issuance of debtor-in-possession financing, net of debt issuance costs

     108,012   

Payments on debtor-in-possession financing

     (313

Increase (decrease) in short term debt

     21,398   

Principal payments on long-term debt

     (9,008

Transactions with non-Debtor subsidiaries

     (39,638

Repurchase of bonds

     (737

Other

     119   
        

Net cash provided by financing activities

     79,833   

Effects of exchange rate changes on cash

     18,040   
        

Changes in cash and cash equivalents

     52,242   

Cash and cash equivalents at beginning of period

     114,437   
        

Cash and cash equivalents at end of period

   $ 166,679   
        

4. Goodwill and Intangibles

The changes in the carrying amount of goodwill, by reportable operating segment for the nine months ended September 30, 2009 are summarized as follows:

 

     North America     International     Total  

Balance at January 1, 2009

   $ 181,308      $ 63,653      $ 244,961   

Impairment charge

     (93,580     (63,653     (157,233
                        

Balance at September 30, 2009

   $ 87,728      $ —        $ 87,728   
                        

Goodwill is not amortized but is tested annually for impairment, or when events or circumstances indicate that impairment may exist, by reporting units, which are determined in accordance with ASC Topic 350, “Goodwill and Other Intangible Assets”. During the second quarter of 2009, several events occurred that indicated potential impairment of the Company’s goodwill. Such events included: (a) the chapter 11 bankruptcy of both Chrysler LLC and General Motors and unplanned plant shut-downs; (b) continued product volume risk and negative product mix changes; (c) the Company’s commencement of negotiations with its sponsors, senior secured lenders, and bondholders to recapitalize its long term debt and equity; (d) the Company’s recognition as the second quarter progressed that there was an increasing likelihood that it would breach its financial covenants under its Pre-Petition Credit Agreement; (e) the Company’s decision to defer its June 15, 2009 interest payment on its Notes pending the outcome of its quarterly financial results; (f) an analysis of whether the Company would meet its financial covenants for the past quarter; and (g) negotiations with its various constituencies. As a result of the combination of the above factors in the second quarter, the Company significantly reduced its projections for the remainder of the year. This significant decrease in projections resulted in the carrying value of assets at all of the Company’s reporting units being greater than the related reporting units’ fair value. As a result, the Company recorded goodwill impairment charges of $93,580 in its North America reporting unit, $39,604 in its Europe reporting unit, $22,628 in its South America reporting unit and $1,421 in its Asia Pacific reporting unit during the second quarter of 2009.

 

14


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

The following table presents intangible assets and accumulated amortization balances of the Company as of December 31, 2008 and September 30, 2009, respectively:

 

     Gross
Carrying
Amount
   Accumulated
Amortization
    Net
Carrying
Amount
   Amortization
Period

Customer contracts

   $ 156,039    $ (78,100   $ 77,939    7 to 9 years

Customer relationships

     169,105      (33,669     135,436    15 to 20 years

Developed technology

     6,421      (2,204     4,217    5 to 12 years

Trademarks and tradenames

     1,700      (306     1,394    12 to 20 years

Other

     11,358      (2,891     8,467   
                        

Balance at December 31, 2008

   $ 344,623    $ (117,170   $ 227,453   
                        

Customer contracts

   $ —      $ —        $ —      7 to 9 years

Customer relationships

     —        —          —      15 to 20 years

Developed technology

     3,361      (1,348     2,013    5 to 12 years

Trademarks and tradenames

     —        —          —      12 to 20 years

Other

     8,733      (249     8,484   
                        

Balance at September 30, 2009

   $ 12,094    $ (1,597   $ 10,497   
                        

During the second quarter of 2009, the Company assessed the realization of its intangible assets in connection with revisions to the Company’s projections as a result of the several events discussed above. The Company’s undiscounted cash flows (as adjusted to reflect the current outlook) were not sufficient to support the realization of certain intangible assets. As a result, the Company performed a discounted cash flow analysis for each intangible asset and determined that the fair value of certain intangible assets exceeded the assets’ respective fair value. During the second quarter of 2009, the Company recorded intangible impairment charges of $148,143 in its North America segment and $54,295 of intangible impairment charges in its International segment. The following table shows the impairment by intangible asset type:

 

Customer contracts

   $ 68,177

Customer relationships

     131,364

Developed technology

     1,558

Trademarks and tradenames

     1,339
      

Total intangible impairment

   $ 202,438
      

Amortization expense totaled $7,758 and $194 for the three months ended September 30, 2008 and 2009, respectively and $23,519 and $14,783 for the nine months ended September 30, 2008 and 2009, respectively. Estimated amortization expense will total approximately $15,000 for the year ending December 31, 2009.

 

15


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

5. Restructuring

2005 Initiatives

In 2005, the Company implemented a restructuring strategy and announced the closure of two manufacturing facilities in the United States and the decision to exit certain businesses within and outside the U.S. The initiative is substantially complete as of September 30, 2009 at an estimated total cost of approximately $27,000, but the Company will continue to incur costs until the facilities are sold. The following table summarizes the activity for this initiative during the nine months ended September 30, 2008:

 

     Employee
Separation
Costs
    Other
Exit
Costs
    Asset
Impairments
    Total  

Balance at January 1, 2008

   $ 775      $ 542      $ —        $ 1,317   

Expense incurred

     271        1,228        110        1,609   

Cash payments

     (810     (1,520     162        (2,168

Utilization of reserve

     —          —          (272     (272
                                

Balance at September 30, 2008

   $ 236      $ 250      $ —        $ 486   
                                

The following table summarizes the activity for this initiative during the nine months ended September 30, 2009:

 

     Employee
Separation
Costs
    Other
Exit
Costs
    Asset
Impairments
   Total  

Balance at January 1, 2009

   $ 73      $ 250      $ —      $ 323   

Expense incurred

     (19     295        —        276   

Cash payments

     (54     (365     —        (419
                               

Balance at September 30, 2009

   $ —        $ 180      $ —      $ 180   
                               

European Initiatives

In 2006, the Company implemented a European restructuring initiative, which addressed the operations of our non-strategic facilities. The initiative includes the closure of a manufacturing facility, terminations, and the transfer of production to other facilities in Europe and North America. The initiative was substantially completed as of September 30, 2009 at an estimated total cost of approximately $22,300. The following table summarizes the activity for this initiative during the nine months ended September 30, 2008:

 

     Employee
Separation
Costs
    Other
Exit
Costs
    Asset
Impairments
   Total  

Balance at January 1, 2008

   $ 1,442      $ —        $ —      $ 1,442   

Expense incurred

     800        343        —        1,143   

Cash payments

     (1,194     (343     —        (1,537
                               

Balance at September 30, 2008

   $ 1,048      $ —        $ —      $ 1,048   
                               

 

16


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

The following table summarizes the activity for this initiative during the nine months ended September 30, 2009:

 

     Employee
Separation
Costs
    Other
Exit
Costs
    Asset
Impairments
   Total  

Balance at January 1, 2009

   $ 742      $ —        $ —      $ 742   

Expense incurred

     80        323        —        403   

Cash payments

     (309     (323     —        (632
                               

Balance at September 30, 2009

   $ 513      $ —        $ —      $ 513   
                               

FHS Acquisition Initiatives

In connection with the acquisition of the automotive fluid handling systems business of ITT Industries, Inc. (“FHS”), the Company formalized a restructuring plan to address the redundant positions created by the consolidation of the businesses. In connection with this restructuring plan, the Company announced the closure of several manufacturing facilities located in North America, Europe, and Asia and the transfer of related production to other facilities. The closures are substantially complete as of September 30, 2009 at an estimated total cost of approximately $22,000, including costs recorded through purchase accounting. The Company will continue to incur costs until the facilities are sold. As a result of this initiative, the Company recorded certain severance and other exit costs of $11,833 and $720, respectively, through purchase accounting in 2006. The following table summarizes the activity for this initiative during the nine months ended September 30, 2008:

 

     Employee
Separation
Costs
    Other
Exit
Costs
    Asset
Impairments
   Total  

Balance at January 1, 2008

   $ 6,450      $ 4,210      $ —      $ 10,660   

Expense incurred

     592        2,053        —        2,645   

Cash payments

     (3,118     (5,771     —        (8,889
                               

Balance at September 30, 2008

   $ 3,924      $ 492      $ —      $ 4,416   
                               

The following table summarizes the activity for this initiative during the nine months ended September 30, 2009:

 

     Employee
Separation
Costs
    Other
Exit
Costs
    Asset
Impairments
   Total  

Balance at January 1, 2009

   $ 1,295      $ 490      $ —      $ 1,785   

Expense incurred

     41        1,814        —        1,855   

Cash payments

     (1,336     (2,174     —        (3,510
                               

Balance at September 30, 2009

   $ —        $ 130      $ —      $ 130   
                               

2007 Initiatives

In 2007, the Company implemented a restructuring action and announced the closure of a manufacturing facility located in Mexico and the transfer of related production to other facilities in North America. The closure was substantially completed as of December 31, 2007. The estimated total cost of this closure is approximately $3,400. The Company will continue to incur costs until

 

17


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

the facility is sold. During the nine months ended September 30, 2008, the Company recognized other exit costs and asset impairments of $296 and $136, respectively, related to this initiative. During the nine months ended September 30, 2009, the Company recognized other exit costs and asset impairments of $86 and $3, respectively, related to this initiative.

