# Cooper-Standard Holdings Inc.: Form 10-Q for the period ended Sep 30, 2016

- Company: [Cooper-Standard Holdings Inc.](/companies/cps.md) (CIK 1320461)
- Form: 10-Q
- Filed: 2016-11-02
- Accepted by EDGAR: Nov 2, 2016, 15:42 ET
- Period: 2016-09-30
- Accession: 0001320461-16-000124
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1320461/000132046116000124/cps-2016930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1320461/000132046116000124/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-07-01 to 2016-09-30 | $0 | us-gaap:Revenues |
| Revenue | 9 months, 2016-01-01 to 2016-09-30 | $0 | us-gaap:Revenues |
| Cost of revenue | 3 months, 2016-07-01 to 2016-09-30 | $691.0m | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2016-01-01 to 2016-09-30 | $2.10bn | us-gaap:CostOfGoodsSold |
| Gross profit | 3 months, 2016-07-01 to 2016-09-30 | $164.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2016-01-01 to 2016-09-30 | $496.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2016-07-01 to 2016-09-30 | $92.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2016-01-01 to 2016-09-30 | $268.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-07-01 to 2016-09-30 | $58.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2016-01-01 to 2016-09-30 | $184.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2016-07-01 to 2016-09-30 | $12.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2016-01-01 to 2016-09-30 | $43.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-07-01 to 2016-09-30 | $36.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2016-01-01 to 2016-09-30 | $107.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-07-01 to 2016-09-30 | $1.94 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2016-01-01 to 2016-09-30 | $5.77 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-07-01 to 2016-09-30 | $2.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2016-01-01 to 2016-09-30 | $6.20 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-07-01 to 2016-09-30 | 18,760,663 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2016-01-01 to 2016-09-30 | 18,703,578 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2016-01-01 to 2016-09-30 | $182.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2016-01-01 to 2016-09-30 | $116.8m | us-gaap:PaymentsToAcquireProductiveAssets |
| Share repurchases | 9 months, 2016-01-01 to 2016-09-30 | $23.8m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2016-09-30 | $360.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-09-30 | $1.26bn | us-gaap:AssetsCurrent |
| Total assets | at 2016-09-30 | $2.46bn | us-gaap:Assets |
| Current liabilities | at 2016-09-30 | $740.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-09-30 | $1.74bn | us-gaap:Liabilities |
| Current portion of debt | at 2016-09-30 | $53.1m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2016-09-30 | $699.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,550 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 2015 Annual Report (see Item 1A. Risk Factors).

### Business Environment and Outlook

Our business is directly affected by the automotive vehicle production rates in North America, Europe, Asia Pacific and the South America regions. New vehicle demand is mostly driven by macro-economic 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. With relative stability in the U.S. economy and indications of improvement in the European economy, global economic sentiment nonetheless remains cautious given continued geopolitical uncertainty, oil supply and demand issues, and fluctuating foreign exchange rates. Ongoing volatility with economic conditions in Brazil and a recent slowing in the pace of economic growth in China, continue to impact light vehicle production volumes.

Details on light vehicle production in certain regions for the three and nine months ended September 30, 2016 and 2015 are provided in the following table:

*(In millions of units)*

|  | Three Months Ended September 30, 2016(1) | 2015(1) | % Change | Nine Months Ended September 30, 2016(1) | 2015(1) | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | 4.5 | 4.4 | 2.0% | 13.5 | 13.2 | 2.7% |
| Europe | 4.7 | 4.8 | (1.8)% | 16.1 | 15.7 | 2.6% |
| Asia Pacific(2) | 11.2 | 10.1 | 11.0% | 34.4 | 32.6 | 5.4% |
| South America | 0.7 | 0.8 | (10.5)% | 2.0 | 2.4 | (16.2)% |

(1) Production data based on IHS Automotive, October 2016.

(2) Includes China units of 6.0 and 4.8 for the three months ended September 30, 2016 and 2015, respectively, and 18.4 and 16.5 for the nine months ended September 30, 2016 and 2015, respectively.

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.

Consolidations and market share shifts among vehicle manufacturers continue to put additional pressures on the supply chain. Pricing and market pressures will continue to drive our focus on reducing our overall cost structure through continuous improvement initiatives, capital redeployment, restructuring and other cost management processes.

