# Cooper-Standard Holdings Inc.: Form 10-Q for the period ended Mar 31, 2018

- Company: [Cooper-Standard Holdings Inc.](/companies/cps.md) (CIK 1320461)
- Form: 10-Q
- Filed: 2018-05-02
- Accepted by EDGAR: May 2, 2018, 16:14 ET
- Period: 2018-03-31
- Accession: 0001320461-18-000019
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1320461/000132046118000019/cps-q12018x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1320461/000132046118000019/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-01-01 to 2018-03-31 | $0 | us-gaap:Revenues |
| Gross profit | 3 months, 2018-01-01 to 2018-03-31 | $170.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2018-01-01 to 2018-03-31 | $80.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2018-01-01 to 2018-03-31 | $79.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2018-01-01 to 2018-03-31 | $11.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-01-01 to 2018-03-31 | $56.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-01-01 to 2018-03-31 | $3.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-01-01 to 2018-03-31 | $3.16 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-01-01 to 2018-03-31 | 18,511,113 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2018-01-01 to 2018-03-31 | −$10.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2018-01-01 to 2018-03-31 | $67.9m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2018-03-31 | $420.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-03-31 | $1.44bn | us-gaap:AssetsCurrent |
| Total assets | at 2018-03-31 | $2.76bn | us-gaap:Assets |
| Current liabilities | at 2018-03-31 | $793.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-03-31 | $1.84bn | us-gaap:Liabilities |
| Current portion of debt | at 2018-03-31 | $34.6m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2018-03-31 | $892.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,219 characters.

*This management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Our historical results may not indicate, and should not be relied upon as an indication of, our future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. See “Forward-Looking Statements” below for a discussion of risks associated with reliance on forward-looking statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed below and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission (“2017 Annual Report”) see Item 1A. “Risk Factors.” The following should be read in conjunction with our 2017 Annual Report and the other information included herein. Our discussion of trends and conditions supplements and updates such discussion included in our 2017 Annual Report. References in this quarterly report on Form 10-Q (the “Report”) to “we,” “our,” or the “Company” refer to Cooper-Standard Holdings Inc., together with its consolidated subsidiaries.*

### Executive Overview

### Our Business

We design, manufacture and sell sealing, fuel and brake delivery, fluid transfer, and anti-vibration systems for use in passenger vehicles and light trucks manufactured by global automotive original equipment manufacturers (“OEMs”) and replacement markets. We operate our business along four segments: North America, Europe, Asia Pacific and South America. We are primarily a “Tier 1” supplier, with approximately 85% of our sales in 2017 made directly to major OEMs.

### Recent Trends and Conditions

#### General Economic Conditions and Outlook

The global automotive industry is susceptible to uncertain economic conditions that could adversely impact new vehicle demand. Business conditions may vary significantly from period to period or region to region.

In North America, the U.S. economy has gained modest momentum as a result of recent tax changes and decreased regulation on business and industry. Geo-political and economic uncertainty has increased, however, due to ongoing discussions related to trade between the U.S. and certain key trading partners. Rising interest rates may temper consumer demand for new vehicles for certain segments of the population over the next several quarters. The mix of vehicles produced continues to shift away from passenger cars into sport utility vehicles, crossover utility vehicles and light trucks.

In Europe, the economic environment remains generally favorable. Labor markets are tightening and capital investment is increasing, and as a result, demand for light vehicles is increasing modestly. Similar to North America, however, potential economic uncertainty related to trade could impact consumer confidence and economic growth going forward.

The Chinese economy has started the year strong with robust infrastructure investment and strong retail growth, suggesting healthy private consumption. Consumer preferences and an expanding middle class in China continue to drive crossover utility vehicle demand higher, while demand for passenger cars is expected to decline slightly year over year.

In Brazil, positive economic momentum from the fourth quarter of 2017 appears to have continued into the first quarter of 2018. Manageable inflation and an improving labor market is expected to support consumer demand for the rest of the year. Longer term, however, due to a long history of economic and political volatility, we remain cautious about consumer confidence and vehicle demand in this region.