2008 Initiatives

In July 2008, the Company implemented a restructuring action and announced the closure of two manufacturing facilities, one located in Australia and the other located in Germany. Both closures are a result of changes in market demands and volume reductions and are expected to be completed in 2009. The estimated total cost of this initiative is approximately $21,700. The following table summarizes the activity for this initiative during the nine months ended September 30, 2008:

 

     Employee
Separation
Costs
    Other
Exit
    Costs    
    Asset
  Impairments  
    Total  

Balance at January 1, 2008

   $ —        $ —        $ —        $ —     

Expense incurred

     2,670        43        3,282        5,995   

Cash payments

     (600     (43     —          (643

Utilization of reserve

     —          —          (3,282     (3,282
                                

Balance at September 30, 2008

   $ 2,070      $ —        $ —        $ 2,070   
                                

The following table summarizes the activity for this initiative during the nine months ended September 30, 2009:

 

     Employee
Separation
Costs
    Other
Exit
Costs
    Asset
Impairments
    Total  

Balance at January 1, 2009

   $ 13,460      $ —        $ —        $ 13,460   

Expense incurred

     1,205        1,885        118        3,208   

Cash payments

     (10,124     (1,588     —          (11,712

Utilization of reserve

     —          —          (118     (118
                                

Balance at September 30, 2009

   $ 4,541      $ 297      $ —        $ 4,838   
                                

In 2008, the Company initiated the closing of a European facility and the idling of a Canadian facility. During the nine months ended September 30, 2009, the Company recorded other exit costs of $495 and asset impairments of $61 in connection with this initiative.

 

18


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

Reorganization-Product Line Operating Group Discontinuation Initiative

During 2008, the Company commenced the initial phase of a reorganization ultimately involving the discontinuation of its global product line operating divisions, formerly called the Body & Chassis Systems division (which included the body sealing and NVH product lines) and the Fluid Systems division, and the establishment of a new operating structure organized on the basis of geographic regions. The estimated cost of this initial phase is approximately $7,400. During the quarter ended September 30, 2008, the Company recorded severance costs of $5,300 associated with this initiative. The following table summarizes the activity for this initiative during the nine months ended September 30, 2009:

 

     Employee
Separation
Costs
    Other
Exit
    Costs    
   Asset
Impairments
   Total  

Balance at January 1, 2009

   $ 3,929      $ —      $ —      $ 3,929   

Expense incurred

     (261     —        —        (261

Cash payments

     (2,972     —        —        (2,972
                              

Balance at September 30, 2009

   $ 696      $ —      $ —      $ 696   
                              

In the first quarter of 2009, the Company initiated the final phase of the reorganization of its operating structure, formally discontinuing its product line operating divisions and putting into place the new operating divisions based on geographic regions. The estimated total cost of this initiative is $21,300. The following table summarizes the activity for this initiative during the nine months ended September 30, 2009:

 

     Employee
Separation
Costs
    Other
Exit
    Costs    
    Asset
Impairments
   Total  

Balance at January 1, 2009

   $ —        $ —        $ —      $ —     

Expense incurred

     21,212        75        —        21,287   

Cash payments

     (9,603     (75     —        (9,678
                               

Balance at September 30, 2009

   $ 11,609      $ —        $ —      $ 11,609   
                               

In the first quarter of 2009, the Company initiated the reorganization of one of its Brazilian facilities. During the nine months ended September 30, 2009, the Company recorded severance costs of $367 related to this initiative. The Company does not anticipate any additional costs to be incurred.

In the first quarter of 2009, the Company initiated the reorganization of its Italian operations. During the nine months ended September 30, 2009, the Company recorded severance costs of $722 related to this initiative. The estimated total cost of this initiative is approximately $850.

 

19


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

In the second quarter of 2009, the Company initiated the reorganization of its French operations. The estimated total cost of this initiative is approximately $4,700. The following table summarizes the activity for this initiative during the nine months ended September 30, 2009:

 

     Employee
Separation
Costs
    Other
Exit
Costs
   Asset
Impairments
   Total  

Balance at January 1, 2009

   $ —        $ —      $ —      $ —     

Expense incurred

     4,285        —        —        4,285   

Cash payments

     (2,441     —        —        (2,441
                              

Balance at September 30, 2009

   $ 1,844      $ —      $ —      $ 1,844   
                              

In the third quarter of 2009, the Company initiated the reorganization of its Korean operations. During the nine months ended September 30, 2009, the Company recorded other exit costs of $84 related to this initiative. The estimated total cost of this initiative is approximately $1,600.

6. Inventories

Inventories are comprised of the following:

 

     December 31,
2008
   September 30,
2009

Finished goods

   $ 35,069    $ 27,018

Work in process

     26,520      28,957

Raw materials and supplies

     55,363      58,199
             
   $ 116,952    $ 114,174
             

7. Debt

Outstanding debt consisted of the following at December 31, 2008 and September 30, 2009:

 

     December 31,
2008
    September 30,
2009
 

Senior Notes

   $ 200,000      $ —   (a) 

Senior Subordinated Notes

     323,350        —   (a) 

Term Loan A

     25,036        —   (a) 

Term Loan B

     66,365        —   (a) 

Term Loan C

     165,805        —   (a) 

Term Loan D

     184,300        —   (a) 

Term Loan E

     88,458        —   (a) 

Revolving Credit Facility

     60,933        —   (a) 

DIP Financing

     —          124,687   

Capital leases and other borrowings

     29,848        29,327   
                

Total debt

     1,144,095        154,014   

Less: Current portion of long term debt

     (94,136     (16,978

DIP financing

     —          (124,687
                

Total long-term debt

   $ 1,049,959      $ 12,349   
                

 

(a) Debt in default is classified as liabilities subject to compromise.

 

20


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

General

During the first quarter of 2008, the Company purchased and retired $7,150 of its $330,500 outstanding Senior Subordinated Notes on the open market. The purchase was accounted for as an extinguishment of debt and, accordingly, $1,696 was recognized as a gain on debt extinguishment, after writing off the related unamortized debt issuance costs. The gain is included in other income (expense) in the condensed consolidated statement of operations.

During the second quarter of 2009, the Company purchased and retired $10,000 of its $323,350 outstanding Senior Subordinated Notes on the open market. The purchase was accounted for as an extinguishment of debt and, accordingly, $9,096 was recognized as a gain on debt extinguishment, after writing off the related unamortized debt issuance costs. The gain is included in other income (expense) in the condensed consolidated statement of operations.

The Company had $28,067 of standby letters of credit outstanding under the Revolving Credit Facility as of September 30, 2009.

Default under the Notes and Forbearance Agreements

On June 15, 2009, the Company did not make required interest payments in an aggregate amount of approximately $20,121 due and payable under the Senior Notes and the Senior Subordinated Notes issued by Cooper-Standard Automotive Inc. The Company announced that it would utilize the applicable 30-day grace period on these scheduled interest payments to allow the Company to continue discussions with its lenders and other parties in an effort to increase liquidity and improve the Company’s capital structure. The failure to make the scheduled interest payments did not constitute an event of default at such time under the indentures governing the Notes. However, the failure to make the scheduled interest payments prior to the expiration of the 30-day grace period did constitute an event of default under the indentures. On July 15, 2009, the Company entered into (i) Senior Notes Forbearance Agreements (the “Senior Notes Forbearance Agreements”) with holders of more than 75% the aggregate principal amount of the outstanding Senior Notes and (ii) a Senior Subordinated Notes Forbearance Agreement (the “Senior Subordinated Notes Forbearance Agreement” and together with the Senior Notes Forbearance Agreements, the “Forbearance Agreements”) with holders of a majority of the aggregate principal amount of the outstanding Senior Subordinated Notes. The Forbearance Agreements provided that the noteholders party to the Forbearance Agreements would not exercise, and would not direct the applicable trustee to exercise, any remedies under the indenture agreements for a defined period of time not to exceed August 14, 2009 with respect to certain defaults resulting from the failure to make the interest payments under the Notes.

Default under the Pre-petition Credit Agreement and Limited Waiver

As the event of default under the indentures governing the Notes resulted in a cross-default under the Company’s Pre-petition Credit Agreement, the Company obtained a limited waiver from a majority of the lenders party thereto on July 15, 2009. Under the limited waiver, as amended and restated, certain defaults resulting from the failure to make the interest payments on the Notes as described above were waived for a defined period of time not to exceed August 14, 2009.

Bankruptcy Cases

On August 3, 2009, the Debtors filed voluntary petitions for relief under Chapter 11 of Title 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors’ Chapter 11 Cases are being jointly administered under Case No. 09-12743(PJW). On August 14, 2009, the Official Committee of Unsecured Creditors was appointed in the Chapter 11 Cases. The Debtors continue to operate their businesses and manage their properties as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

 

21


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

On August 4, 2009, the Canadian Debtor commenced the Canadian Proceedings seeking relief from its creditors under Canada’s Companies’ Creditors Arrangement Act in the Canadian Court, court file no. 09-8307-00CL. The Company’s subsidiaries and operations outside the United States are not included in the Chapter 11 Cases or the Canadian Proceedings (other than the Canadian Debtor) and continue to operate in the ordinary course of business.

