Cooper-Standard Holdings Inc.: Form 10-Q for the period ended Sep 30, 2024

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, 2023 filed with the U.S. Securities and Exchange Commission (“2023 Annual Report”), including Item 1A. “Risk Factors.” The following should be read in conjunction with our 2023 Annual Report and the other information included herein. Our discussion of trends and conditions supplements and updates such discussion included in our 2023 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 and fluid handling systems (consisting of fuel and brake delivery and fluid transfer systems) for use primarily in passenger vehicles and light trucks manufactured by global automotive original equipment manufacturers (“OEMs”). We are primarily a “Tier 1” supplier, with approximately 84% of our sales in 2023 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 and production. Business conditions may vary significantly from period to period or region to region. In 2022, global automotive production was negatively impacted by broad supply chain challenges, labor market disruptions and other lingering impacts of the COVID-19 pandemic. In 2023, light vehicle production showed resilience and strong growth, supported by sustained consumer demand and OEM efforts to replenish depleted inventory levels. This resilience and growth was despite continued uncertainty in the global economy created by continued inflation, rising interest rates and increased geopolitical tension in key regions of the world. In 2024, light vehicle production has slowed modestly as inventory levels continue to ramp slowly higher, interest rates remain relatively high, and the geopolitical tensions driving global economic uncertainty persist.

In North America, U.S. consumer confidence has increased from 2023 levels but remains well below pre-pandemic historical averages. Slowing inflation and the Federal Reserve Board’s recent policy rate actions have been key drivers of improved consumer sentiment. However, uncertainty regarding the upcoming elections, the timing and magnitude of further interest rate cuts by the Federal Reserve, and increasing consumer debt continue to weigh on economic activity. Economists at the International Monetary Fund (IMF) are expecting the economies of the United States, Canada and Mexico to grow by 2.8 percent, 1.3 percent and 1.5 percent, respectively, in 2024.

In Europe, lower inflation and more stable energy costs are supporting stronger household consumption. Momentum in the services sector slowly increased in the first half of the year and export activity has been improving. Uncertainty related to ongoing geopolitical tension and the war in Ukraine continues, however, and remains a constraining factor to overall economic growth. In the current uncertain environment, economists at the IMF are expecting the economy in the Eurozone region to grow by approximately 0.8 percent in 2024.

In the Asia Pacific region, China’s post-COVID-19 economy has been burdened by a protracted property crisis, weak consumer and business confidence, and mounting local government debts. However, China’s economy has been buoyed by a new round of government stimulus actions, a rebound in private consumption and strong exports. Net of these factors, economists at the IMF are expecting the growth rate of the Chinese economy to slow modestly to 4.8 percent in 2024.

In South America, the Brazilian economy has been strengthened by an increase in the minimum wage and a continuing strong labor market contributing to consumer demand. In addition, economic disruptions from seasonal flooding have been less than expected and inflation has stabilized slightly above target levels set by the Brazilian central bank. As a result, economists at the IMF are now estimating the Brazilian economy will grow 3.0 percent in 2024.

Production Levels

Our business is directly affected by the automotive vehicle production rates in North America, Europe, Asia Pacific and South America. These production rates can be impacted periodically by changing macro and micro-economic conditions, geopolitical actions, regional consumer sentiment, labor disruptions and changing regulatory requirements, among other factors.

Light vehicle production by region for the three and nine months ended September 30, 2024 and 2023 was as follows:

(in millions of units)

(1) Production data based on S&P Global, October 2024.

Current industry forecasts suggest global light vehicle production in 2024 will be slightly lower than full year 2023, followed by modest growth in 2025 and 2026. The anticipated growth in 2025 and 2026 is expected to be driven primarily by production increases in China, South Asia and South America. Actual production volumes have varied and may further vary from forecasted levels due to a number of factors including, but not limited to, consumer demand, the regulatory environment, incentives offered and industry competitiveness. The electric vehicle segment has been particularly challenged with regard to production volumes meeting forecasted levels.

