# Cooper-Standard Holdings Inc.: Form 10-Q for the period ended Sep 30, 2015

- Company: [Cooper-Standard Holdings Inc.](/companies/cps.md) (CIK 1320461)
- Form: 10-Q
- Filed: 2015-11-04
- Accepted by EDGAR: Nov 4, 2015, 09:07 ET
- Period: 2015-09-30
- Accession: 0001320461-15-000089
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1320461/000132046115000089/cps-2015930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1320461/000132046115000089/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-07-01 to 2015-09-30 | $0 | us-gaap:Revenues |
| Revenue | 9 months, 2015-01-01 to 2015-09-30 | $0 | us-gaap:Revenues |
| Cost of revenue | 3 months, 2015-07-01 to 2015-09-30 | $679.1m | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2015-01-01 to 2015-09-30 | $2.06bn | us-gaap:CostOfGoodsSold |
| Gross profit | 3 months, 2015-07-01 to 2015-09-30 | $148.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2015-01-01 to 2015-09-30 | $433.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2015-07-01 to 2015-09-30 | $79.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2015-01-01 to 2015-09-30 | $239.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2015-07-01 to 2015-09-30 | $57.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2015-01-01 to 2015-09-30 | $148.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2015-07-01 to 2015-09-30 | $12.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2015-01-01 to 2015-09-30 | $44.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-07-01 to 2015-09-30 | $32.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2015-01-01 to 2015-09-30 | $90.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-07-01 to 2015-09-30 | $1.78 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2015-01-01 to 2015-09-30 | $4.92 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-07-01 to 2015-09-30 | $1.89 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2015-01-01 to 2015-09-30 | $5.26 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-07-01 to 2015-09-30 | 18,430,013 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2015-01-01 to 2015-09-30 | 18,327,910 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2015-01-01 to 2015-09-30 | $110.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2015-01-01 to 2015-09-30 | $129.7m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2015-09-30 | $232.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-09-30 | $1.13bn | us-gaap:AssetsCurrent |
| Total assets | at 2015-09-30 | $2.29bn | us-gaap:Assets |
| Current liabilities | at 2015-09-30 | $660.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-09-30 | $1.68bn | us-gaap:Liabilities |
| Current portion of debt | at 2015-09-30 | $58.0m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2015-09-30 | $591.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,233 characters.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations presents information related to the condensed consolidated results of operations of the Company, including the impact of restructuring costs on the Company’s results, a discussion of the past results and future outlook of each of the Company’s segments, and information concerning both the liquidity and capital resources of the Company. The following discussion and analysis, which should be read in conjunction with our condensed consolidated financial statements and the notes included elsewhere in this report, contains certain forward-looking statements relating to anticipated future financial condition and operating results of the Company and its current business plans. In the future, the financial condition and operating results of the Company could differ materially from those discussed herein and its current business plans could be altered in response to market conditions and other factors beyond the Company’s control. Important factors that could cause or contribute to such differences or changes include those discussed elsewhere in this report (see “Forward-Looking Statements” below) and in our 2014 Annual Report (see Item 1A. Risk Factors).

### Business Environment and Outlook

Our business is directly affected by the automotive build rates in North America, Europe, South America and the Asia Pacific region. New vehicle demand is driven by macro-economic 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 global automotive industry remains susceptible to uncertain economic conditions that could adversely impact new vehicle demand. While the U.S. economy remains strong, and the European economy shows indications of improvement, global economic sentiment remains cautious given continued geopolitical uncertainty and unfavorable foreign exchange rates. Ongoing volatility within the emerging markets, including declining economic conditions in Brazil and the slowing pace of economic growth in China, have resulted in light vehicle production volume declines.

Details on light vehicle production in certain regions for the three and nine months ended September 30, 2014 and 2015 are provided in the following table:

*(In millions of units)*

|  | Three Months Ended September 30, 2014(1) | 2015(1) | % Change | Nine Months Ended September 30, 2014(1) | 2015(1) | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | 4.2 | 4.4 | 4.6% | 12.8 | 13.2 | 3.0% |
| Europe | 4.6 | 4.8 | 4.5% | 15.2 | 15.7 | 3.5% |
| South America | 1.0 | 0.8 | (21.1)% | 2.9 | 2.4 | (17.6)% |
| Asia Pacific | 10.5 | 10.2 | (2.2)% | 32.8 | 32.8 | (0.1)% |

(1) Production data based on IHS Automotive, October 2015.