The filing of the Chapter 11 Cases by the Debtors on August 3, 2009 constituted a default or otherwise triggered repayment obligations under substantially all pre-petition debt obligations of the Debtors, and as a result, the loan commitments of the lenders under the Pre-petition Credit Agreement were terminated (including the availability under the revolving credit facility, including with respect to standby letters of credit) and all principal and accrued and unpaid interest outstanding under the Pre-petition Credit Agreement, the Senior Notes and the Senior Subordinated Notes accelerated and became due and payable (subject to the automatic stay under Chapter 11). Under Chapter 11, the filing of a bankruptcy petition automatically stays most actions against a debtor, including actions with respect to pre-petition claims and litigation. Absent an order of the Bankruptcy Court, substantially all pre-petition liabilities are subject to compromise under a chapter 11 plan of reorganization. As of the date of the filing of the Chapter 11 Cases, approximately $608,000 of principal and accrued and unpaid interest was outstanding under the Pre-petition Credit Agreement, approximately $208,800 of principal and accrued and unpaid interest was outstanding under the Senior Notes and approximately $329,900 of principal and accrued and unpaid interest was outstanding under the Senior Subordinated Notes.

DIP Credit Agreement

On August 5, 2009, the Bankruptcy Court entered an interim order (the “Interim Order”) approving debtor-in-possession financing on an interim basis. Pursuant to the Interim Order, the Company entered into a Debtor-In-Possession Credit Agreement, dated as of August 5, 2009 (the “DIP Credit Agreement”), among the Company, Cooper-Standard Automotive Inc., an Ohio corporation (the “U.S. Borrower”), and the Canadian Debtor (the U.S. Borrower and the Canadian Debtor are referred to herein as the “DIP Borrowers”), various lenders party thereto, Deutsche Bank Trust Company Americas, as the administrative agent (in such capacity, the “DIP Agent”), Banc of America Securities LLC, General Electric Corporation and UBS Securities LLC, as co-syndication agents, Deutsche Bank Trust Company Americas, as documentation agent, Deutsche Bank Securities Inc. and General Electric Capital Corporation, as joint lead arrangers and book runners, and Banc of America Securities LLC and UBS Securities LLC, as co-arrangers. The Company received interim and final approval of the DIP Credit Agreement from the Bankruptcy Court on August 5, 2009 and September 1, 2009, respectively. The Company received approval of the DIP Credit Agreement from the Canadian Court on August 6, 2009.

The lenders under the DIP Credit Agreement have committed to provide superpriority senior secured term loans to the DIP Borrowers and an additional non-U.S. subsidiary to be designated (the “Additional Foreign Borrower”) in an aggregate principal amount of up to $175,000 (the “DIP Facility”) in connection with the Chapter 11 Cases and the Canadian Proceedings. The U.S. Borrower has drawn $75,000 of the DIP Facility, and the Canadian Debtor has drawn $50,000 of the DIP facility as of September 30, 2009. An additional $50,000 has been funded into escrow as of September 30, 2009, and is expected to be released to the Additional Foreign Borrower when local-law credit documentation is finalized. The DIP Credit Agreement also provides for an additional uncommitted $25,000 incremental facility, for a total DIP Facility of up to $200,000 (if the incremental facility is requested and committed to by the requisite lenders).

 

22


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

The obligations of the DIP Borrowers and the Additional Foreign Borrower under the DIP Credit Agreement will be guaranteed by the Company and certain of its U.S. and foreign subsidiaries, subject to limitations on guarantees by foreign entities of the obligations of the DIP Borrowers and the Additional Foreign Borrower. The obligations under the DIP Credit Agreement and related guarantees will be secured by liens on the assets of the DIP Borrowers and certain of the Company’s U.S. and foreign subsidiaries, subject to limitations on liens granted by foreign entities supporting certain of the obligations of the DIP Borrowers, the Additional Foreign Borrower and guarantors. Liens under the DIP Credit Agreement will have first priority priming status with respect to substantially all of the assets of the DIP Borrowers and their subsidiaries in U.S. and Canada and will be entitled to superpriority administrative expense claim status in the Chapter 11 Cases.

Loans under the DIP Credit Agreement will bear interest at a rate per annum equal to (i) LIBOR (with a LIBOR floor of 3%) plus 9.5% or (ii) a base rate based on the higher of the federal funds overnight rate plus 0.5% and the prime lending rate (with a floor of 4%) plus 8.5%. Overdue principal and interest will bear interest at a default rate of 2% over the applicable rate as determined under the terms of the DIP Credit Agreement. In addition, the DIP Credit Agreement will obligate the DIP Borrowers to pay agency, up-front and exit fees to the DIP Agent and the lenders, as applicable.

Loans under DIP Credit Agreement will amortize at a rate of 1% per annum, paid quarterly. The outstanding principal amount of the loans under the DIP Credit Agreement, plus accrued and unpaid interest thereon, will be due and payable in full at maturity, which is the earliest of: (i) the date that is 364 days after the date of the entry of the interim order by the Bankruptcy Court (the “Interim Order Entry Date”), (ii) the first date that both a plan of reorganization for each of the Company and its U.S. subsidiaries, which is confirmed by the Bankruptcy Court, and a plan of compromise or arrangement of the Canadian Debtor, which is confirmed by the Canadian Court, in each case providing for the repayment of the obligations under the DIP Credit Agreement, become effective, (iii) the date that is 30 days after the Interim Order Entry Date if the Bankruptcy Court has not entered a final order by such date and (iv) the acceleration of the DIP Facility or termination of the commitments thereunder, including, without limitation, as a result of the occurrence of an event of default. With the consent of the Required Lenders, and payment of an extension fee equal to 1% of the outstanding loans and commitments, the DIP Borrowers may at their option extend the maturity date by 90 days.

The DIP Credit Agreement includes affirmative and negative covenants that will impose substantial restrictions on the financial and business operations of the Company and its subsidiaries, including their ability to incur and secure debt, make investments, sell assets, pay dividends or make acquisitions. The DIP Credit Agreement also contains certain financial covenants including (i) the achievement of a minimum amount of consolidated EBITDA, (ii) the maintenance of a minimum amount of liquidity and (iii) limitations on the amount of capital expenditures. The DIP Credit Agreement also contains various events of default that are customary for debtor-in-possession financings of this type.

The DIP Credit Agreement was amended on August 31, 2009 and September 11, 2009. Both amendments primarily updated some post-closing non-U.S. collateral delivery requirements.

Amendment to the Pre-petition Credit Agreement

The Company, the U.S. Borrower, the Canadian Debtor and Cooper-Standard Automotive International Holdings B.V. (f/k/a Steffens Beheer BV), a corporation organized under the laws of the Netherlands (the “Dutch Borrower” and together with the U.S. Borrower and the Canadian Debtor, the “Pre-petition Borrowers”), entered into the Fifth Amendment and Consent to Credit Agreement, dated July 14, 2009, with the lenders party thereto and the Pre-petition Agent (as defined below), providing for the amendment of the Company’s existing Credit Agreement, dated as of December 23, 2004 (as amended from time to time, the “Pre-petition Credit

 

23


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

Agreement”), to permit, (i) the incurrence of the loans and guarantees and the granting of liens on the assets of the Company and its subsidiaries, pursuant to the referenced debtor-in-possession financing and (ii) the Pre-petition Credit Agreement administrative agent’s entering into intercreditor agreements and/or amendments to the security and pledge agreements that secure the obligations under the Pre-petition Credit Agreement to provide that any liens incurred pursuant to the referenced debtor-in-possession financing will have priority over the liens under the Pre-petition Credit Agreement.

8. Pension and Postretirement Benefits other than Pensions

The following tables disclose the amount of net periodic benefit costs for the three and nine month periods ended September 30, 2008 and 2009 for the Company’s defined benefit plans and other postretirement benefit plans:

 

     Pension Benefits  
     Three Months Ended September 30,  
     2008     2009  
     U.S.     Non-U.S.     U.S.     Non-U.S.  

Service cost

   $ 2,533      $ 909      $ 707      $ 686   

Interest cost

     3,879        1,947        3,787        1,841   

Expected return on plan assets

     (4,538     (1,056     (3,280     (776

Amortization of prior service cost and recognized actuarial loss

     48        94        960        52   
                                

Net periodic benefit cost

   $ 1,922      $ 1,894      $ 2,174      $ 1,803   
                                
     Pension Benefits  
     Nine Months Ended September 30,  
     2008     2009  
     U.S.     Non-U.S.     U.S.     Non-U.S.  

Service cost

   $ 7,599      $ 2,780      $ 2,120      $ 1,961   

Interest cost

     11,637        5,935        11,360        5,247   

Expected return on plan assets

     (13,614     (3,250     (9,839     (2,190

Amortization of prior service cost and recognized actuarial loss

     144        287        2,881        149   

Curtailment cost

     —          —          68        —     
                                

Net periodic benefit cost

   $ 5,766      $ 5,752      $ 6,590      $ 5,167   
                                

As a result of freezes to several of our pension plans, service cost for the nine months ended September 30, 2009 has decreased compared to the nine months ended September 30, 2008.

 

24


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

     Other Postretirement Benefits  
     Three Months Ended September 30,     Nine Months Ended September 30,  
     2008     2009     2008     2009  

Service cost

   $ 464      $ 442      $ 1,615      $ 1,307   

Interest cost

     996        1,079        3,407        3,201   

Amortization of prior service credit and recognized actuarial gain

     (1,181     (823     (2,171     (2,466

Other

     —          40        —          120   
                                

Net periodic benefit cost

   $ 279      $ 738      $ 2,851      $ 2,162   
                                

As a result of previous changes in plan design and discount rates, other postretirement benefits net periodic benefit cost has decreased compared to the prior year.

9. Income Taxes

Under Accounting Principles Board Opinion No. 28, Interim Financial Reporting, the Company is required to determine its effective tax rate each quarter based upon its estimated annual effective tax rate. The Company is also required to record the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year where no tax benefit can be recognized are excluded from the estimated annual effective tax rate.