Raw Materials

Our business is susceptible to inflationary pressures with respect to raw materials. Abrupt changes in the market prices or availability of certain key raw materials may result in operational and profitability challenges for the Company and the industry as a whole. Since 2020, market prices for key raw materials, such as steel, aluminum, and oil-derived commodities, experienced a period of extreme volatility, which led to significant cost increases for our business. In response, we worked with our customers to implement or expand index-based commercial agreements that have enabled us to partially recover incremental material costs incurred and significantly reduce our exposure and risk related to commodity price fluctuations going forward. Global commodity markets and pricing have stabilized to a large degree in 2024, and material cost impacts on our results for the nine months ended September 30, 2024 were relatively small.

General Inflation and Recovery Strategy

In response to inflationary cost pressures that we continue to experience, we have implemented aggressive lean and cost optimization initiatives that are helping to offset these cost pressures. In addition, we continue to actively pursue pricing adjustments from our customers to offset higher costs on our current business, where the higher costs are market driven and beyond our immediate control.

Results of Operations

(dollar amounts in thousands)

Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023

Sales

(dollar amounts in thousands)

* Net of customer price adjustments, including recoveries.

Sales for the three months ended September 30, 2024 decreased 6.9% compared to the three months ended September 30, 2023. The decrease in sales was driven by unfavorable volume and mix, net of customer price adjustments including recoveries, the divestitures of our European technical rubber products business and a joint venture in the Asia Pacific region in the prior year, and the negative impact of foreign exchange.

Gross Profit

(dollar amounts in thousands)

* Net of customer price adjustments, including recoveries.

** Net of divestitures and restructuring savings.

Cost of products sold is primarily comprised of materials, labor, manufacturing overhead, freight, depreciation and other direct operating expenses. Materials comprise the largest component of our cost of products sold and represented approximately 51% of total cost of products sold for each of the three months ended September 30, 2024 and September 30, 2023. The change in cost of products sold was impacted by manufacturing and purchasing savings through lean initiatives, the impact of savings from our restructuring initiative in the current year, lower material input costs, and the divestiture of our European technical rubber products business and a joint venture in the Asia Pacific region in the prior year, partially offset by unfavorable volume and mix, net of recoveries, unfavorable foreign exchange, and higher inflation of labor and overhead.

Gross profit for the three months ended September 30, 2024 decreased $30.2 million compared to the three months ended September 30, 2023. The change was driven by unfavorable volume and mix, net of customer price adjustments including recoveries, higher inflation of labor and overhead, unfavorable foreign exchange, and the impact of the divestiture of our European technical rubber products business and a joint venture in the Asia Pacific region in the prior year, partially offset by manufacturing and purchasing savings through lean initiatives, the impact of savings from our restructuring initiative in the current year, and lower material input costs.

Selling, Administration and Engineering Expenses. Selling, administration and engineering expenses include administrative expenses as well as product engineering and design and development costs. Selling, administration and engineering expenses for the three months ended September 30, 2024 were $49.7 million, or 7.3% of sales, compared to $49.8 million, or 6.8% of sales, for the three months ended September 30, 2023. The increase as a percentage of sales was primarily due to higher compensation-related costs and foreign exchange.

Interest Expense, Net. Net interest expense for the three months ended September 30, 2024 decreased $4.7 million compared to the three months ended September 30, 2023, primarily due to a decrease in payment-in-kind interest on our Third Lien Notes. We elected to pay the third and fourth interest payments, due June 15, 2024 and December 15, 2024, respectively, in cash at the lower 5.625% Cash Pay interest rate as opposed to accruing for interest at the higher 10.625% PIK rate.

Pension Settlement Credit. A pension settlement credit of $2.2 million was recorded in the three months ended September 30, 2024 due to a refund of plan assets received from the insurance company administering the group annuity contract related to the termination of the aforementioned U.S. pension plan. See Note 9. “Pension and Postretirement Benefits Other Than Pensions” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for additional information.

Other Expense, Net. Other expense, net, for the three months ended September 30, 2024 increased $2.0 million compared to the three months ended September 30, 2023, primarily due to the unfavorable impact of foreign currency exchange, partially offset by a decrease in periodic benefit cost other than service cost.