The expected annualized light vehicle production volumes for 2015, compared to the actual production volumes for 2014 are provided in the following table:

*(In millions of units)*

|  | 2014(1) | 2015(1) | % Change |
| --- | ---: | ---: | ---: |
| North America | 17.0 | 17.5 | 2.6% |
| Europe | 20.2 | 20.7 | 2.9% |
| South America | 3.8 | 3.0 | (20.3)% |
| Asia Pacific | 44.4 | 44.3 | (0.3)% |

(1) Production data based on IHS Automotive, October 2015.

The expected light vehicle production volume for the fourth quarter of 2015, compared to the actual production volumes for the fourth quarter of 2014 are provided in the following table:

*(In millions of units)*

|  | Q4 2014(1) | Q4 2015(1) | % Change |
| --- | ---: | ---: | ---: |
| North America | 4.2 | 4.3 | 1.7% |
| Europe | 5.0 | 5.1 | 1.2% |
| South America | 0.9 | 0.7 | (28.4)% |
| Asia Pacific | 11.6 | 11.5 | (0.7)% |

(1) Production data based on IHS Automotive, October 2015.

Competition in the automotive supplier industry is intense and has increased in recent years as OEMs have demonstrated a preference for stronger relationships with fewer suppliers. There are typically three or more significant competitors and numerous smaller competitors for most of the products we produce. Automotive suppliers with a global manufacturing footprint capable of fully servicing customers around the world will continue to shape the success of suppliers going forward.

OEMs have shifted some research and development, design and testing responsibility to suppliers, while at the same time shortening new product cycle times. To remain competitive, suppliers must have state-of-the-art engineering and design capabilities and must be able to continuously improve their engineering, design and manufacturing processes to effectively service the customer. Suppliers are increasingly expected to collaborate on, or assume the product design and development of, key automotive components and to provide innovative solutions to meet evolving technologies aimed at improved emissions and fuel economy.

Pricing pressure has continued as competition for market share has reduced the overall profitability of the industry and resulted in continued pressure on suppliers for price concessions. Consolidations and market share shifts among vehicle manufacturers continues to put additional pressures on the supply chain. These pricing and market pressures, along with reduced production volumes in certain regions, continue to drive our focus on reducing our overall cost structure through lean initiatives, capital redeployment, restructuring and other cost management processes.

### Results of Operations

*(dollar amounts in thousands)*

|  | Three Months Ended September 30, 2014 | 2015 | Nine Months Ended September 30, 2014 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Sales | $780,954 | $827,531 | $2,476,113 | $2,488,402 |
| Cost of products sold | 669,701 | 679,083 | 2,084,492 | 2,055,124 |
| Gross profit | 111,253 | 148,448 | 391,621 | 433,278 |
| Selling, administration & engineering expenses | 67,365 | 79,065 | 228,609 | 239,455 |
| Amortization of intangibles | 3,892 | 3,599 | 12,325 | 10,819 |
| Restructuring | 4,845 | 8,540 | 11,690 | 34,809 |
| Other operating profit | (18,385) | — | (18,385) | — |
| Operating profit | 53,536 | 57,244 | 157,382 | 148,195 |
| Interest expense, net of interest income | (9,405) | (9,487) | (35,332) | (27,912) |
| Equity earnings | 1,094 | 911 | 4,075 | 4,042 |
| Other income (expense), net | (4,129) | (3,281) | (32,932) | 9,907 |
| Income before income taxes | 41,096 | 45,387 | 93,193 | 134,232 |
| Income tax expense | 18,866 | 12,869 | 35,354 | 44,052 |
| Net income | 22,230 | 32,518 | 57,839 | 90,180 |
| Net (income) loss attributable to noncontrolling interests | 436 | 214 | (2,244) | 35 |
| Net income attributable to Cooper-Standard Holdings Inc. | $22,666 | $32,732 | $55,595 | $90,215 |

### Three Months Ended September 30, 2015 Compared with Three Months Ended September 30, 2014

*Sales.* Sales were $827.5 million for the three months ended September 30, 2015 compared to $781.0 million for the three months ended September 30, 2014, an increase of $46.6 million, or 6.0%. Sales were favorably impacted by improved volume and product mix in North America, Europe and Asia Pacific, as well as our Shenya acquisition, partially offset by unfavorable foreign exchange of $74.1 million, decreased volumes in South America and customer price concessions.