The effective tax rate for the three months and nine months ended September 30, 2008, was 3% and 181%, respectively, as compared to 26% and 7%, respectively, for the three and nine months ended September 30, 2009. The income tax rate for the three and nine months ended September 30, 2009 varies from statutory rates due to income taxes on foreign earnings, the inability to record a tax benefit for pre-tax losses in the U.S. and certain foreign jurisdictions to the extent not offset by other categories of income, tax credits, income tax incentives, withholding taxes, and other permanent items. Additionally, a discrete income tax benefit was recorded in the three months ended June 30, 2009 related to the settlement of a bi-lateral advanced pricing agreement. Further, the Company’s current and future provision for income taxes will be significantly impacted by the recognition of valuation allowances in certain countries, particularly the United States. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. Accordingly, income taxes are impacted by the U.S. valuation allowance and the mix of earnings among jurisdictions.

During March 2008 the Company became aware of a potentially favorable settlement of the pending bi-lateral Advance Pricing Arrangement (“APA”) negotiations between the United States (US) and Canada relating to the periods 2000 – 2007. Agreement between the two governments will impact transfer pricing matters between the Company and its wholly owned Canadian subsidiary. In March 2009, the US and Canadian governments signed Mutual Agreement Letters agreeing to the terms of the bi-lateral APA. On June 23, 2009, the final Canadian bi-lateral Advance Pricing Agreement with the Company was completed and signed. The settlement of the bi-lateral APA results in income tax refunds to Cooper-Standard Automotive Canada for the years 2000 – 2007 of up to $88,000 Canadian dollars. Under the terms of the Stock Purchase Agreement with Cooper Tire and Rubber Company (“CTR”) dated September 16, 2004, CTR has a claim against the Company for the amount of tax refunds received by Cooper-Standard Automotive Canada relating to the years 2000 – 2004. Refunds received from the Canadian government will be based on the preparation of amended tax returns for the years 2000 – 2007. The settlement of the APA should also result in a corresponding increase to the US taxable income of CSA for the years 2005 – 2007, but is not expected to result in any significant cash payment as the increased U.S. tax liability will be largely offset by existing tax credit carryforwards. On July 27, 2009, Cooper Standard Automotive Canada received approximately CAD $80,000 which represented the federal portion of the expected refunds plus interest as a result of settlement of the Canadian APA.

 

25


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

On August 3, 2009, the Company and each of its direct and indirect wholly-owned subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code (the “Chapter 11 Cases”). On August 4, 2009, Cooper Standard Automotive Canada commenced proceedings (the “Canadian Proceedings”) seeking relief from its creditors under Canada’s Companies’ Creditors Arrangement Act. On August 19, 2009, CTR initiated an adversary proceeding in the Chapter 11 Cases, Case No. 09-52014 (PJW), by filing a complaint against the Company and Cooper-Standard Automotive Inc. seeking a declaratory judgment that CTR is entitled to a portion of the $80,000 Canadian dollars tax refund received by the Canadian Debtor from the Canadian government on July 27, 2009 and a portion of all future refunds received by the Canadian Debtor, in each case relating to the pre-acquisition period. CTR is also seeking imposition of a resulting trust or, in the alternative, a constructive trust in favor of CTR and turnover of the portion of the Canadian income tax refunds attributable to the years 2000-2004. On September 29, 2009, the Canadian Court issued an order lifting the stay in the Canadian Proceedings to allow CTR to commence proceedings against the Canadian Debtor in the Chapter 11 Cases and ordering all income tax refunds received by the Canadian Debtor after September 29, 2009 be segregated immediately upon receipt and not disbursed, encumbered or otherwise dealt with in any way until further order of the Canadian Court. On October 5, 2009, CTR filed an amended complaint in the adversary proceeding against the Company, Cooper-Standard Automotive Inc. and the Canadian Debtor. It is the Company’s belief that CTR’s right to tax refunds for pre-acquisition periods is that of a general unsecured creditor and is subject to the general rules and processes of the Chapter 11 Cases.

10. Comprehensive Income (Loss) and Equity (Deficit)

On an annual basis, disclosure of comprehensive income is incorporated into the statement of stockholders’ equity, which is not presented on a quarterly basis. The components of comprehensive income, net of related tax, are as follows:

 

     Three Months Ended
September 30, 2008
    Three Months Ended
September 30, 2009
 
     Total     Cooper-Standard
Holdings
    Noncontrolling
Interest
    Total     Cooper-Standard
Holdings
    Noncontrolling
Interest
 

Net income (loss)

   $ (32,808   $ (32,595   $ (213   $ 10,666      $ 10,847      $ (181

Currency translation adjustment

     (48,153     (47,960     (193     23,029        23,037        (8

Pension and other postretirement benefits, net of tax

     8,604        8,604        —          500        500        —     

Fair value change of derivatives, net of tax

     (1,748     (1,748     —          (58     (58     —     
                                                

Comprehensive income (loss):

   $ (74,105   $ (73,699   $ (406   $ 34,137      $ 34,326      $ (189
                                                
     Nine Months Ended
September 30, 2008
    Nine Months Ended
September 30, 2009
 
     Total     Cooper-Standard
Holdings
    Noncontrolling
Interest
    Total     Cooper-Standard
Holdings
    Noncontrolling
Interest
 

Net income (loss)

   $ (5,701   $ (5,336   $ (365   $ (393,955   $ (393,459   $ (496

Currency translation adjustment

     (11,797     (11,552     (245     26,112        26,076        36   

Pension and other postretirement benefits, net of tax

     7,881        7,881        —          786        786        —     

Fair value change of derivatives, net of tax

     317        317        —          4,867        4,867        —     
                                                

Comprehensive income (loss):

   $ (9,300   $ (8,690   $ (610   $ (362,190   $ (361,730   $ (460
                                                

 

26


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

The adoption of ASC Topic 810 resulted in the reclassification of amounts previously attributable to minority interest (now referred to as noncontrolling interest) to a separate component of stockholders’ equity on the accompanying condensed consolidated balance sheets. Additionally, net income attributable to noncontrolling interests is shown separately from net income in the condensed consolidated statement of operations. This reclassification has no effect on our previously reported results of operations.

The following table summarizes the Company’s equity activity for the nine months ended September 30, 2009:

 

     Cooper-Standard
Holdings
    Noncontrolling
Interest
    Total Equity
(Deficit)
 

Equity at January 1, 2009

   $ 15,177      $ 4,485      $ 19,662   

Net loss

     (393,459     (496     (393,955

Other comprehensive gain

     31,729        36        31,765   

Stock-based compensation

     1,112        —          1,112   
                        

Equity (deficit) at September 30, 2009

   $ (345,441   $ 4,025      $ (341,416
                        

11. Other Income (Expense)

The components of other income (expense) are as follows:

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2008     2009     2008    2009  

Foreign currency gains (losses)

   $ (400   $ 6,290      $ 857    $ 7,838   

Gain on debt repurchase

     —          —          1,696      9,096   

(Loss) Gain on disposal of fixed assets

     (9     —          —        —     

Interest rate swaps

     —          (323     —        (2,414

Loss on sale of receivables

     —          (37     —        (841
                               

Other income (expense)

   $ (409   $ 5,930      $ 2,553    $ 13,679   
                               

Prior year amounts related to noncontrolling interest (minority interest) historically reflected as a component of other income (expense) have been reclassified to conform to current year presentation as required by ASC Topic 810. The adoption of ASC Topic 810 resulted in the reclassification of amounts being reported as minority interest, totaling $213 and $365, for the three and nine months ended September 30, 2008, respectively, being shown separately from net income (loss) in the accompanying condensed consolidated statement of operations.

12. Related Party Transactions

Sales to NISCO, a 50% owned joint venture, totaled $6,700 and $6,590 in the three months ended September 30, 2008 and 2009, respectively and $21,350 and $15,297 in the nine months ended September 30, 2008 and 2009, respectively.

Purchases of materials from Guyoung Technology Co. Ltd, a Korean corporation of which the Company owns approximately 20% of the common stock, totaled $210 and $1,852 in the three months ended September 30, 2008 and 2009, respectively and $1,112 and $2,489 in the nine months ended September 30, 2008 and 2009, respectively.

 

27


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

13. Business Segments

In 2008 and through March 31, 2009, the Company reported its operating results in three business segments: Body & Chassis Systems, Fluid Systems, and Asia Pacific. The Body & Chassis segment consisted mainly of body sealing products and components that protect vehicle interiors from weather, dust, and noise intrusion as well as systems and components that control and isolate noise vibration in a vehicle to improve ride and handling. The Fluid segment consisted primarily of subsystems and components that direct, control, measure, and transport fluids and vapors throughout a vehicle. The Asia Pacific segment consisted of both Body & Chassis and Fluid operations in that region with the exception of the Company’s interest in a joint venture in China which was acquired as part of the MAPS acquisition, and the MAP India joint venture. These joint ventures were included in the Body & Chassis segment which was in line with the internal management structure.

On March 26, 2009, the Company announced the implementation of a plan involving the discontinuation of its global Body & Chassis and Fluid Systems operating divisions and the establishment of a new operating structure organized on the basis of geographic regions. Under the plan, the Company’s operating structure as well as reporting segments, has changed, and the Company revised its segment disclosures beginning with the second quarter of 2009 from the three reportable segments to two reportable segments, North America and International (comprising all of the Company’s operations outside of North America). Prior periods have been revised to conform to the current period presentation. Due to this segment revision, the Company has also revised the previously reported amounts in Note 4 – Goodwill and Intangibles to conform to the new segment presentation.