Income Tax Expense. Income tax expense for the three months ended September 30, 2024 was $2.9 million on losses before income taxes of $8.0 million compared to an income tax expense of $4.3 million on earnings before income taxes of $15.7 million for the three months ended September 30, 2023. The effective tax rate for the three months ended September 30, 2024 differed from the effective tax rate for the three months ended September 30, 2023 primarily due to the geographic mix of pre-tax losses, the inability to record a tax benefit for pre-tax losses in the U.S. and certain foreign jurisdictions due to valuation allowances, adjustments to uncertain tax positions, and other permanent items.

Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023

Sales

(dollar amounts in thousands)

* Net of customer price adjustments, including recoveries.

Sales for the nine months ended September 30, 2024 decreased 3.4%, compared to the nine months ended September 30, 2023. The decrease in sales was driven by the divestitures of our European technical rubber products business and a joint venture in the Asia Pacific region in the prior year, unfavorable volume and mix, net of customer price adjustments including recoveries, and the negative impact of foreign exchange.

(dollar amounts in thousands)

* Net of customer price adjustments, including recoveries.

** Net of divestitures and restructuring savings.

The Company’s material portion of cost of products sold was approximately 51% and 52% of total cost of products sold for the nine months ended September 30, 2024 and 2023, respectively. The change in cost of products sold was impacted by favorable manufacturing and purchasing savings through lean initiatives, the divestiture of our European technical rubber products business and a joint venture in the Asia Pacific region in the prior year, the impact of savings from our restructuring initiative in the current year, lower volume and mix, net of recovery, and lower material input costs, partially offset by higher inflation of labor and overhead, and unfavorable foreign exchange .

Gross profit for the nine months ended September 30, 2024 decreased 2.3% compared to the nine months ended September 30, 2023. The change was driven by unfavorable foreign exchange, higher inflation of labor and overhead, unfavorable volume and mix, net of customer price adjustments including recoveries and the divestiture of our European technical rubber products business and a joint venture in the Asia Pacific region in the prior year, partially offset by manufacturing and purchasing savings through lean initiatives, the impact of savings from our restructuring initiative in the current year and lower material input costs.

Selling, Administration and Engineering Expenses. Selling, administration and engineering expenses for the nine months ended September 30, 2024 were $157.5 million, or 7.6% of sales, compared to $156.5 million, or 7.3% of sales for the nine months ended September 30, 2023. The increase was primarily due to higher compensation-related costs and foreign exchange.

Restructuring Charges. Restructuring charges for the nine months ended September 30, 2024 increased $7.5 million compared to the nine months ended September 30, 2023. The increase was primarily driven by a cost optimization restructuring plan that was implemented in the second quarter of 2024. See Note 4. “Restructuring” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for additional information.

Impairment Charges. Impairment charges for the nine months ended September 30, 2023 primarily related to nonrecurring impairments of certain assets in Asia Pacific in the prior year.

Interest Expense, Net. Net interest expense for the nine months ended September 30, 2024 decreased $11.0 million compared to the nine months ended September 30, 2023, primarily due to a decrease in payment-in-kind interest on our Third Lien Notes. We elected to pay the third and fourth interest payments, due June 15, 2024 and December 15, 2024, respectively, in cash at the lower 5.625% Cash Pay interest rate as opposed to accruing for interest at the higher 10.625% PIK rate.

Loss on Refinancing and Extinguishment of Debt. Loss on refinancing and extinguishment of debt for the nine months ended September 30, 2023 was $81.9 million which resulted from certain fees and the partial write off of new and unamortized debt issuance costs and unamortized original issue discount related to refinancing transactions that occurred in 2023.

Pension Settlement Charge. A one-time, non-cash pension settlement charge of $44.6 million was incurred in the nine months ended September 30, 2024 related to the termination of the aforementioned U.S. pension plan. See Note 9. “Pension and Postretirement Benefits Other Than Pensions” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for additional information.