*Cost of Products Sold.* Cost of products sold is primarily comprised of material, labor, manufacturing overhead, depreciation and amortization and other direct operating expenses. Cost of products sold was $679.1 million for the three months ended September 30, 2015 compared to $669.7 million for the three months ended September 30, 2014, an increase of $9.4 million, or 1.4%. Materials comprise the largest component of our cost of products sold and represented approximately 51% and 49% of total cost of products sold for the three months ended September 30, 2015 and 2014, respectively. Cost of products sold for the three months ended September 30, 2015 increased due to higher production volumes in North America,

Europe and Asia Pacific, as well as our Shenya acquisition. These items were partially offset by decreased volumes in South America and continuous improvement savings.

*Gross Profit.* Gross profit for the three months ended September 30, 2015 was $148.4 million compared to $111.3 million for the three months ended September 30, 2014, an increase of $37.2 million, or 33.4%. As a percentage of sales, gross profit was 17.9% and 14.2% for the three months ended September 30, 2015 and 2014, respectively. The increase in gross profit margin was driven primarily by continuous improvement and material cost savings and improved volume and mix in North America, Europe and Asia Pacific. These items were partially offset by unfavorable foreign exchange, customer price concessions and decreased volumes in South America.

*Selling, Administration and Engineering.* Selling, administration and engineering expense for the three months ended September 30, 2015 was $79.1 million, or 9.6% of sales, compared to $67.4 million, or 8.6% of sales, for the three months ended September 30, 2014. Selling, administration and engineering expense for the three months ended September 30, 2015 was impacted primarily by higher costs due to investment in infrastructure to support growth, as well as expansion in the Asia Pacific region.

*Restructuring.* Restructuring charges were $8.5 million for the three months ended September 30, 2015, compared to $4.8 million for the three months ended September 30, 2014. The increase is primarily due to expenses incurred related to our European restructuring initiative.

*Interest Expense, Net.* Net interest expense of $9.5 million and $9.4 million for the three months ended September 30, 2015 and 2014, respectively, resulted primarily from interest and debt issuance amortization recorded on the Term Loan Facility.

*Other Income (Expense), Net.* Other expense for the three months ended September 30, 2015 was $3.3 million, which consisted of $3.1 million of foreign currency losses and a $0.2 million loss on sale of receivables. Other expense for the three months ended September 30, 2014 was $4.1 million, which consisted primarily of foreign currency losses of $4.8 million and a loss on sale of receivables of $0.5 million, partially offset by other miscellaneous income of $1.2 million.

*Income Tax Expense*. For the three months ended September 30, 2015, income tax expense was $12.9 million on earnings before income taxes of $45.4 million. This compares to income tax expense of $18.9 million on earnings before income taxes of $41.1 million for the same period of 2014. The lower effective tax rate of 28% for the three months ended September 30, 2015 as compared to 46% for the three months ended September 30, 2014 is primarily a result of a discrete tax expense recorded for an uncertain tax position in one of the Company’s foreign subsidiaries in the three months ended September 30, 2014. Income tax expense for the three months ended September 30, 2015 differs from statutory rates due to 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 taxes on foreign earnings taxed at rates lower than the U.S. statutory rate, tax credits, income tax incentives, and other permanent items. Further, the Company’s current and future provision for income taxes may be impacted by the recognition of valuation allowances in certain countries. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized.

### Nine Months Ended September 30, 2015 Compared with Nine Months Ended September 30, 2014

*Sales.* Sales were $2,488.4 million for the nine months ended September 30, 2015 compared to $2,476.1 million for the nine months ended September 30, 2014, an increase of $12.3 million, or 0.5%. Sales were favorably impacted by improved volume and product mix in North America, Europe and Asia Pacific, as well as our Shenya acquisition, partially offset by unfavorable foreign exchange of $235.7 million, decreased volumes in South America and customer price concessions.

