FILED
PURSUANT TO RULE 424(B)(3)
File Number 333-124582
COOPER-STANDARD HOLDINGS INC.
Supplement No. 1 to market-making prospectus dated May 12, 2005
The
date of this supplement is September 8, 2005
On August 15, 2005,
Cooper-Standard Holdings Inc. filed the attached Quarterly Report on
Form 10-Q for the quarterly period ended June 30,
2005
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2005
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 | 20-194508 | |||||
(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 No
Indicate
by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2
of the Exchange
Act).
Yes No
Number of shares of common stock of registrant outstanding, at July 31, 2005:
3,237,100 shares of common stock, $0.01 par value
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
COMBINED AND CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX
MONTHS ENDED JUNE 30, 2004 AND 2005
(UNAUDITED)
(Dollar
amounts in
thousands)
Predecessor | Successor | Predecessor | Successor | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||||
Sales | $ | 484,970 | $ | 489,141 | $ | 981,954 | $ | 959,282 | ||||||||||
Cost of products sold | 391,986 | 409,872 | 799,693 | 811,636 | ||||||||||||||
Gross profit | 92,984 | 79,269 | 182,261 | 147,646 | ||||||||||||||
Selling, administration & engineering expenses | 44,262 | 43,839 | 89,779 | 87,587 | ||||||||||||||
Amortization of intangibles | 131 | 6,976 | 267 | 13,946 | ||||||||||||||
Restructuring | 4,502 | 157 | 8,922 | 400 | ||||||||||||||
Operating profit | 44,089 | 28,297 | 83,293 | 45,713 | ||||||||||||||
Interest expense, net of interest income | (593 | ) | (16,743 | ) | (1,659 | ) | (32,874 | ) | ||||||||||
Equity earnings (losses) | 834 | 485 | 616 | 1,287 | ||||||||||||||
Other income (expense) | (661 | ) | (3,275 | ) | (1,163 | ) | (5,937 | ) | ||||||||||
Income before income taxes | 43,669 | 8,764 | 81,087 | 8,189 | ||||||||||||||
Provision for income tax expense | 12,692 | 1,096 | 23,567 | 999 | ||||||||||||||
Net income | $ | 30,977 | $ | 7,668 | $ | 57,520 | $ | 7,190 | ||||||||||
The accompanying notes are an integral part of these financial statements. See Note 1 for a description of the Predecessor and Successor presentation.
2
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in
thousands)
Successor | ||||||||||||||
December
31, 2004 |
June
30, 2005 |
|||||||||||||
(Unaudited) | ||||||||||||||
Assets | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 83,658 | $ | 66,807 | ||||||||||
Accounts receivable, net | 299,906 | 319,060 | ||||||||||||
Inventories, net | 117,859 | 97,604 | ||||||||||||
Prepaid expenses | 19,994 | 18,230 | ||||||||||||
Total current assets | 521,417 | 501,701 | ||||||||||||
Property, plant and equipment, net | 509,943 | 475,429 | ||||||||||||
Goodwill | 402,598 | 403,966 | ||||||||||||
Intangibles, net | 311,605 | 297,662 | ||||||||||||
Other assets | 54,765 | 55,556 | ||||||||||||
$ | 1,800,328 | $ | 1,734,314 | |||||||||||
Liabilities and Stockholders' Equity | ||||||||||||||
Current liabilities: | ||||||||||||||
Debt payable within one year | $ | 13,145 | $ | 11,520 | ||||||||||
Accounts payable | 136,543 | 150,795 | ||||||||||||
Payroll liabilities | 57,210 | 59,693 | ||||||||||||
Accrued liabilities | 54,452 | 43,976 | ||||||||||||
Deferred purchase price payment | 53,423 | — | ||||||||||||
Payable to stockholder | 8,000 | — | ||||||||||||
Total current liabilities | 322,773 | 265,984 | ||||||||||||
Long-term debt | 899,572 | 893,260 | ||||||||||||
Pension benefits | 48,090 | 46,721 | ||||||||||||
Postretirement benefits other than pensions | 87,410 | 89,566 | ||||||||||||
Deferred tax liabilities | 109,885 | 106,409 | ||||||||||||
Other long-term liabilities | 14,438 | 14,911 | ||||||||||||
Stockholders' Equity: | ||||||||||||||
Common stock, $0.01 par
value, 3,500,000 shares authorized, 3,192,000 and 3,237,100 shares issued and outstanding at December 31, 2004 and June 30, 2005, respectively |
32 | 32 | ||||||||||||
Additional paid-in capital | 319,168 | 323,678 | ||||||||||||
Retained earnings (deficit) | (4,545 | ) | 2,645 | |||||||||||
Cummulative other comprehensive income (loss) | 3,505 | (8,892 | ) | |||||||||||
Total stockholders' equity | 318,160 | 317,463 | ||||||||||||
$ | 1,800,328 | $ | 1,734,314 | |||||||||||
The accompanying notes are an integral part of these financial statements. See Note 1 for a description of the Predecessor and Successor presentation.