### Results of Operations

*(dollar amounts in thousands)*

|  | Three Months Ended September 30, 2016 | 2015 | Change | Nine Months Ended September 30, 2016 | 2015 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $855,656 | $827,531 | $28,125 | $2,597,457 | $2,488,402 | $109,055 |
| Cost of products sold | 690,984 | 679,083 | 11,901 | 2,101,000 | 2,055,124 | 45,876 |
| Gross profit | 164,672 | 148,448 | 16,224 | 496,457 | 433,278 | 63,179 |
| Selling, administration & engineering expenses | 92,368 | 79,065 | 13,303 | 268,498 | 239,455 | 29,043 |
| Amortization of intangibles | 3,457 | 3,599 | (142) | 9,974 | 10,819 | (845) |
| Restructuring charges | 10,430 | 8,540 | 1,890 | 33,468 | 34,809 | (1,341) |
| Other operating loss | — | — | — | 155 | — | 155 |
| Operating profit | 58,417 | 57,244 | 1,173 | 184,362 | 148,195 | 36,167 |
| Interest expense, net of interest income | (10,114) | (9,487) | (627) | (29,861) | (27,912) | (1,949) |
| Equity in earnings of affiliates | 1,386 | 911 | 475 | 5,823 | 4,042 | 1,781 |
| Other (expense) income, net | (518) | (3,281) | 2,763 | (8,589) | 9,907 | (18,496) |
| Income before income taxes | 49,171 | 45,387 | 3,784 | 151,735 | 134,232 | 17,503 |
| Income tax expense | 12,525 | 12,869 | (344) | 43,312 | 44,052 | (740) |
| Net income | 36,646 | 32,518 | 4,128 | 108,423 | 90,180 | 18,243 |
| Net (income) loss attributable to noncontrolling interests | (284) | 214 | (498) | (549) | 35 | (584) |
| Net income attributable to Cooper-Standard Holdings Inc. | $36,362 | $32,732 | $3,630 | $107,874 | $90,215 | $17,659 |

### Three Months Ended September 30, 2016 Compared with Three Months Ended September 30, 2015

*Sales.* Sales for the three months ended September 30, 2016 increased $28.1 million, or 3.4%, compared to the three months ended September 30, 2015, primarily due to improved volume and product mix in both North America and Asia Pacific, the AMI Acquisition and consolidation of a previously unconsolidated joint venture, partially offset by unfavorable foreign exchange of $5.5 million, the divestiture of our hard coat plastic exterior trim business, decreased volumes in Europe and customer price reductions.

*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 for the three months ended September 30, 2016 increased $11.9 million, or 1.8%, compared to the three months ended September 30, 2015. Materials comprise the largest component of our cost of products sold and represented approximately 50% and 51% of the total cost of products sold for each of the three months ended September 30, 2016 and 2015, respectively. Cost of sales was impacted by higher production volumes in North America and Asia Pacific. These items were partially offset by decreased volumes in Europe and South America, the divestiture of our hard coat plastic exterior trim business and continuous improvement savings.

*Gross Profit.* Gross profit for the three months ended September 30, 2016 increased $16.2 million, or 10.9%, compared to the three months ended September 30, 2015. As a percentage of sales, gross profit was 19.2% and 17.9% for the three months ended September 30, 2016 and 2015, respectively. The increase in gross profit was driven primarily by continuous improvement and material cost savings and improved volume and mix in North America and Asia Pacific. These items were partially offset by customer price reductions and decreased volumes in Europe.

*Selling, Administration and Engineering.* Selling, administration and engineering expense for the three months ended September 30, 2016 was $92.4 million, or 10.8% of sales, compared to $79.1 million, or 9.6% of sales, for the three months ended September 30, 2015. Selling, administration and engineering expense for the three months ended September 30, 2016 was impacted primarily by higher compensation-related costs, as well as investments to support growth.

*Restructuring.* Restructuring charges for the three months ended September 30, 2016 increased $1.9 million compared to the three months ended September 30, 2015. Restructuring charges consisted primarily of expenses incurred related to our European restructuring initiative.

*Interest Expense, Net.* Net interest expense for the three months ended September 30, 2016 increased $0.6 million compared to the three months ended September 30, 2015, which resulted primarily from interest and debt issuance cost amortization recorded on the Term Loan Facility.

*Other (Expense) Income, Net.* Other expense for the three months ended September 30, 2016 was $0.5 million, consisting primarily of foreign currency losses of $0.3 million and losses on sales of receivables of $0.2 million. 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 $0.2 million losses on sales of receivables.

