Cooper-Standard Holdings Inc.: Form 10-Q for the period ended Sep 30, 2017
Filed with the SEC on Nov 1, 2017 and accepted by EDGAR at Nov 1, 2017, 16:13 ET.
Management's discussion and analysis
As filed, 38,515 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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, 2016 filed with the U.S. Securities and Exchange Commission (“2016 Annual Report”) see Item 1A. “Risk Factors.” The following should be read in conjunction with our 2016 Annual Report and the other information included herein. Our discussion of trends and conditions supplements and updates such discussion included in our 2016 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 subsidiaries.
Executive Overview
Our Business
We design, manufacture and sell sealing, fuel and brake delivery, fluid transfer, and anti-vibration systems for use in passenger vehicles and light trucks manufactured by global automotive original equipment manufacturers (“OEMs”) and replacement markets. We operate our business along four segments: North America, Europe, Asia Pacific and South America. We are primarily a “Tier 1” supplier, with approximately 84% of our sales in 2016 made directly to major OEMs.
Recent Trends and Conditions
General Economic Conditions and Outlook
The global automotive industry is susceptible to uncertain economic conditions that could adversely impact new vehicle demand. Business conditions may vary significantly from period to period or region to region.
In North America, while the U.S. economy has been relatively stable, market indicators show signs of softening consumer demand. The mix of vehicles produced continues to shift away from passenger cars into crossover utility vehicles and light trucks.
In Europe, the continuing economic recovery is driving increased demand for light vehicles. Certain countries within the European region are faced with an uncertain and potentially volatile geopolitical climate, which could impact consumer confidence and economic growth.
The Chinese government continues to manage the nation’s economy with a goal of sustaining growth. Overall economic growth, consumer preferences and an expanding middle class in China continue to drive crossover utility vehicle demand higher, while demand for passenger cars is expected to decline slightly year over year.
Finally, due to continued volatility in Brazil, we remain cautious about consumer confidence and vehicle demand in this region.
Production Levels
Our business is directly affected by the automotive vehicle production rates in North America, Europe, Asia Pacific and South America. New vehicle demand is driven by macroeconomic and other factors, such as interest rates, manufacturer and dealer sales incentives, fuel prices, consumer confidence, employment levels, income growth trends and government and tax incentives. The industry could face uncertainties that may adversely impact consumer demand for vehicles as well as the future production environment.
In North America, light vehicle inventory in the U.S. had risen significantly above normalized levels at the end of the second quarter of 2017. Production cuts by OEMs in the third quarter of 2017 were successful in bringing inventory closer to normalized levels and more aligned with consumer demand. Even in view of lower inventory levels, we expect overall light vehicle production in the fourth quarter of 2017 to be slightly lower than in the fourth quarter of 2016, driven largely by continued lower production of passenger cars. European light vehicle production has seen modest year-over-year growth through the first three quarters of 2017 and we expect this trend to continue through the fourth quarter of 2017. In Asia Pacific, we expect light vehicle production to continue to grow sequentially at modest levels through the remainder of 2017, driven mainly by China.
Light vehicle production in certain regions for the three and nine months ended September 30, 2017 and 2016 was:
(In millions of units)
| Three Months Ended September 30, 2017(1) | 2016(1) | % Change | Nine Months Ended September 30, 2017(1) | 2016(1) | % Change | |
|---|---|---|---|---|---|---|
| North America | 4.0 | 4.4 | (9.7)% | 13.0 | 13.5 | (3.7)% |
| Europe | 5.0 | 4.7 | 5.2% | 16.6 | 16.2 | 2.4% |
| Asia Pacific(2) | 11.9 | 11.5 | 3.5% | 36.0 | 34.7 | 3.6% |
| South America | 0.9 | 0.7 | 26.1% | 2.4 | 2.0 | 20.9% |
(1) Production data based on IHS Automotive, October 2017.
(2) Includes Greater China units of 6.4 for both the three months ended September 30, 2017 and 2016, and 19.5 and 19.0 for the nine months ended September 30, 2017 and 2016, respectively.