The Company evaluates segment performance based on segment profit before tax. The following table details information on the Company’s business segments:

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2008     2009     2008     2009  

Sales to external customers

        

North America

   $ 266,571      $ 251,700      $ 991,216      $ 632,234   

International

     333,085        266,142        1,130,100        735,422   
                                

Consolidated

   $ 599,656      $ 517,842      $ 2,121,316      $ 1,367,656   
                                

Intersegment sales

        

North America

   $ 1,116      $ 1,598      $ 3,075      $ 3,325   

International

     3,000        1,441        9,825        4,101   

Eliminations and other

     (4,116     (3,039     (12,900     (7,426
                                

Consolidated

   $ —        $ —        $ —        $ —     
                                

Segment profit

        

North America

   $ (20,361   $ 20,036      $ (1,614   $ (259,702

International

     (13,442     (5,597     8,656        (165,592
                                

Income (loss) before income taxes

   $ (33,803   $ 14,439      $ 7,042      $ (425,294
                                

 

     December 31,
2008
   September 30,
2009

Segment assets

     

North America

   $ 938,946    $ 692,461

International

     791,531      805,084

Eliminations and other

     87,774      153,688
             

Consolidated

   $ 1,818,251    $ 1,651,233
             

 

28


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

Restructuring costs included in segment profit for North America totaled $5,907 and $87 for the three months ended September 30, 2008 and 2009, respectively. International restructuring costs totaled $7,031 and $4,370 for the three months ended September 30, 2008 and 2009, respectively. Eliminations and other restructuring costs totaled $539, and $(79) for the three months ended September 30, 2008 and 2009.

Restructuring costs included in segment profit for North America totaled $7,694 and $9,608 for the nine months ended September 30, 2008 and 2009, respectively. International restructuring costs totaled $8,882 and $21,279 for the nine months ended September 30, 2008 and 2009, respectively. Eliminations and other restructuring costs totaled $539, and $1,984 for the nine months ended September 30, 2008 and 2009.

14. Guarantor and Non-Guarantor Subsidiaries

In connection with the December 2004 acquisition by the Company of the automotive segment of Cooper Tire & Rubber Company, Cooper-Standard Automotive Inc. (the “Issuer”), a wholly-owned subsidiary, issued the Senior Notes and Senior Subordinated Notes with a total principal amount of $550,000. Cooper-Standard Holdings Inc. and all wholly-owned domestic subsidiaries of Cooper-Standard Automotive Inc. (the “Guarantors”) unconditionally guarantee the notes. The following condensed consolidated financial data provides information regarding the financial position, results of operations, and cash flows of the Guarantors. Separate financial statements of the Guarantors are not presented because management has determined that those would not be material to the holders of the notes. The Guarantors account for their investments in the non-guarantor subsidiaries on the equity method. The principal elimination entries are to eliminate the investments in subsidiaries and intercompany balances and transactions (dollars in millions).

 

29


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2008

(in millions)

 

     Parent     Issuer     Guarantors    Non-
Guarantors
    Eliminations     Consolidated
Totals
 

Sales

   $ —        $ 75.0      $ 121.9    $ 425.1      $ (22.4   $ 599.6   

Cost of products sold

     —          74.0        105.5      380.0        (22.4     537.1   

Selling, administration, & engineering expenses

     —          16.5        7.3      27.6        —          51.4   

Amortization of intangibles

     —          5.1        0.6      2.0        —          7.7   

Restructuring

     —          2.8        0.4      10.3        —          13.5   
                                               

Operating profit (loss)

     —          (23.4     8.1      5.2        —          (10.1

Interest expense, net of interest income

     —          (19.3     —        (4.4     —          (23.7

Equity earnings (losses)

     —          (0.4     0.3      0.5        —          0.4   

Other income (expense), net

     —          1.6        —        (2.0     —          (0.4
                                               

Income (loss) before income taxes

     —          (41.5     8.4      (0.7     —          (33.8

Provision for income tax expense (benefit)

     —          (8.5     4.4      3.1        —          (1.0
                                               

Income (loss) before equity in income (loss) of subsidiaries

     —          (33.0     4.0      (3.8     —          (32.8

Equity in net income (loss) of subsidiaries

     (32.8     0.2        —        —          32.6        —     
                                               

Consolidated net income (loss)

     (32.8     (32.8     4.0      (3.8     32.6        (32.8

Less: Net (income) loss attributable to noncontrolling interest

     —          —          —        0.2        —          0.2   
                                               

Net Income (loss) attributable to Cooper-Standard Holdings Inc.

   $ (32.8   $ (32.8   $ 4.0    $ (3.6   $ 32.6      $ (32.6
                                               

CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2009

(in millions)

 

     Parent    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Consolidated
Totals
 

Sales

   $ —      $ 89.6      $ 115.2      $ 335.9      $ (22.9   $ 517.8   

Cost of products sold

     —        73.8        87.3        297.6        (22.9     435.8   

Selling, administration, & engineering expenses

     —        18.8        10.9        23.0        —          52.7   

Amortization of intangibles

     —        0.1        —          0.1        —          0.2   

Impairment charges (a)

     —        (50.9     17.3        33.6        —          —     

Restructuring

     —        —          (1.6     6.0        —          4.4   
                                               

Operating profit (loss)

     —        47.8        1.3        (24.4     —          24.7   

Interest expense, net of interest income

     —        (8.9     —          (3.0     —          (11.9

Equity earnings

     —        —          0.5        0.7        —          1.2   

Reorganization items, net

     —        (5.6     —          —          —          (5.6

Other income (expense), net

     —        1.4        (0.3     4.9        —          6.0   
                                               

Income (loss) before income taxes

     —        34.7        1.5        (21.8     —          14.4   

Provision for income tax expense (benefit)

     —        (0.6     (0.2     4.6        —          3.8   
                                               

Income (loss) before equity in income (loss) of subsidiaries

     —        35.3        1.7        (26.4     —          10.6   

Equity in net income (loss) of subsidiaries

     10.6      (24.7     —          —          14.1        —     
                                               

Consolidated net income (loss)

     10.6      10.6        1.7        (26.4     14.1        10.6   

Less: Net (income) loss attributable to noncontrolling interest

     —        —          —          0.2        —          0.2   
                                               

Net Income (loss) attributable to Cooper-Standard Holdings Inc.

   $ 10.6    $ 10.6      $ 1.7      $ (26.2   $ 14.1      $ 10.8   
                                               

 

(a) The second quarter impairment charge was reflected within the issuer column in the second quarter Form 10-Q. The amounts related to guarantors and non-guarantors were reclassifed in the third quarter Form 10-Q.

 

30


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2008

(in millions)

 

     Parent     Issuer     Guarantors    Non-
Guarantors
    Eliminations     Consolidated
Totals
 

Sales

   $ —        $ 298.8      $ 441.3    $ 1,460.1      $ (78.9   $ 2,121.3   

Cost of products sold

     —          267.7        369.2      1,263.7        (78.9     1,821.7   

Selling, administration, & engineering expenses

     —          79.8        23.5      84.5        —          187.8   

Amortization of intangibles

     —          15.4        1.8      6.3        —          23.5   

Restructuring

     —          3.4        1.3      12.4        —          17.1   
                                               

Operating profit (loss)

     —          (67.5     45.5      93.2        —          71.2   

Interest expense, net of interest income

     —          (58.0     —        (13.3     —          (71.3

Equity earnings (losses)

     —          (0.5     3.4      1.7        —          4.6   

Other income (expense), net

     —          24.4        0.4      (22.3     —          2.5   
                                               

Income (loss) before income taxes

     —          (101.6     49.3      59.3        —          7.0   

Provision for income tax expense (benefit)

     —          (4.5     2.1      15.1        —          12.7   
                                               

Income (loss) before equity in income (loss) of subsidiaries

     —          (97.1     47.2      44.2        —          (5.7

Equity in net income (loss) of subsidiaries

     (5.7     91.4        —        —          (85.7     —     
                                               

Consolidated net income (loss)

     (5.7     (5.7     47.2      44.2        (85.7     (5.7

Less: Net (income) loss attributable to noncontrolling interest

     —          —          —        0.4        —          0.4   
                                               

Net Income (loss) attributable to Cooper-Standard Holdings Inc.

   $ (5.7   $ (5.7   $ 47.2    $ 44.6      $ (85.7   $ (5.3
                                               

CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2009

(in millions)

 

     Parent     Issuer     Guarantors     Non-
Guarantors
    Eliminations     Consolidated
Totals
 

Sales

   $ —        $ 234.1      $ 286.6      $ 902.8      $ (55.9   $ 1,367.6   

Cost of products sold

     —          200.2        235.4        812.8        (55.9     1,192.5   

Selling, administration, & engineering expenses

     —          57.0        22.9        66.3        —          146.2   

Amortization of intangibles

     —          10.1        0.9        3.8        —          14.8   

Impairment charges

       240.7        31.0        91.0          362.7   

Restructuring

     —          7.4        0.1        25.4        —          32.9   
                                                

Operating profit (loss)

     —          (281.3     (3.7     (96.5     —          (381.5

Interest expense, net of interest income

     —          (45.6     —          (8.0     —          (53.6

Equity earnings (loss)

     —          —          —          1.7        —          1.7   

Reorganization items, net

     —          (5.6     —          —          —          (5.6

Other income (expense)

     —          13.0        (1.1     1.8        —          13.7   
                                                

Income (loss) before income taxes

     —          (319.5     (4.8     (101.0     —          (425.3

Provision for income tax expense (benefit)

     —          64.5        1.0        (96.8     —          (31.3
                                                

Income (loss) before equity in income (loss) of subsidiaries

     —          (384.0     (5.8     (4.2     —          (394.0

Equity in net income of subsidiaries

     (394.0     (10.0     —          —          404.0        —     
                                                

Consolidated net income (loss)

     (394.0     (394.0     (5.8     (4.2     404.0        (394.0

Less: Net (income) loss attributable to noncontrolling interest

     —          —          —          0.5        —          0.5   
                                                

Net Income (loss) attributable to Cooper-Standard Holdings Inc.