*Cost of Products Sold.* Cost of products sold is primarily comprised of material, labor, manufacturing overhead, depreciation and amortization and other direct operating expenses. Cost of products sold was $2,055.1 million for the nine months ended September 30, 2015 compared to $2,084.5 million for the nine months ended September 30, 2014, a decrease of $29.4 million, or 1.4%. Materials comprise the largest component of our cost of products sold and represented approximately 50% and 49% of total cost of products sold for the nine months ended September 30, 2015 and 2014, respectively. Cost of products sold for the nine months ended September 30, 2015 declined due to decreased volumes in South America and continuous improvement savings. These items were partially offset by higher volumes in North America, Europe and Asia Pacific, as well as our Shenya acquisition.

*Gross Profit.* Gross profit for the nine months ended September 30, 2015 was $433.3 million compared to $391.6 million for the nine months ended September 30, 2014, an increase of $41.7 million, or 10.6%. As a percentage of sales, gross profit was 17.4% and 15.8% for the nine months ended September 30, 2015 and 2014, respectively. The increase in gross profit margin was driven primarily by continuous improvement and material cost savings and improved volume and mix in North

America, Europe and Asia Pacific. These items were partially offset by unfavorable foreign exchange, customer price concessions and decreased volumes in South America.

*Selling, Administration and Engineering.* Selling, administration and engineering expense for the nine months ended September 30, 2015 was $239.5 million, or 9.6% of sales, compared to $228.6 million, or 9.2% of sales, for the nine months ended September 30, 2014. Selling, administration and engineering expense for the nine months ended September 30, 2015 was impacted primarily by higher costs due to investment in infrastructure to support growth, as well as expansion in the Asia Pacific region.

*Restructuring.* Restructuring charges were $34.8 million for the nine months ended September 30, 2015, compared to $11.7 million for the nine months ended September 30, 2014. The increase is primarily due to expenses incurred related to our European restructuring initiative.

*Interest Expense, Net.* Net interest expense of $27.9 million for the nine months ended September 30, 2015 resulted primarily from interest and debt issuance amortization recorded on the Term Loan Facility. Net interest expense of $35.3 million for the nine months ended September 30, 2014 consisted primarily of interest and debt issuance amortization recorded on the Term Loan Facility, Senior Notes and Senior PIK Toggle Notes.

*Other Income (Expense), Net.* Other income for the nine months ended September 30, 2015 was $9.9 million, which consisted of the gain from the remeasurement of our previously held equity interest in Shenya of $14.2 million, partially offset by $3.5 million of foreign currency losses and a $0.8 million loss on sale of receivables. Other expense for the nine months ended September 30, 2014 was $32.9 million, which consisted primarily of a $30.5 million loss on extinguishment of debt, foreign currency losses of $4.0 million and a $1.4 million loss on sale of receivables, partially offset by a $1.9 million gain on sale of investment and $1.2 million of other miscellaneous income.

*Income Tax Expense*. For the nine months ended September 30, 2015, income tax expense was $44.1 million on earnings before income taxes of $134.2 million. This compares to income tax expense of $35.4 million on earnings before income taxes of $93.2 million for the same period of 2014. The lower effective tax rate of 33% for the nine months ended September 30, 2015 compared to 38% for the nine months ended September 30, 2014 is primarily due to a discrete tax expense for an uncertain tax position in one of the Company’s foreign subsidiaries recorded in the three months ended September 30, 2014, which is not reflected in the effective tax rate for the nine months ended September 30, 2015. The income tax rate for the nine months ended September 30, 2015 differs from statutory rates due to 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 taxes on foreign earnings taxed at rates lower than the U.S. statutory rate, tax credits, income tax incentives, and other permanent items. Further, the Company’s current and future provision for income taxes may be impacted by the recognition of valuation allowances in certain countries. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized.