Other Expense, Net. Other expense, net for the nine months ended September 30, 2024 increased $4.2 million compared to the nine months ended September 30, 2023, primarily due to the unfavorable impact of foreign currency exchange, partially offset by a decrease in periodic benefit cost other than service cost.

Income Tax Expense. Income tax expense for the nine months ended September 30, 2024 was $15.1 million on losses before income taxes of $103.3 million compared to income tax expense of $9.5 million on losses before income taxes of $138.7 million for the nine months ended September 30, 2023. The effective tax rate for the nine months ended September 30, 2024 differed primarily from the effective tax rate for the nine months ended September 30, 2023 due to the geographic mix of pre-tax losses, the inability to record a tax benefit for pre-tax losses in the U.S. and certain foreign jurisdictions due to valuation allowances, adjustment to uncertain tax positions, and other permanent items.

Segment Results of Operations

Effective January 1, 2024, the Company changed its management reporting structure with the launch of global product line-focused business segments. This resulted in the realignment of its reportable segments, which are determined based on how the CODM manages the business, allocates resources, makes operating decisions, and evaluates operating performance. As a result, the Company established two reportable segments: Sealing Systems and Fluid Handling Systems. All other business activities are reported in Corporate, eliminations and other. The segment realignment had no impact on the Company’s consolidated financial position, results of operations, or cash flows. All reportable segment information included in this Form 10-Q is reflective of this new structure and prior period information has been revised to conform to the Company’s current period segment presentation.

The Company uses segment adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. We have defined adjusted EBITDA as net income before interest, taxes, depreciation, amortization, restructuring expense, and special items.

The following tables present sales and segment adjusted EBITDA for each of the reportable segments.

Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023

Sales

(dollar amounts in thousands)

Sealing systems. The variance due to volume and mix, including customer price adjustments, was driven by lower customer volumes and lower customer recoveries. The unfavorable foreign currency exchange impact was driven by a $3.6 million impact of the Brazilian Real, partially offset by $1.3 million favorable impact of all other currencies.

Fluid handling systems. The variance due to volume and mix, including customer price adjustments, was driven by lower customer volumes and lower customer recoveries. The unfavorable foreign currency exchange impact was primarily driven by the Brazilian Real.

Segment adjusted EBITDA

(dollar amounts in thousands)

* Net of divestitures and restructuring savings.

Sealing systems. The variance due to volume and mix, including customer price adjustments, was driven by lower customer volumes and lower customer recoveries. The unfavorable foreign currency exchange impact was driven by a $3.4 million impact of the Polish Zloty, $2.0 million impact of the Brazilian Real, and $1.2 million unfavorable impact of all other currencies. The cost decreases were primarily driven by $9.4 million of favorable manufacturing and purchasing savings through lean initiatives, and $7.3 million of all other operational costs primarily driven by restructuring savings, partially offset by $3.0 million of unfavorable inflationary costs (including salary, transportation, and other costs).

Fluid handling systems. The variance due to volume and mix, including customer price adjustments, was driven by lower customer volumes and lower customer recoveries. The unfavorable foreign currency exchange impact was driven by a $1.1 million impact of the Costa Rican Colon, $1.1 million impact of the Brazilian Real, and $0.5 million unfavorable impact of all other currencies. The cost decreases were primarily driven by $7.0 million of favorable manufacturing and purchasing savings through lean initiatives, and $7.1 million of all other operational costs primarily driven by restructuring savings and favorable material input costs, partially offset by $3.9 million of unfavorable inflationary costs (including salary, transportation, and other costs).

Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023

Sales

(dollar amounts in thousands)

Sealing systems. The variance due to volume and mix, including customer price adjustments, was driven by lower customer volumes and lower customer recoveries. The unfavorable foreign currency exchange impact was driven by a $3.9 million impact of the Brazilian Real, $3.4 million impact of the Chinese Renminbi and $0.7 million unfavorable impact of all other currencies.

Fluid handling systems. The variance due to volume and mix, including customer price adjustments, was driven by lower customer volumes and lower customer recoveries. The unfavorable foreign currency exchange impact was driven by a $2.4 million impact of the Korean Won, $1.4 million impact of the Brazilian Real, and $0.9 million unfavorable impact of all other currencies.