*Income Tax Expense*. Income tax expense for the three months ended September 30, 2016 was $12.5 million on earnings before income taxes of $49.2 million. This compares to income tax expense of $12.9 million on earnings before income taxes of $45.4 million for the same period of 2015. The effective tax rate for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 was lower primarily due to the tax benefits related to the US research tax credit and the early adoption of ASU 2016-09 related to share-based compensation reflected in the 2016 effective tax rate which was not statutory in the three months ended September 30, 2015. The income tax rate for the three months ended September 30, 2016 varied from statutory rates due primarily to the impact of income taxes on foreign earnings taxed at rates lower than 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, tax credits, income tax incentives, excess tax benefits related to stock based compensation, withholding taxes, 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, 2016 Compared with Nine Months Ended September 30, 2015

*Sales.* Sales for the nine months ended September 30, 2016 increased $109.1 million, or 4.4%, compared to the nine months ended September 30, 2015, primarily due to improved volume and product mix in North America, Europe and Asia Pacific, as well as our recent acquisitions and consolidation of a previously unconsolidated joint venture, partially offset by unfavorable foreign exchange of $44.8 million, the divestiture of our hard coat plastic exterior trim business, decreased volumes in South America, and customer price reductions.

*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 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, increased $45.9 million, or 2.2%, compared to the nine months ended September 30, 2015. Materials comprise the largest component of our cost of products sold and represented approximately 50% of the total cost of products sold for each of the nine months ended September 30, 2016 and 2015. Cost of sales was impacted by higher production volumes in North America, Europe and Asia Pacific, as well as our recent acquisitions. These items were partially offset by decreased volumes in South America, the divestiture of our hard coat plastic exterior trim business and continuous improvement savings.

*Gross Profit.* Gross profit for the nine months ended September 30, 2016 increased $63.2 million, or 14.6% compared to the nine months ended September 30, 2015. As a percentage of sales, gross profit was 19.1% and 17.4% for the nine months ended September 30, 2016 and 2015, respectively. The increase in gross profit was driven primarily by continuous improvement and material cost savings, improved volume and product mix in North America, Europe and Asia Pacific, and our recent acquisitions. These items were partially offset by unfavorable foreign exchange, customer price reductions and decreased volumes in South America.

*Selling, Administration and Engineering.* Selling, administration and engineering expense for the nine months ended September 30, 2016 was $268.5 million, or 10.3% of sales, compared to $239.5 million, or 9.6% of sales, for the nine months ended September 30, 2015. Selling, administration and engineering expense for the nine months ended September 30, 2016 was impacted primarily by higher compensation-related costs, as well as investments to support growth.

*Restructuring.* Restructuring charges for the nine months ended September 30, 2016 decreased $1.3 million compared to the nine months ended September 30, 2015. Restructuring charges consisted primarily of expenses incurred related to our European restructuring initiative.

*Interest Expense, Net.* Net interest expense for the nine months ended September 30, 2016 increased $1.9 million compared to the nine months ended September 30, 2015, which resulted primarily from interest and debt issuance cost amortization recorded on the Term Loan Facility.

*Other (Expense) Income, Net.* Other expense for the nine months ended September 30, 2016 was $8.6 million, consisting of secondary offering underwriting fees of $5.9 million, foreign currency losses of $2.0 million, and losses on sales of receivables of $0.7 million. 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 $0.8 million losses on sales of receivables.

*Income Tax Expense*. Income tax expense for the nine months ended September 30, 2016 was $43.3 million on earnings before income taxes of $151.7 million. This compares to income tax expense of $44.1 million on earnings before income taxes of $134.2 million for the same period of 2015. The effective tax rate for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 was lower primarily due to the tax benefits related to the US research tax credit and the early adoption of an ASU related to share-based compensation reflected in the 2016 effective tax rate which was not statutory in the nine months ended September 30, 2016. The income tax rate for the nine months ended September 30, 2016 varied from statutory rates due primarily to the impact of income taxes on foreign earnings taxed at rates lower than 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, tax credits, income tax incentives, excess tax benefits related to stock based compensation, withholding taxes, 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, 2016 and 2015:

*(dollar amounts in thousands)*

| Sales to external customers | Three Months Ended September 30, 2016 | 2015 | Change | Nine Months Ended September 30, 2016 | 2015 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $450,795 | $456,352 | $(5,557) | $1,361,183 | $1,327,262 | $33,921 |
| Europe | 242,773 | 247,275 | (4,502) | 794,411 | 784,387 | 10,024 |
| Asia Pacific | 137,174 | 102,080 | 35,094 | 380,483 | 299,619 | 80,864 |
| South America | 24,914 | 21,824 | 3,090 | 61,380 | 77,134 | (15,754) |
| Consolidated | $855,656 | $827,531 | $28,125 | $2,597,457 | $2,488,402 | $109,055 |
| Segment profit (loss) |  |  |  |  |  |  |
| North America | $55,031 | $58,327 | $(3,296) | $169,857 | $156,978 | $12,879 |
| Europe | (5,632) | (4,766) | (866) | (7,510) | (6,377) | (1,133) |
| Asia Pacific | 3,037 | (690) | 3,727 | 6,073 | 3,745 | 2,328 |
| South America | (3,265) | (7,484) | 4,219 | (16,685) | (20,114) | 3,429 |
| Consolidated | $49,171 | $45,387 | $3,784 | $151,735 | $134,232 | $17,503 |