### Segment Results of Operations

The following table presents sales and segment profit (loss) for each of the reportable segments for the three and nine months ended September 30, 2014 and 2015:

*(dollar amounts in thousands)*

| Sales to external customers | Three Months Ended September 30, 2014 | 2015 | Nine Months Ended September 30, 2014 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| North America | $413,486 | $456,352 | $1,298,278 | $1,327,262 |
| Europe | 265,182 | 247,275 | 879,081 | 784,387 |
| South America | 39,967 | 21,824 | 121,139 | 77,134 |
| Asia Pacific | 62,319 | 102,080 | 177,615 | 299,619 |
| Consolidated | $780,954 | $827,531 | $2,476,113 | $2,488,402 |
| Segment profit (loss) |  |  |  |  |
| North America | $45,516 | $58,327 | $120,445 | $156,978 |
| Europe | 5,497 | (4,766) | (10,548) | (6,377) |
| South America | (11,115) | (7,484) | (17,931) | (20,114) |
| Asia Pacific | 1,198 | (690) | 1,227 | 3,745 |
| Income before income taxes | $41,096 | $45,387 | $93,193 | $134,232 |

### Three Months Ended September 30, 2015 Compared with Three Months Ended September 30, 2014

*North America.* Sales for the three months ended September 30, 2015 increased $42.9 million, or 10.4%, compared to the three months ended September 30, 2014, primarily due to an improvement in sales volume and product mix, partially offset by unfavorable foreign exchange of $13.9 million and customer price concessions. Segment profit for the three months ended September 30, 2015 increased by $12.8 million, primarily due to the favorable impact of continuous improvement and material cost savings and improved sales volume and mix, partially offset by unfavorable foreign exchange and customer price concessions.

*Europe.* Sales for the three months ended September 30, 2015 decreased $17.9 million, or 6.8%, compared to the three months ended September 30, 2014, primarily due to unfavorable foreign exchange of $47.1 million and customer price concessions, partially offset by an improvement in sales volume and mix. Segment loss for the three months ended September 30, 2015 increased primarily due to unfavorable foreign exchange, restructuring and customer price concessions, partially offset by improved sales volume and mix and continuous improvement and material cost savings.

*South America.* Sales for the three months ended September 30, 2015 decreased $18.1 million, or 45.4%, compared to the three months ended September 30, 2014, primarily due to unfavorable foreign exchange of $11.7 million and a decrease in sales volume. Segment loss for the three months ended September 30, 2015 improved by $3.6 million primarily due to lower other operating expenses, partially offset by a decrease in sales volume.

*Asia Pacific.* Sales for the three months ended September 30, 2015 increased $39.8 million, or 63.8%, compared to the three months ended September 30, 2014, primarily due to the Shenya acquisition which was completed February 27, 2015, and improved sales volume and mix, partially offset by unfavorable foreign exchange. Segment loss for the three months ended September 30, 2015 increased primarily due to higher selling, administration and engineering expense to support growth in the region and unfavorable foreign exchange. These items were partially offset by improved sales volume and mix, the Shenya acquisition and the favorable impact of continuous improvement and material cost savings.

### Nine Months Ended September 30, 2015 Compared with Nine Months Ended September 30, 2014

*North America.* Sales for the nine months ended September 30, 2015 increased $29.0 million, or 2.2%, compared to the nine months ended September 30, 2014, primarily due to an improvement in sales volume and product mix, partially offset by unfavorable foreign exchange of $34.5 million and customer price concessions. Segment profit for the nine months ended September 30, 2015 increased by $36.5 million, primarily due to the favorable impact of continuous improvement and material cost savings and an improvement in sales volume and mix, partially offset by unfavorable foreign exchange and customer price concessions.

*Europe.* Sales for the nine months ended September 30, 2015 decreased $94.7 million, or 10.8%, compared to the nine months ended September 30, 2014, primarily due to unfavorable foreign exchange of $170.9 million and customer price concessions, partially offset by an improvement in sales volume and mix. Segment loss for the nine months ended September 30, 2015 improved $4.2 million, primarily due to improved sales volume and mix, continuous improvement and material cost savings and the gain from the remeasurement of a previously held equity interest in Shenya as the legal ownership was held by one of our European entities, partially offset by unfavorable foreign exchange, restructuring and customer price concessions.

*South America.* Sales for the nine months ended September 30, 2015 decreased $44.0 million, or 36.3%, compared to the nine months ended September 30, 2014, primarily due to unfavorable foreign exchange of $27.7 million and a decrease in sales volume. Segment loss for the nine months ended September 30, 2015 increased $2.2 million, primarily due to a decrease in sales volume and unfavorable foreign exchange, partially offset by lower operating expenses.