Segment adjusted EBITDA

(dollar amounts in thousands)

* Net of divestitures and restructuring savings.

Sealing systems. The variance due to volume and mix, including customer price adjustments, was driven by lower customer recoveries and lower customer volumes. The unfavorable foreign currency exchange impact was driven by a $5.1 million impact of the Brazilian Real, $5.0 million impact of the Polish Zloty, and $4.3 million unfavorable impact of all other currencies. The cost decreases were primarily driven by $33.6 million of favorable manufacturing and purchasing savings through lean initiatives, and $5.6 million of all other operational costs primarily driven by restructuring savings, partially offset by $10.0 million of unfavorable inflationary costs (including salary, transportation, and other costs).

Fluid handling systems. The variance due to volume and mix, including customer price adjustments, was driven by lower customer volumes. The unfavorable foreign currency exchange impact was driven by a $10.9 million impact of the Mexican Peso, $4.2 million impact of the Costa Rican Colon, $2.3 million impact of the Brazilian Real, and $1.5 million unfavorable impact of all other currencies. The cost decreases were primarily driven by $21.7 million of favorable manufacturing and purchasing savings through lean initiatives, and $6.9 million of all other operational costs primarily driven by restructuring savings and favorable material input costs, partially offset by $13.4 million of unfavorable inflationary costs (including salary, transportation, and other costs).

Liquidity and Capital Resources

Short and Long-Term Liquidity Considerations and Risks

The sources to fund our ongoing working capital, capital expenditures, debt service and other funding requirements are a combination of cash flows from operations, cash on hand, borrowings under our senior asset-based revolving credit facility (“ABL Facility”) and receivables factoring. We utilize intercompany loans and equity contributions to fund our worldwide operations. There may be country-specific regulations which may restrict or result in increased costs in the repatriation of these funds. See Note 7. “Debt and Other Financing” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for additional information.

We continue to actively preserve cash and enhance liquidity, including proactively managing our capital expenditures. We continuously monitor and forecast our liquidity situation in light of automotive industry, customer and economic factors, and take the necessary actions to preserve our liquidity and evaluate other financial alternatives that may be available to us should the need arise. 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 flows and many factors outside of our control, including industry production levels, the costs of raw materials, the state of the overall automotive industry and financial and economic conditions, including work stoppages and the continued impact of public health events, and other factors. Based on those actions and current projections of light vehicle production and customer demand for our products, we believe that our cash flows from operations, cash on hand, availability under our ABL Facility and receivables factoring will enable us to meet our ongoing working capital requirements, capital expenditures, debt service and other funding requirements for the foreseeable future, despite the challenges facing the industry.

Cash Flows

Operating Activities. Net cash provided by operations was $1.6 million for the nine months ended September 30, 2024, compared to net cash provided by operations of $37.6 million for the nine months ended September 30, 2023. The net change was primarily due to changes in net working capital balances.

Investing Activities. Net cash used in investing activities was $38.7 million for the nine months ended September 30, 2024, compared to net cash used in investing activities of $47.5 million for the nine months ended September 30, 2023. The net change was primarily due to lower capital expenditures. We expect to continue initiatives to reduce overall capital spending and anticipate that we will spend approximately $45.0 to $50.0 million on capital expenditures in 2024.

Financing Activities. Net cash used in financing activities totaled $6.8 million for the nine months ended September 30, 2024, compared to net cash provided by financing activities of $39.4 million for the nine months ended September 30, 2023. The net change was primarily due to $120.0 million of borrowings drawn on our revolving credit facility in 2023, partially offset by the impact of the Refinancing Transactions in 2023.