#### Production Levels

Our business is directly affected by the automotive vehicle production rates in North America, Europe, Asia Pacific and South America. New vehicle demand is driven by macroeconomic and other factors, such as interest rates, manufacturer and dealer sales incentives, fuel prices, consumer confidence, employment levels, income growth trends and government and tax incentives. The industry could face uncertainties that may adversely impact consumer demand for vehicles as well as the future production environment.

In North America, first quarter total light vehicle production declined modestly compared to the same period a year ago. Continuing recent trends in consumer demand and increases in business spending, production of passenger cars declined while production of light trucks, sport utility vehicles and crossover vehicles increased. We expect similar patterns to continue in the region throughout 2018. European light vehicle production experienced modest year-over-year growth through the first quarter of 2018, in line with our full-year expectations. In the Asia Pacific region, light vehicle production declined modestly in the first quarter compared to the same period last year, driven largely by declines in greater China. We expect production in greater China to increase through the remainder of the year, however, driving slight year-over-year growth for the Asia Pacific region overall.

Light vehicle production in certain regions for the three months ended March 31, 2018 and 2017 was:

*(In millions of units)*

|  | Three Months Ended March 31, 2018(1) | 2017(1) | % Change |
| --- | ---: | ---: | ---: |
| North America | 4.4 | 4.5 | (2.7)% |
| Europe | 5.9 | 5.9 | (0.1)% |
| Asia Pacific(2) | 12.4 | 12.6 | (1.2)% |
| South America | 0.8 | 0.7 | 11.8% |

(1) Production data based on IHS Automotive, April 2018.

(2) Includes Greater China units of 6.7 and 6.9 for the three months ended March 31, 2018 and 2017, respectively.

### Results of Operations

*(dollar amounts in thousands)*

|  | Three Months Ended March 31, 2018 | 2017 | Change |
| --- | ---: | ---: | ---: |
| Sales | $967,391 | $902,051 | $65,340 |
| Cost of products sold | 796,511 | 732,049 | 64,462 |
| Gross profit | 170,880 | 170,002 | 878 |
| Selling, administration & engineering expenses | 80,440 | 87,054 | (6,614) |
| Amortization of intangibles | 3,406 | 3,595 | (189) |
| Impairment charges | — | 4,270 | (4,270) |
| Restructuring charges | 7,125 | 9,988 | (2,863) |
| Operating profit | 79,909 | 65,095 | 14,814 |
| Interest expense, net of interest income | (9,800) | (11,239) | 1,439 |
| Equity in earnings of affiliates | 1,687 | 1,675 | 12 |
| Loss on refinancing and extinguishment of debt | (770) | — | (770) |
| Other expense, net | (1,719) | (1,137) | (582) |
| Income before income taxes | 69,307 | 54,394 | 14,913 |
| Income tax expense | 11,891 | 11,890 | 1 |
| Net income | 57,416 | 42,504 | 14,912 |
| Net income attributable to noncontrolling interests | (624) | (798) | 174 |
| Net income attributable to Cooper-Standard Holdings Inc. | $56,792 | $41,706 | $15,086 |

### Three Months Ended March 31, 2018 Compared with Three Months Ended March 31, 2017

#### Sales

Sales for the three months ended March 31, 2018 increased 7.2%, compared to the three months ended March 31, 2017.

*(dollar amounts in thousands)*

|  | Three Months Ended March 31, 2018 | 2017 | Change | Variance Due To: Volume / Mix\* | Foreign Exchange | Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total sales | $967,391 | $902,051 | $65,340 | $18,668 | $52,969 | $(6,297) |

\* Net of customer price reductions

We experienced volume growth of 1.7% for the period, primarily as a result of increased sales in all regions, and favorable foreign exchange impacts, primarily related to the Euro and the Renminbi. Other includes the net impact of acquisitions and divestitures.