*Asia Pacific.* Sales for the nine months ended September 30, 2015 increased $122.0 million, or 68.7%, compared to the nine months ended September 30, 2014, primarily due to the Shenya acquisition which was completed February 27, 2015, and improved sales volume and mix. Segment profit for the nine months ended September 30, 2015 increased $2.5 million, primarily due to improved sales volume and mix, the Shenya acquisition and the favorable impact of continuous improvement and material cost savings, partially offset by customer price concessions and higher selling, administration and engineering expense to support growth in the region.

### Liquidity and Capital Resources

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

We intend to fund our ongoing capital and working capital requirements through a combination of cash flows from operations, cash on hand and borrowings under our Senior ABL Facility, in addition to certain receivable 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 6. “Debt” to the condensed consolidated financial statements 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 on hand, cash flow from operations and availability under our Senior ABL Facility will enable us to meet our 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 Senior 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. Any future acquisitions, joint ventures or other similar transactions will likely require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms, if at all.

### Cash Flows

*Operating Activities.* Net cash provided by operations was $110.0 million for the nine months ended September 30, 2015, which included $63.4 million of cash used that related to changes in operating assets and liabilities. The use of cash related to operating assets and liabilities was primarily a result of increased accounts receivables and inventories, partially offset by increased accounts payable and accrued liabilities. Net cash provided by operations was $88.7 million for the nine months ended September 30, 2014, which included $83.5 million of cash used that related to changes in operating assets and liabilities.

*Investing Activities.* Net cash used in investing activities was $163.5 million for the nine months ended September 30, 2015, which consisted primarily of $129.7 million of capital spending, $34.4 million for the Shenya acquisition and $4.3 million for investment in joint ventures, offset by proceeds of $4.8 million for the sale of fixed assets and other. Net cash used in investing activities was $106.9 million for the nine months ended September 30, 2014, which consisted primarily of $154.3 million of capital spending and a $5.0 million deposit on acquisition of business, offset by proceeds of $44.9 million from the sale of our thermal and emissions product line, proceeds of $3.4 million from the sale of fixed assets and other, proceeds of $3.2 million from the sale of an investment and a $1.0 million return on equity investments. We anticipate that we will spend approximately $170.0 million to $180.0 million on capital expenditures in 2015.

*Financing Activities.* Net cash provided by financing activities totaled $0.5 million for the nine months ended September 30, 2015, which consisted primarily of $8.5 million related to the exercise of stock warrants and an increase in short term debt of $1.0 million, partially offset by payments on long-term debt of $6.2 million, taxes withheld and paid on employees' share based awards of $1.3 million, and the purchase of noncontrolling interests of $1.3 million. Net cash provided by financing activities totaled $66.8 million for the nine months ended September 30, 2014, which consisted primarily of $737.5 million related to the proceeds from issuance of long-term debt, $8.5 million related to the exercise of stock warrants and an increase in long-term debt of $6.6 million, partially offset by the repurchase of Senior Notes and the Senior PIK Toggle Notes of $675.6 million, taxes withheld and paid on employees' share based awards of $4.2 million, increase in short term debt of $3.7 million, and payments on long-term debt of $2.2 million.

### 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, acquisition related costs, non-cash stock based compensation and non-cash gains and losses from certain foreign currency transactions and translation.

We calculate EBITDA and Adjusted EBITDA by adjusting net income (loss) to eliminate the impact of a number of items we do not consider indicative of our ongoing operating performance. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. 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 in addition 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 Term Loan Facility and Senior ABL Facility;
- 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 unusual or non-recurring 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 millions)*

|  | Three Months Ended September 30, 2014 | 2015 | Nine Months Ended September 30, 2014 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Net income attributable to Cooper-Standard Holdings Inc. | $22.7 | $32.7 | $55.6 | $90.2 |
| Income tax expense | 18.9 | 12.9 | 35.4 | 44.0 |
| Interest expense, net of interest income | 9.4 | 9.5 | 35.3 | 28.0 |
| Depreciation and amortization | 28.0 | 29.3 | 84.7 | 85.3 |
| EBITDA | $79.0 | $84.4 | $211.0 | $247.5 |
| Gain on remeasurement of previously held equity interest (1) | — | — | — | (14.2) |
| Loss on extinguishment of debt (2) | — | — | 30.5 | — |
| Gain on divestiture (3) | (17.9) | — | (17.9) | — |
| Restructuring (4) | 4.7 | 8.6 | 11.5 | 34.8 |
| Inventory write-up (5) | — | — | — | 1.4 |
| Stock-based compensation (6) | — | — | 2.8 | — |
| Acquisition costs | 0.4 | 0.3 | 0.4 | 1.3 |
| Other | 0.4 | — | 1.1 | 0.3 |
| Adjusted EBITDA | $66.6 | $93.3 | $239.4 | $271.1 |

(1) Gain on remeasurement of previously held equity interest in Shenya.