Industry Overview
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. Because of a growing emphasis on global vehicle platforms, automotive suppliers with a global manufacturing footprint capable of fully servicing customers around the world will typically have a competitive advantage over smaller, regional competitors. This dynamic is likely to result in further consolidation of competing suppliers within our industry over time.
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.
Increased competitiveness in the industry, as well as customer focus on costs, has resulted in pressure on suppliers for price reductions, reducing the overall profitability of the industry. Consolidations and market share shifts among vehicle manufacturers continue to put additional pressures on the supply chain. These 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.
In addition to the above, other factors will present opportunities for automotive suppliers who are positioned for the changing environment, including autonomous and connected vehicles, evolving government regulation, and consumer preference for environmentally friendly products and technology, including hybrid and electric vehicle architectures.
Results of Operations
(dollar amounts in thousands)
| Three Months Ended September 30, 2017 | 2016 | Change | Nine Months Ended September 30, 2017 | 2016 | Change | |
|---|---|---|---|---|---|---|
| Sales | $869,016 | $855,656 | $13,360 | $2,680,212 | $2,597,457 | $82,755 |
| Cost of products sold | 718,187 | 690,984 | 27,203 | 2,187,058 | 2,101,000 | 86,058 |
| Gross profit | 150,829 | 164,672 | (13,843) | 493,154 | 496,457 | (3,303) |
| Selling, administration & engineering expenses | 94,145 | 92,368 | 1,777 | 267,883 | 268,498 | (615) |
| Amortization of intangibles | 3,432 | 3,457 | (25) | 10,563 | 9,974 | 589 |
| Impairment charges | — | — | — | 4,270 | — | 4,270 |
| Restructuring charges | 9,909 | 10,430 | (521) | 28,220 | 33,468 | (5,248) |
| Other operating loss | — | — | — | — | 155 | (155) |
| Operating profit | 43,343 | 58,417 | (15,074) | 182,218 | 184,362 | (2,144) |
| Interest expense, net of interest income | (10,256) | (10,114) | (142) | (31,788) | (29,861) | (1,927) |
| Equity in earnings of affiliates | 660 | 1,386 | (726) | 3,735 | 5,823 | (2,088) |
| Loss on refinancing and extinguishment of debt | — | — | — | (1,020) | — | (1,020) |
| Other expense, net | (451) | (518) | 67 | (3,275) | (8,589) | 5,314 |
| Income before income taxes | 33,296 | 49,171 | (15,875) | 149,870 | 151,735 | (1,865) |
| Income tax expense | 7,838 | 12,525 | (4,687) | 40,258 | 43,312 | (3,054) |
| Net income | 25,458 | 36,646 | (11,188) | 109,612 | 108,423 | 1,189 |
| Net income attributable to noncontrolling interests | (818) | (284) | (534) | (2,810) | (549) | (2,261) |
| Net income attributable to Cooper-Standard Holdings Inc. | $24,640 | $36,362 | $(11,722) | $106,802 | $107,874 | $(1,072) |
Three Months Ended September 30, 2017 Compared with Three Months Ended September 30, 2016
Sales. Sales for the three months ended September 30, 2017 increased $13.4 million, or 1.6%, compared to the three months ended September 30, 2016, primarily driven by the acquisition of AMI Industries’ fuel and brake business, consolidation of a previously unconsolidated joint venture and favorable foreign exchange, partially offset by 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, 2017 increased $27.2 million, or 3.9%, compared to the three months ended September 30, 2016. Cost of products sold was impacted by commodity price pressures, transactional foreign exchange pressure, general inflation and acquisitions. These items were partially offset by continuous improvement and material cost savings. Materials comprise the largest component of our cost of products sold and represented approximately 50% of the total cost of products sold for the three months ended September 30, 2017 and 2016, respectively.
Gross Profit. Gross profit for the three months ended September 30, 2017 decreased $13.8 million, or 8.4%, compared to the three months ended September 30, 2016. As a percentage of sales, gross profit was 17.4% and 19.2% for the three months ended September 30, 2017 and 2016, respectively. The decrease in gross profit was driven primarily by customer price reductions, commodity price pressures, and unfavorable vehicle production mix. These items were partially offset by continuous improvement, and material cost savings.