Share Repurchase Program

In June 2018, our Board of Directors approved a common stock repurchase program (the “2018 Program”) authorizing us to repurchase, in the aggregate, up to $150.0 million of our outstanding common stock. Under the 2018 Program, repurchases may be made on the open market, through private transactions, accelerated share repurchases, round lot or block transactions on the New York Stock Exchange or otherwise, as determined by us and in accordance with prevailing market conditions and federal securities laws and regulations. We expect to fund any future repurchases from cash on hand and future cash flows from operations. The specific timing and amount of any future repurchase will vary based on market and business conditions, changes in tax laws and other factors. We are not obligated to acquire a particular amount of securities, and the 2018 Program may be discontinued at any time at our discretion. The 2018 Program became effective in November 2018. As of September 30, 2024, we had approximately $98.7 million of repurchase authorization remaining under the 2018 Program. We did not make any repurchases under the 2018 Program during the nine months ended September 30, 2024 or 2023.

Other Matters

We may, from time to time, seek to purchase our outstanding debt securities or loans, including the First Lien Notes, Third Lien Notes and 2026 Senior Notes. Such transactions could be privately negotiated or open market transactions, pursuant to tender offers or otherwise. Any such purchases will be made in our sole discretion in light of market conditions, applicable limitations contained in the agreements governing our indebtedness and other relevant factors. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may equate to a substantial amount of a particular class or series of debt, which may reduce the trading liquidity of such class or series.

In the third quarter of 2023, we designated Liveline Technologies, Inc. (“Liveline”) an unrestricted subsidiary under the terms of certain of its debt agreements, but Liveline remains a wholly-owned subsidiary of Cooper-Standard Automotive Inc. Liveline incurred a net loss of $1.3 million and $1.7 million during the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, Liveline had less than $0.1 million of gross assets, and will rely on Cooper Standard for necessary funding until it is able to sustain itself through sales of its products and services.

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, certain 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 the following:

• 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, First Lien Notes, Third Lien Notes, and 2026 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 (loss) income, which is the most comparable financial measure in accordance with U.S. GAAP:

(dollar amounts in thousands)

(1) Non-cash impairment charges in 2023 related to certain assets in Asia Pacific.

(2) Loss on sale of businesses related to divestitures in 2023.

(3) Loss on refinancing and extinguishment of debt relating to refinancing transactions in 2023.

(4) Pension credit and one-time, non-cash pension settlement charge and administrative fees incurred related to the termination of our U.S. pension plan.

Contingencies and Environmental Matters

The information concerning contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters, contained in Note 15. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, is incorporated herein by reference.

Critical Accounting Estimates

There have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2024.

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,” “outlook,” “guidance,” “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: volatility or decline of the Company’s stock price, or absence of stock price appreciation; impacts and disruptions related to the wars in Ukraine and the Middle East; our ability to achieve commercial recoveries and to offset the adverse impact of higher commodity and other costs through pricing and other negotiations with our customers; work stoppages or other labor disruptions with our employees or our customers’ employees; 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; competitive threats and commercial risks associated with our diversification strategy; possible variability of our working capital requirements; risks associated with our international operations, including changes in laws, regulations, and policies governing the terms of foreign trade such as increased trade restrictions and tariffs; foreign currency exchange rate fluctuations; our ability to control the operations of our joint ventures for our sole benefit; our substantial amount of indebtedness and variable rates of interest; 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; significant costs related to 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 and regulatory proceedings, claims or investigations against us; the potential impact of any future public health events on our financial condition and results of operations; the ability of our intellectual property to withstand legal challenges; cyber-attacks, data privacy concerns, other disruptions in, or the inability to implement upgrades to, our information technology systems; the possible volatility of our annual effective tax rate; the possibility of a failure to maintain effective controls and procedures; the possibility of future impairment charges to our goodwill and long-lived assets; our ability to identify, attract, develop and retain a skilled, engaged and diverse workforce; our ability to procure insurance at reasonable rates; and our dependence on our subsidiaries for cash to satisfy our obligations.

You should not place undue reliance on these forward-looking statements. Our forward-looking statements speak only as of the date of this quarterly report on Form 10-Q, and 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.

There have been no material changes to the quantitative and qualitative information about the Company’s market risk from those previously disclosed in the Company’s 2023 Annual Report.

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 at a reasonable assurance level 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 September 30, 2024 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.