(2) Loss on extinguishment of debt relating to the repurchase of our Senior Notes and Senior PIK Toggle Notes.

(3) Gain on sale of thermal and emissions product line.

(4) Includes non-cash restructuring and is net of noncontrolling interest.

(5) Write-up of inventory to fair value for the Shenya acquisition.

(6) Non-cash stock amortization expense and non-cash stock option expense for grants issued at emergence from bankruptcy.

### Recent Accounting Pronouncements

See Note 1. “Overview” to the condensed consolidated financial statements included elsewhere in this Form 10-Q.

### 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. We make forward-looking statements in this Quarterly Report on Form 10-Q and may make such statements in future filings with the SEC. We may also make forward-looking statements in our press releases or other public or stockholder communications. These forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends, and other information that is not historical information and, in particular, appear under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” and “Business Environment and Outlook.” When used in this report, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” or future or conditional verbs, such as “will,” “should,” “could,” or “may,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, management’s examination of historical operating trends and data 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, no assurances can be made 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.

The risks, uncertainties, and other important factors that could cause our actual results to differ materially from the forward-looking statements in this report include, among others: prolonged or material contractions in automotive sales and production volumes, the Company's liquidity; the viability of the Company's supply base and the financial conditions of the Company's customers; loss of large customers or significant platforms; foreign currency exchange rate fluctuations; the Company’s substantial indebtedness; the Company's ability to obtain financing in the future; ability to generate sufficient cash to service all of the Company's indebtedness; operating and financial restrictions imposed on the Company by the credit agreements governing the Company’s Term Loan Facility and Senior ABL Facility; underfunding of pension plans; availability and increasing volatility in costs of manufactured components and raw materials; escalating pricing pressures; the Company's ability to meet significant increases in demand; the Company's ability to successfully compete in the automotive parts industry; risks associated with the Company's non-U.S. operations; ability to control the operations of the Company's joint ventures for the Company’s sole benefit; effectiveness of continuous improvement programs and other cost savings plans; product liability, warranty and recall claims that may be brought against the Company; work stoppages or other labor disruptions; natural disasters; ability to meet the Company's customers' needs for new and improved products on a timely or cost-effective basis; the possibility that the Company's acquisition strategy may not be successful; the ability of the Company's intellectual property portfolio to withstand legal challenges; a disruption in, or the inability to successfully implement upgrades to, the Company's information technology systems; compliance with environmental, health and safety laws and other laws and regulations; the volatility of the Company's annual effective tax rate; significant changes in discount rates and the actual return on pension assets; the possibility of future impairment charges to the Company's goodwill and long-lived assets; the concentration of stock ownership which may allow a few owners to exert significant control over the Company; stock volatility; and dependence on the Company's subsidiaries for cash to satisfy the obligations of the holding Company. See Item 1A. Risk Factors, in our 2014 Annual Report for additional information regarding these and other risks and uncertainties. There may be other factors that may cause our actual results to differ materially from the forward-looking statements.

All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligation to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.

## Market risk

As filed, 184 characters.

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 2014 Annual Report.

## Controls and procedures

As filed, 1,588 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 September 30, 2015 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting. During the quarter ended March 31, 2015, the Company completed the purchase of Shenya and is currently integrating Shenya into its operations, compliance programs and internal control processes. As permitted by SEC rules and regulations, the Company has excluded Shenya from management's evaluation of internal controls over financial reporting as of September 30, 2015.

## Risk factors

As filed, 523 characters.

In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our 2014 Annual Report which could materially impact our business, financial condition or future results. Risks disclosed in the 2014 Annual Report are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may materially adversely impact our business, financial condition or operating results.

Filed Nov 4, 2015.
Source: SEC EDGAR, the filing index for accession 0001320461-15-000089. Last ingested by Listed: Nov 10, 2026, 02:27 ET. No prices; not investment advice.