3
COMBINED AND CONSOLIDATED STATEMENTS OF
CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004 AND 2005
(UNAUDITED)
(Dollar amounts in
thousands)
Predecessor | Successor | |||||||||
2004 | 2005 | |||||||||
Operating activities: | ||||||||||
Net income | $ | 57,520 | $ | 7,190 | ||||||
Adjustments
to reconcile net income to net cash provided by operating activities: |
||||||||||
Depreciation | 38,669 | 39,759 | ||||||||
Amortization | 628 | 13,946 | ||||||||
Non-cash restructuring charges | 588 | 122 | ||||||||
Amortization of debt issuance costs | — | 1,840 | ||||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | (44,076 | ) | (26,446 | ) | ||||||
Inventories | 88 | 18,306 | ||||||||
Prepaid expenses | (141 | ) | 1,114 | |||||||
Accounts payable | 12,562 | 19,756 | ||||||||
Accrued liabilities | 6,847 | (3,409 | ) | |||||||
Other non-current items | 16,567 | (11,635 | ) | |||||||
Net cash provided by operating activities | 89,252 | 60,543 | ||||||||
Investing activities: | ||||||||||
Property, plant, and equipment | (26,095 | ) | (20,314 | ) | ||||||
Settlement of working capital adjustment related to Acquisition | — | (54,270 | ) | |||||||
Payment to stockholder related to Acquisition | — | (8,000 | ) | |||||||
Proceeds from the sale of assets and other | 6,236 | 784 | ||||||||
Net cash used in investing activities | (19,859 | ) | (81,800 | ) | ||||||
Financing activities: | ||||||||||
Increase (decrease) in short-term debt | 621 | (776 | ) | |||||||
Debt issue costs | — | (445 | ) | |||||||
Principal payments on Acquisition-related debt | — | (4,028 | ) | |||||||
Principal payments on other borrowings | (1,261 | ) | (1,482 | ) | ||||||
Net changes in advances from Cooper Tire | (91,814 | ) | — | |||||||
Equity contributions | — | 4,510 | ||||||||
Net cash provided by (used in) financing activities | (92,454 | ) | (2,221 | ) | ||||||
Effects of exchange rate changes on cash | (21,616 | ) | 6,627 | |||||||
Changes in cash and cash equivalents | (44,677 | ) | (16,851 | ) | ||||||
Cash and cash equivalents at beginning of period | 102,599 | 83,658 | ||||||||
Cash and cash equivalents at end of period | $ | 57,922 | $ | 66,807 | ||||||
The accompanying notes are an integral part of these financial statements. See Note 1 for a description of the Predecessor and Successor presentation.
4
NOTES
TO COMBINED AND 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 body sealing, fluid handling, 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.