#### Gross Profit

*(dollar amounts in thousands)*

|  | Three Months Ended March 31, 2018 | 2017 | Change | Variance Due To: Volume / Mix\* | Foreign Exchange | Cost Increases / (Decreases) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of products sold | 796,511 | 732,049 | 64,462 | 41,005 | 46,071 | (22,614) |
| Gross profit | 170,880 | 170,002 | 878 | (22,337) | 6,898 | 16,317 |
| Gross profit percentage of sales | 17.7% | 18.8% |  |  |  |  |

\* Net of customer price reductions

Cost of products sold is primarily comprised of material, labor, manufacturing overhead, freight, depreciation, warranty costs and other direct operating expenses. The Company’s material cost of products sold was approximately 51% of net sales for the three months ended March 31, 2018 and 2017, respectively. The most significant driver of the cost decrease for cost of products sold was net operating efficiencies of $25.0 million, primarily driven by lean manufacturing.

*Selling, Administration and Engineering Expense.* Selling, administration and engineering expense includes administrative expenses as well as product engineering and design and development costs. As a percent of sales, expense for the three months ended March 31, 2018 was 8.3% compared to 9.7% for the three months ended March 31, 2017. This decrease is due to lower compensation related costs and efficiencies related to cost improvement initiatives.

*Restructuring.* Restructuring charges for the three months ended March 31, 2018 decreased $2.9 million compared to the three months ended March 31, 2017. The decrease was primarily driven by lower restructuring expenses related to our European and Asia Pacific initiatives of $4.0 million, partially offset by higher restructuring charges attributed to North America and South America.

*Interest Expense, Net.* Net interest expense for the three months ended March 31, 2018 decreased $1.4 million compared to the three months ended March 31, 2017, primarily due to the refinancing of the Term Loan Facility.

*Loss on Refinancing and Extinguishment of Debt.* Loss on refinancing and extinguishment of debt for the three months ended March 31, 2018 was $0.8 million which resulted primarily from expensing debt issuance costs associated with our amended Term Loan Facility.

*Other Expense, Net.* Other expense for the three months ended March 31, 2018 increased $0.6 million compared to the three months ended March 31, 2017 primarily due to increased foreign currency losses.

*Income Tax Expense.* Income tax expense for the three months ended March 31, 2018 was $11.9 million on earnings before income taxes of $69.3 million. This compares to income tax expense of $11.9 million on earnings before income taxes of $54.4 million for the same period of 2017. The effective tax rate for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was lower primarily due to the lower U.S. statutory rate in the three months ended March 31, 2018. The income tax rate for the three months ended March 31, 2018 varied from statutory rates primarily due to tax credits, the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate, the inability to record a tax benefit for pre-tax losses in certain foreign jurisdictions to the extent not offset by other categories of income, income tax incentives, excess tax benefits related to share-based compensation and other permanent items.

### Segment Results of Operations

### Three Months Ended March 31, 2018 Compared with Three Months Ended March 31, 2017

#### Sales

*(dollar amounts in thousands)*

| Sales to external customers | Three Months Ended March 31, 2018 | 2017 | Change | Variance Due To: Volume / Mix\* | Foreign Exchange | Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $499,178 | $484,238 | $14,940 | $14,770 | $3,353 | $(3,183) |
| Europe | 292,401 | 261,506 | 30,895 | (3,209) | 39,884 | (5,780) |
| Asia Pacific | 149,175 | 132,591 | 16,584 | 3,331 | 10,587 | 2,666 |
| South America | 26,637 | 23,716 | 2,921 | 3,776 | (855) | — |
| Consolidated | $967,391 | $902,051 | $65,340 | $18,668 | $52,969 | $(6,297) |

\* Net of customer price reductions

- The impact of foreign currency exchange primarily relates to the Euro and the Renminbi
- Other includes the net impact of acquisitions and divestitures

#### Segment profit (loss)

*(dollar amounts in thousands)*

| Income before income taxes | Three Months Ended March 31, 2018 | 2017 | Change | Variance Due To: Volume / Mix\* | Foreign Exchange | Cost (Increases) / Decreases | Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $64,685 | $62,281 | $2,404 | $(10,303) | $(837) | $14,602 | $(1,058) |
| Europe | 2,569 | (8,559) | 11,128 | (9,764) | 3,889 | 8,464 | 8,539 |
| Asia Pacific | 3,581 | 3,477 | 104 | (3,274) | 103 | 2,974 | 301 |
| South America | (1,528) | (2,805) | 1,277 | 1,004 | (306) | 562 | 17 |
| Consolidated income before income taxes | $69,307 | $54,394 | $14,913 | $(22,337) | $2,849 | $26,602 | $7,799 |