Selling, Administration and Engineering. Selling, administration and engineering expense for the three months ended September 30, 2017 was $94.1 million, or 10.8% of sales, compared to $92.4 million, or 10.8% of sales, for the three months ended September 30, 2016. Selling, administration and engineering expense for the three months ended September 30, 2017 increased as a result of non-cash settlement charges relating to the wind-up of our U.K. pension plan of $5.7 million and investments to support growth and innovation, partially offset by lower compensation related costs.
Restructuring. Restructuring charges for the three months ended September 30, 2017 decreased $0.5 million compared to the three months ended September 30, 2016. The decrease was primarily driven by lower restructuring expenses related to our
European initiatives of $3.4 million, partially offset by higher restructuring charges attributed to North America and Asia Pacific of $2.9 million.
Other Expense, Net. Other expense for the three months ended September 30, 2017 decreased $0.1 million compared to the three months ended September 30, 2016, primarily due to other miscellaneous income, partially offset by increased foreign currency losses.
Income Tax Expense. Income tax expense for the three months ended September 30, 2017 was $7.8 million on earnings before income taxes of $33.3 million. This compares to income tax expense of $12.5 million on earnings before income taxes of $49.2 million for the same period of 2016. The effective tax rate for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 was lower primarily due to nonrecurring discrete items, including the impact of participating in a foreign tax amnesty program, recorded in the three months ended September 30, 2017. The income tax rate for the three months ended September 30, 2017 varied from statutory rates primarily due 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 share-based compensation and other permanent items.
Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016
Sales. Sales for the nine months ended September 30, 2017 increased $82.8 million, or 3.2%, compared to the nine months ended September 30, 2016, primarily due to improved volume and mix in all regions, the acquisition of AMI Industries’ fuel and brake business and consolidation of a previously unconsolidated joint venture, partially offset by customer price reductions and unfavorable foreign exchange.
Cost of Products Sold. Cost of products sold for the nine months ended September 30, 2017 increased $86.1 million, or 4.1%, compared to the nine months ended September 30, 2016. Cost of products sold increased primarily due to inflation, commodity price pressures, higher production volumes and acquisitions. These items were partially offset by continuous improvement and material cost savings. Materials comprise the largest component of our cost of products sold and represented approximately 51% and 50% of the total cost of products sold for the nine months ended September 30, 2017 and 2016, respectively.
Gross Profit. Gross profit for the nine months ended September 30, 2017 decreased $3.3 million, or 0.7%, compared to the nine months ended September 30, 2016. The decrease in gross profit was driven primarily by inflation, commodity price pressures and unfavorable vehicle production mix. As a percentage of sales, gross profit was 18.4% and 19.1% for the nine months ended September 30, 2017 and 2016, respectively.
Selling, Administration and Engineering. Selling, administration and engineering expense for the nine months ended September 30, 2017 was $267.9 million or 10.0% of sales, compared to $268.5 million, or 10.3% of sales, for the nine months ended September 30, 2016. Selling, administration and engineering expense for the nine months ended September 30, 2017 was favorable as a result of lower compensation related costs, partially offset by non-cash settlement charges relating to the wind-up of our U.K. pension plan of $5.7 million, and investments to support growth and innovation.
Impairment charges. Impairment charges of $4.3 million for the nine months ended September 30, 2017 resulted from our decision to divest two of our inactive European sites based on current real estate market conditions.
Restructuring. Restructuring charges for the nine months ended September 30, 2017 decreased $5.2 million compared to the nine months ended September 30, 2016. The decrease was primarily driven by lower expenses related to our European initiatives of $7.8 million, partially offset by higher restructuring charges attributed to North America and Asia Pacific of $2.6 million.
Interest Expense, Net. Net interest expense for the nine months ended September 30, 2017 increased $1.9 million compared to the nine months ended September 30, 2016, which resulted primarily from higher interest rates related to the new Senior Notes.