   $ (394.0   $ (394.0   $ (5.8   $ (3.7   $ 404.0      $ (393.5
                                                

 

31


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

CONSOLIDATING BALANCE SHEET

December 31, 2008

(in millions)

 

     Parent    Issuer     Guarantors    Non-
Guarantors
   Eliminations     Consolidated
Totals

ASSETS

               

Current assets:

               

Cash and cash equivalents

   $ —      $ 40.0      $ —      $ 71.5    $ —        $ 111.5

Accounts receivable, net

     —        53.1        65.7      233.2      —          352.0

Inventories

     —        17.1        21.2      78.7      —          117.0

Prepaid Expenses

     —        (1.1     0.6      19.7      —          19.2

Other

     —        23.9        —        —        —          23.9
                                           

Total current assets

     —        133.0        87.5      403.1      —          623.6

Investments in affiliates and intercompany accounts, net

     15.2      315.4        599.5      161.4      (1,058.1     33.4

Property, plant, and equipment, net

     —        70.3        118.5      435.2      —          624.0

Goodwill

     —        194.1        17.3      33.6      —          245.0

Other assets

     —        149.4        17.1      125.8      —          292.3
                                           
   $ 15.2    $ 862.2      $ 839.9    $ 1,159.1    $ (1,058.1   $ 1,818.3
                                           

LIABILITIES & EQUITY (DEFICIT)

               

Current liabilities:

               

Debt payable within one year

   $ —      $ 43.5      $ —      $ 50.6    $ —        $ 94.1

Accounts payable

     —        36.4        25.0      131.6      —          193.0

Accrued liabilities

     —        65.6        6.7      92.3      —          164.6
                                           

Total current liabilities

     —        145.5        31.7      274.5      —          451.7

Long-term debt

     —        957.5        —        92.5      —          1,050.0

Other long-term liabilities

     —        165.0        6.7      125.2      —          296.9
                                           
     —        1,268.0        38.4      492.2      —          1,798.6

Total Cooper-Standard Holdings Inc. stockholders’ equity (deficit)

     15.2      (405.8     801.5      662.4      (1,058.1     15.2

Noncontrolling interest

     —        —          —        4.5      —          4.5
                                           

Total equity (deficit)

     15.2      (405.8     801.5      666.9      (1,058.1     19.7
                                           

Total liabilities and equity (deficit)

   $ 15.2    $ 862.2      $ 839.9    $ 1,159.1    $ (1,058.1   $ 1,818.3
                                           

 

32


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

CONSOLIDATING BALANCE SHEET

September 30, 2009

(in millions)

 

     Parent     Issuer     Guarantors    Non-
Guarantors
    Eliminations     Consolidated
Totals
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

   $ —        $ 82.9      $ 0.5    $ 170.3      $ —        $ 253.7   

Accounts receivable, net

     —          68.1        76.9      293.4        —          438.4   

Inventories

     —          17.0        22.0      75.2        —          114.2   

Prepaid Expenses

     —          3.4        0.7      19.2        —          23.3   

Other

     —          10.8        —        13.8        —          24.6   
                                               

Total current assets

     —          182.2        100.1      571.9        —          854.2   

Investments in affiliates and intercompany accounts, net

     (345.4     415.7        652.9      (29.2     (661.7     32.3   

Property, plant, and equipment, net

     —          68.7        97.7      432.6        —          599.0   

Goodwill (a)

     —          87.7        —        —          —          87.7   

Other assets

     —          16.3        0.1      61.6        —          78.0   
                                               
   $ (345.4   $ 770.6      $ 850.8    $ 1,036.9      $ (661.7   $ 1,651.2   
                                               

LIABILITIES & EQUITY (DEFICIT)

             

Current liabilities:

             

Debt payable within one year

   $ —        $ 74.9      $ —      $ 66.8      $ —        $ 141.7   

Accounts payable

     —          33.7        21.8      101.8        —          157.3   

Accrued liabilities

     —          27.2        6.3      122.7        —          156.2   
                                               

Total current liabilities

     —          135.8        28.1      291.3        —          455.2   

Liabilities subject to compromise

     69.0        1,077.4        3.8      112.1        —          1,262.3   

Long-term debt

     —          —          —        12.3        —          12.3   

Other long-term liabilities

     —          147.0        6.6      109.2        —          262.8   
                                               
     69.0        1,360.2        38.5      524.9        —          1,992.6   

Total Cooper-Standard Holdings Inc. stockholders’ equity (deficit)

     (414.4     (589.6     812.3      508.0        (661.7     (345.4

Noncontrolling interest

     —          —          —        4.0        —          4.0   
                                               

Total equity (deficit)

     (414.4     (589.6     812.3      512.0        (661.7     (341.4
                                               

Total liabilities and equity (deficit)

   $ (345.4   $ 770.6      $ 850.8    $ 1,036.9      $ (661.7   $ 1,651.2   
                                               

 

(a) Goodwill reflected in the guarantor and non-guarantor columns in the second quarter 2009 Form 10-Q have been reclassified to the issuer column in the third quarter 2009 Form 10-Q

 

33


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2008

(in millions)

 

     Parent     Issuer     Guarantors     Non-
Guarantors
    Eliminations    Consolidated
Totals
 

OPERATING ACTIVITIES

             

Net cash provided by operating activities

   $ 0.5      $ (36.9   $ 9.5      $ 110.4      $ —      $ 83.5   

INVESTING ACTIVITIES

             

Property, plant, and equipment

     —          (5.9     (9.7     (51.2     —        (66.8

Gross proceeds from sale-leaseback transaction

     —          —          —          8.6        —        8.6   

Other

     —          4.0        0.2        5.0        —        9.2   
                                               

Net cash used in investing activities

     —          (1.9     (9.5     (37.6     —        (49.0

FINANCING ACTIVITIES

             

Increase/(decrease) in short term debt

     —          2.9        —          (21.5     —        (18.6

Principal payments on long-term debt

     —          (2.2     —          (11.4     —        (13.6

Repurchase of Bonds

     —          (5.3     —          —          —        (5.3

Other

     (0.5     (0.3     —          (0.1     —        (0.9
                                               

Net cash provided by (used in) financing activities

     (0.5     (4.9     —          (33.0     —        (38.4

Effects of exchange rate changes on cash

     —          0.3        —          (3.4     —        (3.1

Changes in cash and cash equivalents

     —          (43.4     —          36.4        —        (7.0

Cash and cash equivalents at beginning of period

     —          42.6        —          (1.7     —        40.9   
                                               

Cash and cash equivalents at end of period

   $ —        $ (0.8   $ —        $ 34.7      $ —      $ 33.9   
                                               

Depreciation and amortization

   $ —        $ 27.7      $ 18.6      $ 59.9      $ —      $ 106.2   

 

34


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2009

(in millions)

 

     Parent    Issuer     Guarantors     Non-
Guarantors
    Eliminations    Consolidated
Totals
 

OPERATING ACTIVITIES

              

Net cash provided by (used in) operating activities

   $ —      $ (28.6   $ 5.5      $ 53.3      $ —      $ 30.2   

INVESTING ACTIVITIES

              

Property, plant, and equipment

     —        (3.3     (3.5     (18.7     —        (25.5

Fixed asset proceeds

     —        —          0.2        0.1        —        0.3   
                                              

Net cash used in investing activities

     —        (3.3     (3.3     (18.6     —        (25.5

FINANCING ACTIVITIES

              

Increase/(decrease) in short term debt

     —        84.2        —          46.4        —        130.6   

Principal payments on long-term debt

     —        (2.3     —          (9.0     —        (11.3

Repurchase of bonds

     —        (0.7     —          —          —        (0.7

Other

     —        (5.5     (1.7     7.5        —        0.3   
                                              

Net cash provided by (used in) financing activities

     —        75.7        (1.7     44.9        —        118.9   

Effects of exchange rate changes on cash

     —        (0.9     —          19.2        —        18.3   

Changes in cash and cash equivalents

     —        42.9        0.5        98.8        —        142.2   

Cash and cash equivalents at beginning of period

     —        40.0        —          71.5        —        111.5   
                                              

Cash and cash equivalents at end of period

   $ —      $ 82.9      $ 0.5      $ 170.3      $ —      $ 253.7   
                                              

Depreciation and amortization

   $ —      $ 22.5      $ 17.1      $ 48.5      $ —      $ 88.1   

 

35


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

15. Financial Instruments

Fair values of the Senior Notes and the Senior Subordinated Notes approximated $146,900 and $157,800 at December 31, 2008 and September 30, 2009 based on quoted market prices, compared to the recorded values totaling $523,350 and $505,300, respectively. Fair values of the Term Loans approximated $247,600 and $463,400 at December 31, 2008 and September 30, 2009, based on quoted market prices, compared to the recorded values totaling $530,000 and $520,637, respectively. The fair value of the DIP financing approximated $128,400 at September 30, 2009, based on quoted market prices, compared to the recorded value totaling $124,687 at September 30, 2009.