\* Net of customer price reductions

- The favorable impact of foreign currency exchange impact is primarily driven by the Euro, partially offset by the Polish Zloty and the Czech Koruna
- The Cost (Increases) / Decreases category above includes:
- Net operational efficiencies of $25.0 million primarily driven by North America and Europe, partially offset by inflation
- The decrease in selling, administrative and engineering expense of $10.0 million, net of wage inflation
- Commodity price pressure, offset by purchasing performance
- The Other category above includes changes in the net impact of interest income and expense, the net impact of acquisitions and divestitures, one-time items, and restructuring expense, including:
- The non-recurrence of the prior period impairment of $4.3 million in our Europe segment
- The $2.9 million decrease in restructuring expenses related to Europe and Asia Pacific, partially offset by higher restructuring charges in North America and South America

### Liquidity and Capital Resources

### Short and Long-Term Liquidity Considerations and Risks

We intend to fund our ongoing working capital, capital expenditures, debt service and other funding requirements through a combination of cash flows from operations, cash on hand, borrowings under our senior asset-based revolving credit facility (“ABL Facility”) and receivables factoring. The Company utilizes intercompany loans and equity contributions to fund its worldwide operations. There may be country-specific regulations which may restrict or result in increased costs in the repatriation of these funds. See Note 9. “Debt” to the unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Report for additional information.

Based on our current and anticipated levels of operations and the condition in our markets and industry, we believe that our cash flows from operations, cash on hand, borrowings under our ABL Facility and receivables factoring will enable us to meet our ongoing working capital, capital expenditures, debt service and other funding requirements for the next twelve months. However, our ability to fund our working capital needs, debt payments and other obligations, and to comply with the financial covenants, including borrowing base limitations, under our ABL Facility, depend on our future operating performance and cash flow and many factors outside of our control, including the costs of raw materials, the state of the overall automotive industry and financial and economic conditions and other factors.

### Cash Flows

*Operating Activities.* Net cash used in operations was $10.6 million for the three months ended March 31, 2018, compared to net cash provided by operations of $3.7 million for the three months ended March 31, 2017. The outflow was primarily due to the timing of customer payments and lower utilization of the accounts receivable factoring program, partially offset by the timing of accounts payable and increased earnings.

*Investing Activities.* Net cash used in investing activities was $70.2 million for the three months ended March 31, 2018, compared to $58.2 million for the three months ended March 31, 2017. Cash used in investing activities consisted primarily of capital spending of $67.9 million and $58.3 million for the three months ended March 31, 2018 and 2017, respectively, as well as cash paid for the acquisition of businesses, which consisted primarily of $4.1 million for the AMI China acquisition. We anticipate that we will spend approximately $195 million to $215 million on capital expenditures in 2018.

*Financing Activities.* Net cash used in financing activities totaled $15.0 million for the three months ended March 31, 2018, compared to $12.0 million for the three months ended March 31, 2017. The increase was primarily due to the purchase of a noncontrolling interest and debt issuance costs paid related to the term loan refinancing.

### Share Repurchase Program

In March 2016, our Board of Directors approved a securities repurchase program (the “Program”) authorizing us to repurchase, in the aggregate, up to $125 million of our outstanding common stock or warrants to purchase common stock. Under the Program, repurchases may be made on the open market or through private transactions, as determined by our management and in accordance with prevailing market conditions and federal securities laws and regulations.

In 2017, we repurchased $55.9 million of our common stock (513,801 shares at an average purchase price of $108.87 per share, excluding commissions) in the open market, of which $55.1 million was settled in cash during the year ended December 31, 2017. We did not make any share repurchases related to the Program during the three months ended March 31, 2018. We expect to fund any future repurchases from cash on hand and future cash flows from operations. We are not obligated to acquire a particular amount of securities, and the Program may be discontinued at any time at our discretion. As of March 31, 2018, we have approximately $45.3 million of repurchase authorization remaining under the Program.