Change in ownership
The Company acquired the Automotive segment of Cooper Tire & Rubber Company ("Cooper Tire") on December 23, 2004 for a cash purchase price of $1,165 million, subject to adjustment based on the amount of cash and cash equivalents less debt obligations and the difference between targeted working capital and working capital at the closing date (hereafter, the "Acquisition"). Additionally, the Company incurred approximately $24 million of direct acquisition costs, principally for investment banking, legal and other professional services, for a total purchase price of $1,250 million. The consolidated balance sheet at December 31, 2004 includes a deferred purchase price payment of $53 million related to the estimated settlement of a post-closing working capital adjustment. Final settlement of the working capital adjustment resulted in a payment of $54 million in April 2005.
At closing, the Company funded the Acquisition through $318 million of equity contributions, $200 million of senior notes (the "Senior Notes"), $350 million of senior subordinated notes (the "Senior Subordinated Notes") and revolving credit and term loan facilities (the "Senior Secured Credit Facilities") of $350 million. The Company incurred approximately $28 million of issuance costs associated with these borrowings, which are included in other assets on the consolidated balance sheet. The Company amortizes such costs over the terms of the related borrowings.
Basis of presentation
The accompanying unaudited combined and 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 combined and consolidated financial statements and notes thereto included in the Company's Registration Statement on Form S-4 as of December 31, 2004, 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. Operating results for the three and six months ended June 30, 2005 are not necessarily indicative of results that may be expected for the year ending December 31, 2005. As a result of the Acquisition on December 23, 2004, the consolidated financial statements of the Company reflect the Acquisition under the purchase method of accounting, in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141").
The following provides a description of the basis of presentation during all periods presented:
Predecessor: Represents the combined financial position, results of operations and cash flows of the Automotive segment of Cooper Tire for all periods prior to the Acquisition on December 23, 2004. This presentation reflects the historical basis of accounting without any application of purchase accounting for the Acquisition.
Successor: Represents our consolidated financial position and our consolidated results of operations and cash flows for periods following the Acquisition. The financial position as of June 30,
5
NOTES
TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands except per share
amounts)
2005, results of operations for the three and six months ended June 30, 2005 and cash flows for the six months then ended reflect the preliminary application of purchase accounting relating to the Acquisition and the adjustments required to reflect the assets and liabilities not acquired in the Acquisition and the adjustments for domestic pension liabilities previously held by Cooper Tire.
The combined statements of operations include expenses recorded by the Predecessor or directly charged to the Predecessor by Cooper Tire for periods prior to the Acquisition. In addition, the combined statements of operations include an allocation of certain general and administrative corporate expenses from Cooper Tire. These services primarily consisted of compensation and benefits administration, payroll processing, legal services, purchasing, auditing, income tax planning and compliance, treasury services and general corporate management. These allocations totaled $3,719 and $7,438 in the three and six months ended June 30, 2004, respectively. The allocations were determined based on specific services being provided or were allocated based on net sales, headcount, assets or a combination of these factors and are reported in cost of products sold and selling, administration and engineering expenses in the combined statements of income. In addition, Cooper Tire charged the Predecessor market rate interest expense on net intercompany advances of $654 and $1,907 in the three and six months ended June 30, 2004, respectively.
The domestic operations of the Predecessor were included in the United States consolidated tax returns of Cooper Tire with current taxes refundable and payable reported in advances from Cooper Tire through the date of the Acquisition. The Predecessor's provisions for income taxes were computed on a basis consistent with separate returns.
Stock-based compensation
The Company accounts for employee stock option plans in accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." The following table illustrates the effect on net income as if the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," had been applied. Amounts related to the Predecessor period represent stock options granted by Cooper Tire to employees of the Predecessor. Amounts related to the Successor period relate to stock options granted by the Company.