The Company uses derivative financial instruments, including forwards and swap contracts to manage its exposures to fluctuations in foreign exchange, interest rates and commodity prices. For a fair value hedge both the effective and ineffective, if significant, portions are recorded in earnings and reflected in the condensed consolidated statement of operations. For a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in accumulated other comprehensive income (loss) in the condensed consolidated balance sheet. The ineffective portion, if significant, is recorded in other income or expense. When the underlying hedged transaction is realized or the hedged transaction is no longer probable, the gain or loss included in accumulated other comprehensive income (loss) is recorded in earnings and reflected in the condensed consolidated statement of operations on the same line as the gain or loss on the hedged item attributable to the hedged risk.

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 and other current liabilities.

Derivative Instruments and Hedging Activities

The failure to make the scheduled interest payments on the Senior Notes and Senior Subordinated Notes and the expiration of the applicable 30-day period on July 16, 2009 constituted a “cross-default” under the Company’s ISDA Agreements in the names of Cooper-Standard Automotive, Inc., Cooper-Standard Automotive Canada, Limited and Cooper-Standard Automotive International Holdings B.V., with its various senior lenders as counterparties. As a result, the counterparties to certain outstanding derivative contracts under these ISDA Agreements elected to exercise their option of early termination under such contracts. Certain interest rate, foreign exchange and commodity swap derivatives that were designated under FAS 133 as cash flow hedges were de-designated for the purposes of FAS 133 as a result of the failure to make the interest payment and in anticipation of the termination events. The value of these derivatives, totaling $18,089, is classified as liabilities subject to compromise. The amounts in accumulated other comprehensive income at de-designation will be frozen and will be amortized and moved to the statement of operations over the remaining life of the underlying exposures.

Cash Flow Hedges

Forward foreign exchange contracts – The Company enters into forward contracts to hedge currency risk of the U.S. Dollar against the Euro. The forward contracts are used 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 forward contracts with a USD notional amounts of $1,510 are accounted for as cash flow hedges and are recorded in the Company’s condensed consolidated balance sheet in accrued liabilities at a fair value of $(84), with the offset reflected in accumulated other comprehensive income (loss) (AOCI), net of deferred taxes. The gain or loss on the forward contracts is reported as a component of other comprehensive income (loss) (OCI) and

 

36


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For the three and nine months ended September 30, 2009, $79 and $(141), respectively, were reclassified from AOCI into cost of products sold. The amount to be reclassified in the next twelve months is expected to be approximately $(84).

For the forward contracts de-designated as cash flow hedges, $(1,159) is recognized in OCI as of September 30, 2009. For the three and nine months ended September 30, 2009, $1,212 and $3,686, respectively, were reclassified from AOCI into cost of products sold. The amount to be reclassified in the next quarter is $(1,159).

Interest rate swaps – The Company has an interest rate swap contract to manage cash flow fluctuations of variable rate debt due to changes in market interest rates. This contract which fixes the interest payment of a certain variable rate debt instrument is accounted for as a cash flow hedge. As of September 30, 2009, the USD notional amount of this contract was $9,733. At September 30, 2009, the fair value before taxes of the Company’s interest rate swap contract was $(474) and is recorded in accrued liabilities and other long-term liabilities in the Company’s condensed consolidated balance sheet with the offset reflected in accumulated other comprehensive income (loss) (AOCI), net of deferred taxes. For the three and nine months ended September 30, 2009, $61 and $70, respectively, were reclassified from AOCI into interest expense. The amount to be reclassified in the next twelve months is expected to be approximately $(117).

For interest rate swaps de-designated as cash flow hedges, $(22,410) is recognized in OCI as of September 30, 2009. For the three and nine months ended September 30, 2009, $1,103 and $6,807, respectively, were reclassified from AOCI into interest expense and for the three and nine months ended September 30, 2009, $324 and $2,414, respectively, were reclassified from AOCI to other expense (income).

Commodity price hedges – The Company has exposure to the prices of commodities in the procurement of certain raw materials. The primary purpose of the Company’s commodity price hedging activities is to manage the volatility associated with these forecasted purchases. The Company primarily utilized forward contracts with maturities of less than 24 months, which were accounted for as cash flow hedges. These instruments were intended to offset the effect of changes in commodity prices on forecasted inventory purchases. As of September 30, 2009, these forward contracts have been de-designated as cash flow hedges. As of September 30, 2009, $(550) is recognized in OCI. For the three and nine months ended September 30, 2009, $478 and $3,220, respectively were reclassified from AOCI to cost of products sold. The amount to be reclassified in the next quarter is $(550).

Fair Value Measurements

SFAS No. 157 clarifies that fair value is 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, SFAS No. 157 establishes a three-tier fair value hierarchy, 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.

 

37


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

Estimates of the fair value of foreign currency and commodity 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 assets and liabilities measured or disclosed at fair value on a recurring basis as of September 30, 2009, are shown below:

 

Contract

   Asset
(Liability)
    Level 1    Level 2    Level 3  

Interest rate swap

   $ (474   $ —      $ —      $ (474

Forward foreign exchange contract

     (84     —        —        (84
                              

Total

   $ (558   $ —      $ —      $ (558
                              

A reconciliation of changes in assets and liabilities related to derivative instruments measured at fair value using the market and income approach adjusted for our and our counterparty’s credit risks for the nine months ended September 30, 2009, is shown below:

 

     Net Derivative
Liabilities
 

Beginning Balance as of January 1, 2009

   $ 22,370   

Total (gains) or losses (realized or unrealized) included in earnings (or changes in net liabilities)

     16,416   

Included in other comprehensive income

     (6,715

Purchases, issuances, and settlements

     (13,424

De-designated hedges

     (18,089
        

Ending Balance as of September 30, 2009

   $ 558   
        

The amount of total (gains) or losses for the period included in earnings (or changes in net liabilities) attributable to the change in unrealized (gains) or losses relating to assets still held at the reporting date

   $ 2,586   
        

(Gains) and losses (realized and unrealized) included in earnings (or changes in net liabilities)

for the period (above) are reported in cost of products sold and other income (expense):

 

Total (gains) or losses included in earnings (or changes in net liabilities) for the period (above)

   $       16,416   

Change in unrealized (gains) or losses relating to assets still held at the reporting date

     (2,586

 

38


COOPER-STANDARD HOLDINGS INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollar amounts in thousands except per share amounts)

 

16. Accounts Receivable Factoring

As part of its working capital management, the Company sells certain receivables through third party financial institutions without recourse. The amount varies each month based on the amount of underlying receivables and cash flow needs of the Company.

At September 30, 2009, the Company had $33,428 of receivables outstanding under receivable transfer agreements entered into by various locations. The Company incurred a loss on the sale of receivables for the three and nine months ended September 30, 2009 of $23 and $573, respectively; this amount is recorded in other income (expense) in the condensed consolidated statements of operations. The Company continues to service the receivables for one of the locations. These were permitted transactions under the Company’s Pre-petition Credit Agreement. The Company is also pursuing similar arrangements in various locations.

In addition, during the second quarter of 2009, the Company elected to participate in the Auto Supplier Support Program sponsored by the U.S. Treasury Department (“Auto Supplier Support Program”). The Auto Supplier Support Program is designed to provide eligible suppliers with access to government-backed protection on those Chrysler LLC (“Chrysler”) and General Motors Corporation (“GM”) U.S. dollar receivables that are accepted into the program. In applying for the program, the Company selected the program option that provides government-backed protection on collection of the receivables and expedited payment terms, for which a charge of 3% of the accepted receivables is applicable. The Company has been designated by both Chrysler and GM as an eligible supplier. During the nine months ended September 30, 2009, the Company received payments of $8,936 and incurred charges of $268 which is recorded in other income (expense) in the condensed consolidated statements of operations.

In addition, the Company has been advised that Export Development Canada (“EDC”) has made available to the Company’s Canadian subsidiary insurance coverage on certain GM and Chrysler receivables. EDC’s program is designed to guarantee a substantial portion of a Canadian supplier’s eligible receivables under the program. The Canadian subsidiary will be charged 6% per annum of the amount made available to it under the program.

17. Sale Leaseback Transaction

During the quarter ended September 30, 2008 the Company sold a manufacturing facility to an independent third party and simultaneously agreed to lease the facility from that party for a period of 15 years. Gross proceeds from this sale were $8,556. The transaction is structured as an operating lease.

18. Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through November 13, 2009, the date the financial statements were issued.

 

39


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) presents information related to the condensed consolidated results of operations of the Company, including the impact of restructuring costs on the Company’s results, a discussion of the past results and future outlook of each of the Company’s segments, and information concerning both the liquidity and capital resources of the Company. The following discussion and analysis, which should be read in conjunction with our condensed consolidated financial statements and the notes included elsewhere in this report, contains certain forward-looking statements relating to anticipated future financial conditions and operating results of the Company and its current business plans. In the future, the financial condition and operating results of the Company could differ materially from those discussed herein and its current business plans could be altered in response to market conditions and other factors beyond the Company’s control. Important factors that could cause or contribute to such differences or changes include those discussed elsewhere in this report (see “Forward-Looking Statements”) and in our most recently filed annual report on Form 10-K (see Item 1A. Risk Factors).