### Non-GAAP Financial Measures

In evaluating our business, management considers EBITDA and Adjusted EBITDA to be key indicators of our operating performance. Our management also uses EBITDA and Adjusted EBITDA:

- because similar measures are utilized in the calculation of the financial covenants and ratios contained in our financing arrangements;
- in developing our internal budgets and forecasts;
- as a significant factor in evaluating our management for compensation purposes;
- in evaluating potential acquisitions;
- in comparing our current operating results with corresponding historical periods and with the operational performance of other companies in our industry; and
- in presentations to the members of our board of directors to enable our board of directors to have the same measurement basis of operating performance as is used by management in their assessments of performance and in forecasting and budgeting for our company.

In addition, we believe EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts and other interested parties in evaluating our performance. We define Adjusted EBITDA as net income (loss) plus income tax expense (benefit), interest expense, net of interest income, depreciation and amortization or EBITDA, as adjusted for items that management does not consider to be reflective of our core operating performance. These adjustments include, but are not limited to, restructuring costs, impairment charges, non-cash fair value adjustments and acquisition-related costs.

EBITDA and Adjusted EBITDA are not financial measurements recognized under U.S. GAAP, and when analyzing our operating performance, investors should use EBITDA and Adjusted EBITDA as a supplement to, and not as alternatives for, net income (loss), operating income, or any other performance measure derived in accordance with U.S. GAAP, nor as an alternative to cash flow from operating activities as a measure of our liquidity. EBITDA and Adjusted EBITDA have limitations as analytical tools, and they should not be considered in isolation or as substitutes for analysis of our results of operations as reported under U.S. GAAP. These limitations include:

- they do not reflect our cash expenditures or future requirements for capital expenditure or contractual commitments;
- they do not reflect changes in, or cash requirements for, our working capital needs;
- they do not reflect interest expense or cash requirements necessary to service interest or principal payments under our ABL Facility, Term Loan Facility and Senior Notes;
- they do not reflect certain tax payments that may represent a reduction in cash available to us;
- although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and
- other companies, including companies in our industry, may calculate these measures differently and, as the number of differences in the way companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases.

In addition, in evaluating Adjusted EBITDA, it should be noted that in the future, we may incur expenses similar to the adjustments in the below presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by special items.

The following table provides a reconciliation of EBITDA and Adjusted EBITDA from net income, which is the most comparable financial measure in accordance with U.S. GAAP:

*(dollar amounts in thousands)*

|  | Three Months Ended March 31, 2018 | 2017 |
| --- | ---: | ---: |
| Net income attributable to Cooper-Standard Holdings Inc. | $56,792 | $41,706 |
| Income tax expense | 11,891 | 11,890 |
| Interest expense, net of interest income | 9,800 | 11,239 |
| Depreciation and amortization | 36,259 | 31,857 |
| EBITDA | $114,742 | $96,692 |
| Restructuring charges | 7,125 | 9,988 |
| Loss on refinancing and extinguishment of debt (1) | 770 | — |
| Impairment charges (2) | — | 4,270 |
| Adjusted EBITDA | $122,637 | $110,950 |

(1) Loss on refinancing and extinguishment of debt related to the amendment of the Term Loan Facility.

(2) Non-cash impairment charges related to fixed assets.

### Contingencies and Environmental Matters

The information concerning contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters, contained in Note 20. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, is incorporated herein by references.

### Recently Issued Accounting Pronouncements

See Note 1. “Overview” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.

### Critical Accounting Estimates

There have been no significant changes in our critical accounting estimates during the three months ended March 31, 2018.