Predecessor | Successor | Predecessor | Successor | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||||
Net income, as reported | $ | 30,977 | $ | 7,668 | $ | 57,520 | $ | 7,190 | ||||||||||
Add: Stock-based compensation, as reported | — | — | — | — | ||||||||||||||
Deduct: Stock-based
compensation under SFAS 123 fair value method, net of tax |
(178 | ) | (133 | ) | (358 | ) | (266 | ) | ||||||||||
Pro forma net income | $ | 30,799 | $ | 7,535 | $ | 57,162 | $ | 6,924 | ||||||||||
6
NOTES
TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands except per share
amounts)
The fair value for options awarded was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
Predecessor | Successor | Predecessor | Successor | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||||
Risk-free interest rate | 2.2 | % | 3.7 | % | 2.2 | % | 3.7 | % | ||||||||||
Dividend yield | 2.1 | % | 0.0 | % | 2.1 | % | 0.0 | % | ||||||||||
Expected volatility | 34.0 | % | 0.0 | % | 34.0 | % | 0.0 | % | ||||||||||
Expected life (in years) | 4.7 | 6.0 | 4.7 | 6.0 | ||||||||||||||
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation. As a result of changing to a net presentation of cash held in our global cash management vehicle, which we use to pool cash funds from foreign subsidiaries, cash and debt payable within one year both decreased by $79,230 at December 31, 2004 as compared to the previous classification. Additionally, we reclassified our presentation of the statement of cash flows related to non-cash restructuring charges and proceeds from the sale of certain assets. This reclassification increased net cash provided by operating activities by $2,418 for the six months ended June 30, 2004 as compared to the previous classification with a corresponding decrease to net cash used in investing activities.
Recent accounting pronouncements
In December 2004, the FASB issued a FASB Staff Position ("FSP") 109-2 "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004", which provides accounting and disclosure guidance for the foreign earnings repatriation provision within the American Jobs Creation Act of 2004. The Act provides a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer. FSP 109-2 provides for a period of time beyond the financial reporting period of enactment for a company to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings. The Company is in the process of evaluating the effects of one-time repatriation opportunities provided by the Act. At the time of filing these statements, the Company cannot reasonably estimate the income tax effects of such repatriation under the Act.
2. Goodwill and Intangibles
In connection with the Acquisition, the Company recorded goodwill totaling $402,598 at December 31, 2004. The Company increased goodwill by $1,368 during the six months ended June 30, 2005 as a result of the settlement of the post-closing working capital adjustment and other purchase price allocation adjustments to recorded assets and liabilities. Due to the close proximity of the Acquisition to the reporting period and the pending completion of the purchase price allocation, goodwill has not been allocated to the applicable reporting units as of June 30, 2005. Such allocation will occur upon completion of the purchase price allocation in 2005.
7
NOTES
TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands except per share
amounts)
The following table presents intangible assets and accumulated amortization balances of the Successor as of June 30, 2005:
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||
Customer contracts | $ | 141,000 | $ | (9,355 | ) | $ | 131,645 | |||||||
Customer relationships | 153,000 | (3,987 | ) | 149,013 | ||||||||||
Developed technology | 18,200 | (1,196 | ) | 17,004 | ||||||||||
$ | 312,200 | $ | (14,538 | ) | $ | 297,662 | ||||||||
Amortization expense totaled $6,976 and $311 for the three months ended June 30, 2005 and 2004, respectively, and $13,946 and $628 for the six months ended June 30, 2005 and 2004, respectively. Estimated amortization expense will total approximately $28,000 for the year ending December 31, 2005.