Business Environment and Outlook

During 2009, our revenues have been adversely affected by a substantial decline in worldwide automotive production levels. Overall negative macroeconomic conditions, including disruptions in the financial markets and high unemployment levels continue to impact consumer confidence which has kept demand for new vehicles low resulting in continued production cutbacks.

A number of key industry developments and trends have coincided with, or resulted in whole or in part from, these negative macroeconomic conditions. These developments and trends include:

 

   

A deterioration in the financial condition of certain of our customers which has caused them to implement restructuring initiatives, including, in some cases, significant capacity reductions and/or reorganization under bankruptcy laws:

In particular, on April 30, 2009, Chrysler LLC and a number of its subsidiaries filed a petition in the U.S. Bankruptcy Court commencing reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code and emerging from the bankruptcy 40 days later.

General Motors Corporation filed a petition in U.S. Bankruptcy Court on June 1, 2009 and emerged from bankruptcy on July 10, 2009. The filing is one of the largest bankruptcies in U.S. history. Both General Motors and Chrysler have received financial assistance from government sources with the government taking 61 percent stake in General Motors and 8 percent in Chrysler. The ability for the companies to repay the loans and return to profitability is still unknown and creates additional uncertainty.

Both companies extended shutdown periods of production at North American manufacturing facilities, until they emerged from the bankruptcy proceedings, and also extended seasonal shutdown time causing further stress in the supplier sector as they attempt to balance revenue, production and profitability.

 

   

A decline in our customers’ production volumes and weak sales. According to CSM Worldwide, actual North America and Europe light vehicle production volume through September 30, 2009 were 5.8 million units and 11.8 million units, as compared to 9.9 million units and 16.5 million units through September 30, 2008.

 

   

A decline in the market share of some of our largest customers, including General Motors and Chrysler.

 

   

Continuing pricing pressures from customers.

 

   

A shift in consumer preference and vehicle production mix, particularly in North America, from sport utility vehicles and light trucks to more fuel efficient vehicles, cross-over utility vehicles and passenger cars; and a shift in consumer preference and vehicle production mix, particularly in Europe, from large and mid-size passenger cars to smaller cars.

Bankruptcy Cases

As a result of these negative trends and the Company’s substantial debt service requirements, on August 3, 2009, Cooper-Standard Holdings Inc., a Delaware corporation (the “Company”), and each of its direct and indirect wholly-owned U.S. subsidiaries (collectively with the Company, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Debtors chapter 11 cases (the “Chapter 11 Cases”) are being jointly administered under Case No. 09-12743(PJW). The Debtors continue to operate their businesses and manage their properties as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. On August 14, 2009, the Official Committee of Unsecured Creditors was appointed in the Chapter 11 Cases.

 

40


On August 4, 2009, the Company’s Canadian subsidiary, Cooper-Standard Automotive Canada Limited, a corporation incorporated under the laws of Ontario (the “Canadian Debtor”), commenced proceedings seeking relief from its creditors under Canada’s Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice in Toronto, Canada (Commercial List) (the “Canadian Court”), court file no. 09-8307-00CL. The Company’s subsidiaries and operations outside the United States and Canada are not included in the Chapter 11 Cases or the Canadian Proceedings (other than the Canadian Debtor) and continue to operate in the ordinary course of business.

As a result of the Chapter 11 Cases, realization of assets and liquidation of liabilities are subject to uncertainty. While operating as debtors-in-possession under the protection of Chapter 11 of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, the Debtors may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the condensed consolidated financial statements.

On October 2, 2009, the Debtors filed their schedules of assets and liabilities (the “Schedules”) and statements of financial affairs with the Bankruptcy Court. On October 27, 2009, the Bankruptcy Court entered an order establishing December 4, 2009 as the deadline (the “General Bar Date”) for all entities, other than governmental agencies, to file proofs of claim against the Debtors stating the amounts to which the claimants contend that they are entitled, subject to the rights of the Debtors to contest both the validity and amount of the claims. The Bankruptcy Court also set February 1, 2010 as the deadline for governmental entities to file their proofs of claim (the “Governmental Bar Date” and, together with the General Bar Date, the “Bar Dates”). The Debtors will continue to evaluate all claims asserted in the Chapter 11 Cases and may file periodic motions seeking to modify, reject, liquidate or allow such claims.

In addition, under the priority scheme established by the Bankruptcy Code, generally, post-petition liabilities and secured claims must be satisfied before pre-petition unsecured creditors and interest holders can receive any distribution or retain any property under a chapter 11 plan of reorganization. The ultimate recovery, if any, to the holders of the Notes and other interest holders will not be determined until confirmation of a chapter 11 plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11 Cases to each of these constituencies or what types or amounts of distributions, if any, they would receive. A chapter 11 plan of reorganization could result in holders of the Company’s Notes receiving no distribution on account of their claims and cancellation of their existing Notes. If certain requirements of the Bankruptcy Code are met, a chapter 11 plan of reorganization can be confirmed notwithstanding its rejection by such holders and notwithstanding the fact that such holders do not receive or retain any property on account of their interests under the chapter 11 plan. Accordingly, the Company urges that the appropriate caution be exercised with respect to existing and future investments in the Company’s securities as the value and prospects are highly speculative.

Under the Bankruptcy Code, the exclusive period in which the Debtors may file a chapter 11 plan or plans of reorganization is 120-days from the date of the filing of the petition. The exclusive period in which the Debtors may solicit acceptances for any chapter 11 plan or plans of reorganization is 180-days from the date of the filing of the petition. The Bankruptcy Code also provides that the Bankruptcy Court may extend the 120-day plan exclusivity period up to 18 months after the petition date and the 180-day solicitation exclusivity period up to 20 months after the petition date. The Debtors’ 120-day exclusive period to file a chapter 11 plan or plans of reorganization expires on December 1, 2009. The Debtors’ 180-day exclusive period to solicit any plan or plans expires on

 

41


February 1, 2010. If the Debtors’ exclusivity periods expire, other parties in interest will be allowed to file their own plans and solicit acceptances in connection therewith. The Debtors have filed a motion seeking to extend both the plan exclusivity period and the solicitation exclusivity period by an additional 120 days, which is currently pending before the Bankruptcy Court.

Under the supervision of the Bankruptcy Court, the Company may decide to pursue various strategic alternatives as deemed appropriate by our Board of Directors to serve the best interests of the Company and its stakeholders, including asset sales or strategic partnerships.

Debtor-in-Possession Financing

The Company has entered into a Debtor-In-Possession Credit Agreement, dated as of August 5, 2009 (the “DIP Credit Agreement”), among the Company, Cooper-Standard Automotive Inc., an Ohio corporation (the “U.S. Borrower”), and the Canadian Debtor (the U.S. Borrower and the Canadian Debtor are referred to herein as the “DIP Borrowers”), various lenders party thereto, Deutsche Bank Trust Company Americas, as the administrative agent (in such capacity, the “DIP Agent”), Banc of America Securities LLC, General Electric Corporation and UBS Securities LLC, as co-syndication agents, Deutsche Bank Trust Company Americas, as documentation agent, Deutsche Bank Securities Inc. and General Electric Capital Corporation, as joint lead arrangers and book runners, and Banc of America Securities LLC and UBS Securities LLC, as co-arrangers. The Company received interim and final approval of the DIP Credit Agreement from the Bankruptcy Court on August 5, 2009 and September 1, 2009, respectively. The Company received approval of the DIP Credit Agreement from the Canadian Court on August 6, 2009.

The lenders under the DIP Credit Agreement have committed to provide superpriority senior secured term loans to the DIP Borrowers and an additional non-U.S. subsidiary to be designated (the “Additional Foreign Borrower”) in an aggregate principal amount of up to $175 million (the “DIP Facility”) in connection with the Chapter 11 Cases and the Canadian Proceedings. The U.S. Borrower has drawn $75 million of the DIP Facility and the Canadian Debtor drew $50 million of the DIP facility as of September 30, 2009. An additional $50 million has been funded into escrow as of September 30, 2009, and is expected to be released to the Additional Foreign Borrower when local-law credit documentation is finalized. The DIP Credit Agreement also provides for an additional uncommitted $25 million incremental facility, for a total DIP Facility of up to $200 million (if the incremental facility is requested and committed to by the requisite lenders).

 

42


Results of Operations

(Dollar amounts in thousands)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2008     2009     2008     2009  

Sales

   $ 599,656      $ 517,842      $ 2,121,316      $ 1,367,656   

Cost of products sold

     537,172        435,775        1,821,724        1,192,470   
                                

Gross profit

     62,484        82,067        299,592        175,186   

Selling, administration, & engineering expenses

     51,336        52,658        187,768        146,233   

Amortization of intangibles

     7,758        194        23,519        14,783   

Impairment charges

     —          —          —          362,699   

Restructuring

     13,477        4,378        17,115        32,871   
                                

Operating profit (loss)

     (10,087     24,837        71,190        (381,400

Interest expense, net of interest income

     (23,677     (11,914     (71,275     (53,632

Equity earnings (loss)

     370        1,228        4,574        1,701   

Reorganization items, net

     —          (5,642     —          (5,642

Other income (expense)

     (409     5,930        2,553        13,679   
                                

Income (loss) before income taxes

     (33,803     14,439        7,042        (425,294

Provision (benefit) for income tax expense

     (995     3,773        12,743        (31,339
                                

Net income (loss)

     (32,808     10,666        (5,701     (393,955

Add: Net loss attributed to noncontrolling interests

     213        181        365      &