Loss on Refinancing and Extinguishment of Debt. Loss on refinancing and extinguishment of debt of $1.0 million for the nine months ended September 30, 2017 resulted from the partial write off of new and unamortized debt issuance costs and unamortized original issue discount related to the amendment of the Term Loan Facility.
Other Expense, Net. Other expense for the nine months ended September 30, 2017 decreased $5.3 million compared to the nine months ended September 30, 2016. The decrease was primarily due to the nonrecurrence of underwriting fees related to the secondary offering of $5.9 million recorded in the nine months ended September 30, 2016 and other miscellaneous income, partially offset by increased foreign currency losses.
Income Tax Expense. Income tax expense for the nine months ended September 30, 2017 was $40.3 million on earnings before income taxes of $149.9 million. This compares to income tax expense of $43.3 million on earnings before income taxes of $151.7 million for the same period of 2016. The effective tax rate for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was lower primarily due to nonrecurring discrete items, including the impact of participating in a foreign tax amnesty program, recorded in the nine months ended September 30, 2017. The income tax rate for the nine months ended September 30, 2017 varied from statutory rates primarily due 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 share-based compensation and other permanent items.
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, 2017 and 2016:
(dollar amounts in thousands)
| Sales to external customers | Three Months Ended September 30, 2017 | 2016 | Change | Nine Months Ended September 30, 2017 | 2016 | Change |
|---|---|---|---|---|---|---|
| North America | $437,406 | $450,795 | $(13,389) | $1,403,270 | $1,361,183 | $42,087 |
| Europe | 254,399 | 242,773 | 11,626 | 776,346 | 794,411 | (18,065) |
| Asia Pacific | 148,493 | 137,174 | 11,319 | 421,926 | 380,483 | 41,443 |
| South America | 28,718 | 24,914 | 3,804 | 78,670 | 61,380 | 17,290 |
| Consolidated | $869,016 | $855,656 | $13,360 | $2,680,212 | $2,597,457 | $82,755 |
| Segment profit (loss) | ||||||
| North America | $44,214 | $55,031 | $(10,817) | $170,971 | $169,857 | $1,114 |
| Europe | (9,024) | (5,632) | (3,392) | (20,633) | (7,510) | (13,123) |
| Asia Pacific | 3,050 | 3,037 | 13 | 11,036 | 6,073 | 4,963 |
| South America | (4,944) | (3,265) | (1,679) | (11,504) | (16,685) | 5,181 |
| Consolidated income before income taxes | $33,296 | $49,171 | $(15,875) | $149,870 | $151,735 | $(1,865) |
Three Months Ended September 30, 2017 Compared with Three Months Ended September 30, 2016
North America. Sales for the three months ended September 30, 2017 decreased $13.4 million, or 3.0%, compared to the three months ended September 30, 2016, primarily due to decreased volume and unfavorable mix and customer price reductions, partially offset by the acquisition of AMI Industries’ fuel and brake business. Segment profit for the three months ended September 30, 2017 decreased by $10.8 million, primarily due to lower volume and unfavorable mix, customer price reductions, and continued investments to support innovation, partially offset by operational efficiencies and net material cost savings.
Europe. Sales for the three months ended September 30, 2017 increased $11.6 million, or 4.8%, compared to the three months ended September 30, 2016, primarily due to favorable foreign exchange and improved volume and mix. Segment loss for the three months ended September 30, 2017 increased by $3.4 million, primarily due to non-cash settlement charges relating to the wind-up of our U.K. pension plan of $5.7 million and commodity price pressures, partially offset by lower restructuring expense, improved volume and mix and operational efficiencies, including restructuring savings.
Asia Pacific. Sales for the three months ended September 30, 2017 increased $11.3 million, or 8.3%, compared to the three months ended September 30, 2016, primarily due to improved volume and mix and the consolidation of a previously unconsolidated joint venture, partially offset by customer price reductions. Segment profit for the three months ended September 30, 2017 was flat compared to the three months ended September 20, 2016. Continuous improvement and material cost savings were offset by customer price reductions, wage inflation, and higher engineering costs to support growth in the region.