3. Restructuring
The following table summarizes the activity for these initiatives:
Employee Severance Costs |
Other Exit Costs |
Asset Impairments |
Total | |||||||||||||||
Balance at January 1, 2004 | $ | 3,300 | $ | — | $ | — | $ | 3,300 | ||||||||||
Expense incurred | 5,400 | 2,922 | 600 | 8,922 | ||||||||||||||
Cash payments | (3,300 | ) | (2,922 | ) | — | (6,222 | ) | |||||||||||
Utilization of reserve | — | — | (600 | ) | (600 | ) | ||||||||||||
Balance at June 30, 2004 | $ | 5,400 | $ | — | $ | — | $ | 5,400 | ||||||||||
Balance at January 1, 2005 | $ | — | $ | — | $ | — | $ | — | ||||||||||
Expense incurred | 274 | 4 | 122 | 400 | ||||||||||||||
Cash payments | (274 | ) | (4 | ) | — | (278 | ) | |||||||||||
Utilization of reserve | — | — | (122 | ) | (122 | ) | ||||||||||||
Balance at June 30, 2005 | $ | — | $ | — | $ | — | $ | — | ||||||||||
The Predecessor had an accrual of $700 at January 1, 2004 for employee severance costs related to the closure of a plastics manufacturing facility in Cleveland, OH. This closure was completed in 2004 at a total cost of approximately $4,000 and affected approximately 190 hourly and salaried employees. During the six months ended June 30, 2004, the Predecessor recorded $225 in employee severance costs and $500 of other exit costs related to this closure. The Predecessor also had an accrual of $2,600 at January 1, 2004 for employee severance costs related to the closure of two manufacturing facilities in the United Kingdom. This initiative was completed in 2004 at a total cost of $18,900 and affected approximately 515 hourly and salaried employees. During the six months ended June 30, 2004, $3,600 of severance costs were recorded representing amounts to be paid to employees upon their termination. These costs were recorded over the remaining work life of the employees. The Predecessor also recorded asset impairments of $600 and other exit costs of $2,400 related to this initiative during the six months ended June 30, 2004.
8
NOTES
TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands except per share
amounts)
In addition to the Cleveland and United Kingdom closures included in the above table, the Predecessor incurred costs of $1,575 during the six months ended June 30, 2004, related to workforce reductions and other costs associated with closed facilities, primarily in Europe and North America.
During the first quarter of 2005, the Successor initiated a restructuring initiative in Australia. This initiative is expected to be completed in the fourth quarter of 2005 and to affect approximately 30 employees, of which 21 were terminated as of June 30, 2005.
4. Inventories
Inventories are comprised of the following:
December
31, 2004 |
June 30, 2005 |
|||||||||
Finished goods | $ | 45,572 | $ | 33,595 | ||||||
Work in process | 21,423 | 15,817 | ||||||||
Raw materials and supplies | 50,864 | 48,192 | ||||||||
$ | 117,859 | $ | 97,604 | |||||||
Inventory at December 31, 2004 includes a $9,806 fair value write-up related to the Acquisition. Such inventory was liquidated as of March 31, 2005 and recorded as an increase to cost of products sold.
5. Debt
Outstanding debt consisted of the following at December 31, 2004 and June 30, 2005:
December
31, 2004 |
June 30, 2005 |
|||||||||
Senior Notes | $ | 200,000 | $ | 200,000 | ||||||
Senior Subordinated Notes | 350,000 | 350,000 | ||||||||
Term Loan A | 51,320 | 47,702 | ||||||||
Term Loan B | 115,000 | 114,425 | ||||||||
Term Loan C | 185,000 | 184,075 | ||||||||
Revolving Credit facility | — | — | ||||||||
Capital leases and other borrowings | 11,397 | 8,578 | ||||||||
Total debt | 912,717 | 904,780 | ||||||||
Less: debt payable within one year | (13,145 | ) | (11,520 | ) | ||||||
Total long-term debt | $ | 899,572 | $ | 893,260 | ||||||
As of June 30, 2005, the Company had $12,566 of standby letters of credit outstanding under the Revolving Credit facility leaving $112,434 of availability.