### Three Months Ended September 30, 2016 Compared with Three Months Ended September 30, 2015

*North America.* Sales for the three months ended September 30, 2016 decreased $5.6 million, or 1.2%, compared to the three months ended September 30, 2015, primarily due to the divestiture of our hard coat plastic exterior trim business, customer price reductions and unfavorable foreign exchange of $1.9 million, partially offset by an improvement in volume and product mix and the acquisition of AMI Industries' fuel and brake business. Segment profit for the three months ended September 30, 2016 decreased by $3.3 million, primarily due to customer price reductions and higher compensation-related costs, partially offset by the favorable impact of continuous improvement, material cost savings and an improvement in volume and product mix.

*Europe.* Sales for the three months ended September 30, 2016 decreased $4.5 million, or 1.8%, compared to the three months ended September 30, 2015, primarily due to a decrease in volume and product mix and customer price reductions, partially offset by favorable foreign exchange of $0.6 million. Segment loss for the three months ended September 30, 2016 increased by $0.9 million, primarily due to planned restructuring, a decrease in volume and product mix and customer price reductions, partially offset by the favorable impact of continuous improvement and material cost savings.

*Asia Pacific.* Sales for the three months ended September 30, 2016 increased $35.1 million, or 34.4%, compared to the three months ended September 30, 2015, primarily due to improved volume and product mix and consolidation of a previously unconsolidated joint venture, partially offset by unfavorable foreign exchange of $6.2 million. Segment profit for the three months ended September 30, 2016 increased by $3.7 million primarily driven by the favorable impact of continuous improvement, material cost savings and an improvement in volume and product mix.

*South America.* Sales for the three months ended September 30, 2016 increased $3.1 million, or 14.2%, compared to the three months ended September 30, 2015, primarily due to favorable foreign exchange of $2.0 million. Segment loss for the three months ended September 30, 2016 improved by $4.2 million primarily due to price and material cost savings.

### Nine Months Ended September 30, 2016 Compared with Nine Months Ended September 30, 2015

*North America.* Sales for the nine months ended September 30, 2016 increased $33.9 million, or 2.6%, compared to the nine months ended September 30, 2015, primarily due to an improvement in volume and product mix and the acquisition of AMI Industries' fuel and brake business, partially offset by unfavorable foreign exchange of $21.1 million, the divestiture of our hard coat plastic exterior trim business and customer price reductions. Segment profit for the nine months ended September 30, 2016 increased by $12.9 million, primarily due to the favorable impact of continuous improvement, material cost savings and an improvement in volume and product mix, partially offset by customer price reductions and higher compensation-related costs.

*Europe.* Sales for the nine months ended September 30, 2016 increased $10.0 million, or 1.3%, compared to the nine months ended September 30, 2015, primarily due to an improvement in volume and product mix and favorable foreign exchange of $1.1 million, partially offset by customer price reductions. Segment loss for the nine months ended September 30, 2016 increased by $1.1 million, primarily due to customer price reductions and the non-recurrence of a $14.2 million gain on remeasurement of a previously held equity interest in Shenya recognized in the second quarter of 2015 as the legal ownership was held by one of our European entities, partially offset by the favorable impact of continuous improvement, material cost savings and an improvement in volume and product mix.

*Asia Pacific.* Sales for the nine months ended September 30, 2016 increased $80.9 million, or 27.0%, compared to the nine months ended September 30, 2015, primarily due to improved volume and product mix, our recent acquisitions and consolidation of a previously unconsolidated joint venture, partially offset by unfavorable foreign exchange of $17.8 million. Segment profit for the nine months ended September 30, 2016 increased by $2.3 million primarily due to our recent acquisitions, an improvement in volume and product mix, the impact of continuous improvement and material cost savings, partially offset by increased interest expense as a result of expansion in the region.

*South America.* Sales for the nine months ended September 30, 2016 decreased $15.8 million, or 20.4%, compared to the nine months ended September 30, 2015, primarily due to a decrease in volumes and unfavorable foreign exchange of $7.0 million. Segment loss for the nine months ended September 30, 2016 improved by $3.4 million primarily due to price and material cost savings, partially offset by decreased volumes.

### 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 ABL Facility and receivables factoring. We anticipate that these funding sources will be sufficient to meet our needs 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, depends 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. 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.