South America. Sales for the three months ended September 30, 2017 increased $3.8 million, or 15.3%, compared to the three months ended September 30, 2016, primarily due to improved volume and mix and favorable foreign exchange, partially offset by customer price reductions. Segment loss for the three months ended September 30, 2017 increased by $1.7 million primarily due to a $3.1 million pre-tax charge for costs associated with a foreign tax amnesty program, of which $0.2 million was paid in cash, and customer price reductions, partially offset by continuous improvement, volume and mix.
Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016
North America. Sales for the nine months ended September 30, 2017 increased $42.1 million, or 3.1%, compared to the nine months ended September 30, 2016, primarily due to improved volume and mix and the acquisition of AMI Industries’ fuel and brake business, partially offset by customer price reductions. Segment profit for the nine months ended September 30, 2017 increased by $1.1 million, primarily due to continuous improvement, net material cost savings, favorable foreign exchange and acquisitions, partially offset by customer price reductions, the impact of vehicle production mix and continued investments to support innovation.
Europe. Sales for the nine months ended September 30, 2017 decreased $18.1 million, or 2.3%, compared to the nine months ended September 30, 2016, primarily due to customer price reductions and unfavorable foreign exchange, partially offset by improvement in volume and mix. Segment loss for the nine months ended September 30, 2017 increased by $13.1 million, primarily due to non-cash settlement charges relating to the wind-up of our U.K. pension plan of $5.7 million, impairment charges recorded in the first quarter of 2017, customer price reductions, commodity price pressure, product mix and foreign exchange, partially offset by lower restructuring expense and operational efficiencies, including restructuring savings.
Asia Pacific. Sales for the nine months ended September 30, 2017 increased $41.4 million, or 10.9% compared to the nine months ended September 30, 2016, primarily due to the consolidation of a previously unconsolidated joint venture and improved volume and mix, partially offset by unfavorable foreign exchange and customer price reductions. Segment profit for the nine months ended September 30, 2017 increased by $5.0 million primarily driven by continuous improvement and material cost savings, partially offset by customer price reductions, higher engineering costs to support growth in the region and wage inflation.
South America. Sales for the nine months ended September 30, 2017 increased $17.3 million, or 28.2%, compared to the nine months ended September 30, 2016, primarily due to improved volume and mix and favorable foreign exchange. Segment loss for the nine months ended September 30, 2017 improved by $5.2 million primarily due to continuous improvement and net material cost savings and improved volume and mix, partially offset by a $3.1 million pre-tax charge for costs associated with a foreign tax amnesty program, of which $0.2 million was paid in cash.
Liquidity and Capital Resources
Short and Long-Term Liquidity Considerations and Risks
We intend to fund our ongoing working capital, capital expenditures, debt service and other funding requirements through a combination of cash flows from operations, cash on hand, borrowings under our senior asset-based revolving credit facility (“ABL Facility”) and receivables factoring. The Company utilizes intercompany loans and equity contributions to fund its worldwide operations. There may be country-specific regulations which may restrict or result in increased costs in the repatriation of these funds. See Note 7. “Debt” to the unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Report for additional information.
Based on our current and anticipated levels of operations and the condition in our markets and industry, we believe that our cash flows from operations, cash on hand, borrowings under our ABL Facility and receivables factoring will enable us to meet our ongoing working capital, capital expenditures, debt service and other funding requirements for the next twelve months. However, our ability to fund our working capital needs, debt payments and other obligations, and to comply with the financial covenants, including borrowing base limitations, under our ABL Facility, depend on our future operating performance and cash flow and many factors outside of our control, including the costs of raw materials, the state of the overall automotive industry and financial and economic conditions and other factors.
Cash Flows
Operating Activities. Net cash provided by operations was $104.6 million for the nine months ended September 30, 2017, compared to $182.0 million for the nine months ended September 30, 2016. The change was primarily driven by an increase in receivables due to customer payment timing and repurchase of receivables as part of the transition to a pan-European factoring program, increased inventory and higher payments related to incentive compensation, partially offset by increased cash earnings and reduced cash paid for restructuring and taxes.