9
NOTES
TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands except per share
amounts)
6. Pension and Postretirement Benefits other than Pensions
The following tables disclose the amount of net periodic benefit costs for the three and six month periods ended June 30, 2004 and 2005 for the Company's defined benefit plans and other postretirement benefit plans:
Pension Benefits | ||||||||||||||||||
Predecessor | Successor | |||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||
2004 | 2005 | |||||||||||||||||
U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||
Service cost | $ | 2,246 | $ | 585 | $ | 2,171 | $ | 812 | ||||||||||
Interest cost | 2,946 | 931 | 2,842 | 915 | ||||||||||||||
Expected return on plan assets | (3,393 | ) | (956 | ) | (3,171 | ) | (827 | ) | ||||||||||
Amortization
of prior service cost and recognized actuarial loss |
777 | 459 | — | — | ||||||||||||||
Net periodic benefit cost | $ | 2,576 | $ | 1,019 | $ | 1,842 | $ | 900 | ||||||||||
Pension Benefits | ||||||||||||||||||
Predecessor | Successor | |||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||
2004 | 2005 | |||||||||||||||||
U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||
Service cost | $ | 4,491 | $ | 1,187 | $ | 4,343 | $ | 1,637 | ||||||||||
Interest cost | 5,891 | 1,884 | 5,684 | 1,847 | ||||||||||||||
Expected return on plan assets | (6,786 | ) | (1,933 | ) | (6,340 | ) | (1,667 | ) | ||||||||||
Amortization
of prior service cost and recognized actuarial loss |
1,554 | 923 | — | — | ||||||||||||||
Net periodic benefit cost | $ | 5,150 | $ | 2,061 | $ | 3,687 | $ | 1,817 | ||||||||||
Other Postretirement Benefits | Other Postretirement Benefits | |||||||||||||||||
Predecessor | Successor | Predecessor | Successor | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||||
Service cost | $ | 720 | $ | 768 | $ | 1,442 | $ | 1,537 | ||||||||||
Interest cost | 1,572 | 1,395 | 3,147 | 2,791 | ||||||||||||||
Amortization
of prior service cost and recognized actuarial loss |
425 | — | 851 | — | ||||||||||||||
Net periodic benefit cost | $ | 2,717 | $ | 2,163 | $ | 5,440 | $ | 4,328 | ||||||||||
7. Income Taxes
Under Accounting Principles Board Opinion No. 28, Interim Financial Reporting, the Company is required to compute its effective tax rate each quarter based upon its estimated annual effective tax rate. The effective tax rates for the three and six months ended June 30, 2004, were 29% and 29%, respectively, as compared to 13% and 12%, respectively, for the three and six months ended June 30, 2005. The income tax rate for the three and six months ended June 30, 2005 varies from the United States statutory income tax rate due primarily to lower than United States statutory effective income tax rates in certain foreign jurisdictions, the effect of losses in certain foreign jurisdictions for which valuation allowances are recorded, and the benefit of tax credits, primarily in the U.S.
10
NOTES
TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands except per share
amounts)
8. Comprehensive Income
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 (loss), net of related tax, are as follows:
Predecessor | Successor | Predecessor | Successor | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||||
Net income (loss) | $ | 30,977 | $ | 7,668 | $ | 57,520 | $ | 7,190 | ||||||||||
Currency translation adjustment | (24,304 | ) | (7,037 | ) | (29,287 | ) | (12,397 | ) | ||||||||||
Minimum pension liability | (104 | ) | — | (73 | ) | — | ||||||||||||
Change in the fair value of derivatives and | — | — | ||||||||||||||||
unrealized gain on marketable securities | (5,242 | ) | — | (3,244 | ) | — | ||||||||||||
Comprehensive income (loss) | $ | 1,327 | $ | 631 | $ | 24,916 | $ | (5,207 | ) | |||||||||
9. Other Income (Expense)
The components of other income (expense) are as follows:
Predecessor | Successor | Predecessor | Successor | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||||
Foreign currency gains (losses) | $ | (428 | ) | $ | (2,879 | ) | $ | (812 | ) | $ | (5,536 | ) | ||||||
Minority interest | (230 | ) | (412 | ) | (348 | ) | (417 | ) | ||||||||||
Gains (losses) on fixed assets disposals | (3 | ) | 16 | (3 | ) | 16 | ||||||||||||
Other income (expense) | $ | (661 | ) | $ | (3,275 | ) | $ | (1,163 | ) | $ | (5,937 | ) | ||||||
Included in foreign currency gains (losses) in the three and six months ended June 30, 2005 are unrealized losses of $1,815 and $4,142, respectively, related to indebtedness used to finance the Acquisition, including $1,528 and $2,487, respectively, related to Term Loan B, a U.S. dollar-denominated obligation of our Canadian subsidiary.