### Forward-Looking Statements

This quarterly report on Form 10-Q includes “forward-looking statements” within the meaning of U.S. federal securities laws, and we intend that such forward-looking statements be subject to the safe harbor created thereby. Our use of words “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” or future or conditional verbs, such as “will,” “should,” “could,” “would,” or “may,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you that these expectations, beliefs, and projections will be achieved. Forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties that may cause actual results or achievements to be materially different from the future results or achievements expressed or implied by the forward-looking statements. Among other items, such factors may include: prolonged or material contractions in automotive sales and production volumes; our inability to realize sales represented by awarded business; escalating pricing pressures; loss of large customers or significant platforms; our ability to successfully compete in the automotive parts industry; availability and increasing volatility in costs of manufactured components and raw materials; disruption in our supply base; entering new markets; possible variability of our working capital requirements; risks associated with our international operations; foreign currency exchange rate fluctuations; our ability to control the operations of our joint ventures for our sole benefit; our substantial amount of indebtedness; our ability to obtain adequate financing sources in the future; operating and financial restrictions imposed on us under our debt instruments; the underfunding of our pension plans; significant changes in discount rates and the actual return on pension assets; effectiveness of continuous improvement programs and other cost savings plans; manufacturing facility closings or consolidation; our ability to execute new program launches; our ability to meet customers' needs for new and improved products; the possibility that our acquisitions and divestitures may not be successful; product liability, warranty and recall claims brought against us; laws and regulations, including environmental, health and safety laws and regulations; legal proceedings, claims or investigations against us; work stoppages or other labor disruptions; the ability of our intellectual property to withstand legal challenges; cyber-attacks or other disruptions in our information technology systems; the possible volatility of our annual effective tax rate; changes in our assumptions used for evaluation of deemed repatriation tax and the remeasurement of our deferred tax assets and liabilities, including as a result of IRS issuing guidance on Tax Cuts and Jobs Act that may change our assumptions; the possibility of future impairment charges to our goodwill and long-lived assets; and our dependence on our subsidiaries for cash to satisfy our obligations.

You should not place undue reliance on these forward-looking statements. We undertake no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except where we are expressly required to do so by law.

This quarterly report on Form 10-Q also contains estimates and other information that is based on industry publications, surveys, and forecasts. This information involves a number of assumptions and limitations, and we have not independently verified the accuracy or completeness of the information.

## Market risk

As filed, 1,790 characters.

We are exposed to fluctuations in interest rates, currency exchange rates and commodity prices. We actively manage our exposure to risk from changes in foreign currency exchange rates and interest rates through the use of derivative financial instruments in accordance with management’s guidelines. We do not enter into derivative instruments for trading or speculative purposes.

*Foreign Currency Exchange Rate Risk*. We use forward foreign exchange contracts to reduce the effect of fluctuations in foreign exchange rates on a portion of forecasted sales, material purchases and operating expenses. As of March 31, 2018, the notional amount of these contracts was $125.7 million. As of March 31, 2018, the fair value of the Company’s forward foreign exchange contracts was an asset of $2.8 million. The potential pre-tax loss or gain in fair value from a hypothetical 10% adverse or favorable movement in the foreign currency exchange rates in relation to the U.S. Dollar is as follows:

|  | March 31, 2018 | December 31, 2017 |
| --- | --- | --- |
| 10% strengthening of U.S. Dollar | - $9.8 million | - $10.0 million |
| 10% weakening of U.S. Dollar | + $11.9 million | + $12.9 million |

These estimates assume a parallel shift in all currency exchange rates and, as a result, may overstate the potential impact to earnings because currency exchange rates do not typically move all in the same direction.

In addition to transactional exposures, our operating results are impacted by the translation of our foreign operating income into U.S. dollars. In 2017, net sales outside of the United States accounted for 76% of our consolidated net sales, although certain non-U.S. sales are U.S. dollar denominated. We do not enter into foreign exchange contracts to mitigate this exposure.

## Controls and procedures

As filed, 1,213 characters.

### Evaluation of Disclosure Controls and Procedures

The Company has evaluated, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Based on that evaluation, the Company’s Chief Executive Officer along with the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Report.

### Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.

Filed May 2, 2018.
Source: SEC EDGAR, the filing index for accession 0001320461-18-000019. Last ingested by Listed: Nov 5, 2026, 16:52 ET. No prices; not investment advice.