On November 2, 2016, CSA U.S. issued $400,000 aggregate principal amount of 5.625% Senior Notes due 2026 (the “Senior Notes”) and amended its existing Senior ABL Facility and Term Loan Facility (the “Debt Refinancing”). We used the proceeds of the Senior Notes to repay the non-extended term loan outstanding under the Term Loan Facility and to pay fees and expenses related to the Debt Refinancing. The remaining term loan of $340,000 was extended to November 2023. The Senior ABL Facility was extended to November 2021 and its aggregate revolving loan availability increased to $210,000, subject to borrowing base availability.

### Cash Flows

*Operating Activities.* Net cash provided by operations was $182.0 million for the nine months ended September 30, 2016, which consisted primarily of positive cash provided from increased cash earnings, partially offset by $35.2 million of net cash used that related to changes in operating assets and liabilities. The changes in operating assets and liabilities were primarily a result of increased accounts receivables, partially offset by increased accounts payable. 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.

*Investing Activities.* Net cash used in investing activities was $150.7 million for the nine months ended September 30, 2016, which consisted primarily of $116.8 million of capital spending and $37.5 million for the acquisition of businesses, partially offset by the cash received from the consolidation of a joint venture. 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 and $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. We anticipate that we will spend approximately $155 million to $165 million on capital expenditures in 2016.

*Financing Activities.* Net cash used in financing activities totaled $41.3 million for the nine months ended September 30, 2016, which consisted primarily of $23.8 million for the repurchase of common stock in conjunction with the secondary offering, payments on long-term debt of $9.8 million, and taxes withheld and paid on employees' share based awards of $12.0 million, partially offset by $2.5 million proceeds from the exercise of stock warrants and an increase in short term debt of $1.7 million. 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.

### 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 plus income tax expense, 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, and non-cash stock based compensation.

We calculate EBITDA and Adjusted EBITDA by adjusting net income to eliminate the impact of items we do not consider indicative of our ongoing operating performance. 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, 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 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 September 30, 2016 | 2015 | Nine Months Ended September 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Net income attributable to Cooper-Standard Holdings Inc. | $36,362 | $32,732 | $107,874 | $90,215 |
| Income tax expense | 12,525 | 12,869 | 43,312 | 44,052 |
| Interest expense, net of interest income | 10,114 | 9,487 | 29,861 | 27,912 |
| Depreciation and amortization | 31,325 | 29,303 | 91,699 | 85,277 |
| EBITDA | $90,326 | $84,391 | $272,746 | $247,456 |
| Gain on remeasurement of previously held equity interest (1) | — | — | — | (14,199) |
| Restructuring charges | 10,430 | 8,540 | 33,468 | 34,809 |
| Secondary offering underwriting fees and other expenses (2) | — | — | 6,500 | — |
| Amortization of inventory write-up (3) | — | — | — | 1,419 |
| Acquisition costs | — | 353 | — | 1,352 |
| Other | — | 60 | 155 | 222 |
| Adjusted EBITDA | $100,756 | $93,344 | $312,869 | $271,059 |

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

(2) Fees and other expenses associated with the March 2016 secondary offering.

(3) Amortization of write-up of inventory to fair value for the Shenya acquisition.

### 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 “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, 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, 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.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements in this report. Such risks and uncertainties include, among others: prolonged or material contractions in automotive sales and production volumes; 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; risks associated with our non-U.S. operations; foreign currency exchange rate fluctuations; our ability to control the operations of our joint ventures for our sole benefit; our substantial debt; our ability to obtain adequate financing sources in the future; operating and financial restrictions imposed on us under our term loan facility and the ABL facility; the underfunding of our pension plans; significant changes in discount rates and the actual return on pension assets; effectiveness of our 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 acquisition strategy may not be successful; product liability, warranty and recall claims brought against us; environmental, health and safety laws and other laws and regulations; 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; the possibility of future impairment charges to our goodwill and long-lived assets; the concentrated ownership of our stock which may allow a few owners to exert significant control over us; and our dependence on our subsidiaries for cash to satisfy our obligations. See Item 1A. Risk Factors, in our 2015 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.

You should not place undue reliance on these forward-looking statements. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

## 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 2015 Annual Report.

## Controls and procedures

As filed, 1,217 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, 2016 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.

## 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 2015 Annual Report which could materially impact our business, financial condition or future results. Risks disclosed in the 2015 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 2, 2016.
Source: SEC EDGAR, the filing index for accession 0001320461-16-000124. Last ingested by Listed: Nov 5, 2026, 16:52 ET. No prices; not investment advice.