10. Related Party Transactions
The Predecessor had transactions in the normal course of business with Cooper Tire, including the purchase of raw materials which totaled $6,195 and $12,213 during the three and six months ended June 30, 2004, respectively. Such purchases are no longer considered related party transactions for periods subsequent to the Acquisition. Additionally, as part of the Acquisition, the Company executed a Transition Services Agreement with Cooper Tire whereby Cooper Tire agreed to provide a number of transitional services to the Company, including payroll, travel and employee benefits administration, treasury, purchasing, employee training, and information technology. The Company agreed to pay Cooper Tire specified amounts for certain of these services on a specific period or an as-needed basis. Cooper Tire's obligation to provide such services generally terminated by June 30, 2005, though payroll services are scheduled to continue through September 30, 2005. The Company incurred approximately $300 and $600 of expenses related to these services in the three and six months ended June 30, 2005, respectively.
Sales to NISCO, a 50% owned joint venture, totaled $3,240 and $4,730 in the three months ended June 30, 2004 and 2005, respectively, and $6,960 and $9,631 in the six months ended June 30, 2004 and 2005, respectively.
11
NOTES
TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands except per share
amounts)
In connection with the Acquisition, the Company paid one of its primary stockholders transaction advisory fees totaling $8,000 in January 2005. Such amount is reflected on the consolidated balance sheet as of December 31, 2004 as a payable to stockholder.
11. Business Segments
The Company evaluates segment performance based on segment profit before tax. The following table details information on the Company's business segments:
Predecessor | Successor | Predecessor | Successor | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||||
Sales to external customers | ||||||||||||||||||
Sealing | $ | 226,786 | $ | 240,294 | $ | 453,288 | $ | 470,481 | ||||||||||
Fluid | 165,921 | 166,596 | 338,245 | 326,953 | ||||||||||||||
NVH | 92,258 | 82,160 | 190,666 | 161,625 | ||||||||||||||
Eliminations and other | 5 | 91 | (245 | ) | 223 | |||||||||||||
Consolidated | 484,970 | 489,141 | 981,954 | 959,282 | ||||||||||||||
Intersegment sales | ||||||||||||||||||
Sealing | 2 | 4 | 48 | 23 | ||||||||||||||
Fluid | — | — | — | — | ||||||||||||||
NVH | 8,965 | 8,964 | 18,319 | 18,528 | ||||||||||||||
Eliminations and other | (8,967 | ) | (8,968 | ) | (18,367 | ) | (18,551 | ) | ||||||||||
Consolidated | — | — | — | — | ||||||||||||||
Segment profit | ||||||||||||||||||
Sealing | 13,611 | 692 | 15,316 | (1,366 | ) | |||||||||||||
Fluid | 19,078 | 10,686 | 41,257 | 14,035 | ||||||||||||||
NVH | 11,266 | (2,614 | ) | 25,151 | (4,480 | ) | ||||||||||||
Other | (286 | ) | — | (637 | ) | — | ||||||||||||
Income before income taxes | $ | 43,669 | $ | 8,764 | $ | 81,087 | $ | 8,189 | ||||||||||
Restructuring costs included in segment profit for Sealing, Fluid and NVH totaled $3,734, $768 and $0, respectively, for the three months ended June 30, 2004, $7,131, $1,791 and $0, respectively, for the six months ended June 30, 2004, $95, $62 and $0, respectively, for the three months ended June 30, 2005, and $124, $276 and $0, respectively, for the six months ended June 30, 2005.
12. Guarantor and Non-Guarantor Subsidiaries
In connection with the Acquisition, 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. (the "Parent") and all wholly-owned domestic subsidiaries of Cooper-Standard Automotive Inc. (the "Guarantors") unconditionally guarantee the notes. The following condensed consolidating and combining 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).
12
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
COMBINING STATEMENT OF
INCOME
For the Three Months Ended June 30,
2004
Predecessor | ||||||||||||||||||||||
Issuer | Guarantors | Non-Guarantors | Eliminations | Combined Totals |
||||||||||||||||||
Sales | $ | 167.0 | $ | 88.5 | $ | 245.6 | $ | (16.2 | ) | $ | 484.9 | |||||||||||
Cost of products sold | 146.2 | 69.9 | 192.1 | (16.2 | ) | 392.0 | ||||||||||||||||
Selling, admin, & engineering expenses | 28.7 | 4.8 | 10.8 | — | 44.3 | |||||||||||||||||
Amortization of intangibles | 0.1 | — | — | — | 0.1 | |||||||||||||||||
Restructuring | 0.4 | — | 4.1 | — | 4.5 | |||||||||||||||||
Operating profit | (8.4 | ) | 13.8 | 38.6 | — | 44.0 | ||||||||||||||||
Interest expense, net of interest income | (0.1 | ) | — | (0.4 | ) | — | (0.5 | ) | ||||||||||||||
Equity earnings (losses) | — | 0.8 | — | — | 0.8 | |||||||||||||||||
Other income (expense) | 8.5 | (4.3 | ) | (4.8 | ) | — | (0.6 | ) | ||||||||||||||
Income (loss) before income taxes | — | 10.3 | 33.4 | — | 43.7 | |||||||||||||||||
Provision for income tax expense (benefit) | — | 2.6 | 10.1 | — | 12.7 | |||||||||||||||||
Income
(loss) before equity in income (loss) of subsidiaries |
— | 7.7 | 23.3 | — | 31.0 | |||||||||||||||||
Equity in net income (loss) of subsidiaries | 31.0 | — | — | (31.0 | ) | — | ||||||||||||||||
NET INCOME (LOSS) | $ | 31.0 | $ | 7.7 | $ | 23.3 | $ | (31.0 | ) | $ | 31.0 | |||||||||||
CONSOLIDATING
STATEMENT OF INCOME
For the Three Months Ende d June 30,
2005
Successor | ||||||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated Totals |
|||||||||||||||||||||
Sales | $ | — | $ | 153.6 | $ | 84.8 | $ | 266.6 | $ | (15.8 | ) | $ | 489.2 | |||||||||||||
Cost of products sold | — | 136.1 | 66.6 | 222.9 | (15.8 | ) | 409.8 | |||||||||||||||||||
Selling, admin, & engineering expenses | — | 25.8 | 5.1 | 13.0 | — | 43.9 | ||||||||||||||||||||
Amortization of intangibles | — | 6.9 | — | — | — | 6.9 | ||||||||||||||||||||
Restructuring | — | 0.1 | — | 0.1 | — | 0.2 | ||||||||||||||||||||
Operating profit | — | (15.3 | ) | 13.1 | 30.6 | — | 28.4 | |||||||||||||||||||
Interest expense, net of interest income | — | (13.9 | ) | — | (2.9 | ) | — | (16.8 | ) | |||||||||||||||||
Equity earnings (losses) | — | — | 0.5 | — | — | 0.5 | ||||||||||||||||||||
Other income (expense) | — | 7.1 | — | (10.4 | ) | — | (3.3 | ) | ||||||||||||||||||
Income (loss) before income taxes | — | (22.1 | ) | 13.6 | 17.3 | — | 8.8 | |||||||||||||||||||
Provision for income tax expense (benefit) | — | (8.9 | ) | 5.6 | 4.4 | — | 1.1 | |||||||||||||||||||
Income
(loss) before equity in income (loss) of subsidiaries |
— | (13.2 | ) | 8.0 | 12.9 | — | 7.7 | |||||||||||||||||||
Equity in net income (loss) of subsidiaries | 7.7 | 20.9 | — | — | (28.6 | ) | — | |||||||||||||||||||
NET INCOME (LOSS) | $ | 7.7 | $ | 7.7 | $ | 8.0 | $ | 12.9 | $ | (28.6 | ) | $ | 7.7 | |||||||||||||
13
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
COMBINING STATEMENT OF INCOME
For
the Six Months Ended June 30,
2004
Predecessor | ||||||||||||||||||||||
Issuer | Guarantors | Non-Guarantors | Eliminations | Combined Totals |
||||||||||||||||||
Sales | $ | 337.6 | $ | 178.4 | $ | 498.3 | $ | (32.4 | ) |