Investing Activities. Net cash used in investing activities was $136.7 million for the nine months ended September 30, 2017, compared to $150.7 million for the nine months ended September 30, 2016. Cash used in investing activities consisted primarily of capital spending of $137.4 million and $116.8 million for the nine months ended September 30, 2017 and 2016, respectively. We anticipate that we will spend approximately $165 million to $175 million on capital expenditures in 2017.
Financing Activities. Net cash used in financing activities totaled $52.1 million for the nine months ended September 30, 2017, compared to $41.3 million for the nine months ended September 30, 2016. The increase was primarily due to increased repurchase activity under our share repurchase program, certain paydowns of foreign bank loans in 2017 and decreased warrant exercises.
Share Repurchase Program
In March 2016, our Board of Directors approved a securities repurchase program (the “Program”) authorizing us to repurchase, in the aggregate, up to $125 million of our outstanding common stock or warrants to purchase common stock. Under the Program, repurchases may be made on the open market or through private transactions, as determined by our management and in accordance with prevailing market conditions and federal securities laws and regulations.
In March 2016, we purchased $23.8 million of our common stock (350,000 shares at $68.00 per share) from the Selling Stockholders (as described in Note 15. “Common Stock” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report). In 2017, we repurchased $31.5 million of our common stock (306,072 shares at an average purchase price of $102.76 per share, excluding commissions) in the open market, of which $30.7 million was settled in cash during the nine months ended September 30, 2017. We expect to fund any future repurchases from cash on hand and future cash flows from operations. We are not obligated to acquire a particular amount of securities, and the Program may be discontinued at any time at our discretion. As of September 30, 2017, we have approximately $69.7 million of repurchase authorization remaining under the Program.
Non-GAAP Financial Measures
In evaluating our business, management considers EBITDA and Adjusted EBITDA to be key indicators of our operating performance. Our management also uses EBITDA and Adjusted EBITDA:
- because similar measures are utilized in the calculation of the financial covenants and ratios contained in our financing arrangements;
- in developing our internal budgets and forecasts;
- as a significant factor in evaluating our management for compensation purposes;
- in evaluating potential acquisitions;
- in comparing our current operating results with corresponding historical periods and with the operational performance of other companies in our industry; and
- in presentations to the members of our board of directors to enable our board of directors to have the same measurement basis of operating performance as is used by management in their assessments of performance and in forecasting and budgeting for our company.
In addition, we believe EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts and other interested parties in evaluating our performance. We define Adjusted EBITDA as net income (loss) plus income tax expense (benefit), interest expense, net of interest income, depreciation and amortization or EBITDA, as adjusted for items that management does not consider to be reflective of our core operating performance. These adjustments include, but are not limited to, restructuring costs, impairment charges, non-cash fair value adjustments and acquisition-related costs.
EBITDA and Adjusted EBITDA are not financial measurements recognized under U.S. GAAP, and when analyzing our operating performance, investors should use EBITDA and Adjusted EBITDA as a supplement to, and not as alternatives for, net income (loss), operating income, or any other performance measure derived in accordance with U.S. GAAP, nor as an alternative to cash flow from operating activities as a measure of our liquidity. EBITDA and Adjusted EBITDA have limitations as analytical tools, and they should not be considered in isolation or as substitutes for analysis of our results of operations as reported under U.S. GAAP. These limitations include:
- they do not reflect our cash expenditures or future requirements for capital expenditure or contractual commitments;
- they do not reflect changes in, or cash requirements for, our working capital needs;
- they do not reflect interest expense or cash requirements necessary to service interest or principal payments under our ABL Facility, Term Loan Facility and Senior Notes;
- they do not reflect certain tax payments that may represent a reduction in cash available to us;
- although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and
- other companies, including companies in our industry, may calculate these measures differently and, as the number of differences in the way companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases.
In addition, in evaluating Adjusted EBITDA, it should be noted that in the future, we may incur expenses similar to the adjustments in the below presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by special items.
The following table provides a reconciliation of EBITDA and Adjusted EBITDA from net income, which is the most comparable financial measure in accordance with U.S. GAAP:
(dollar amounts in thousands)
| Three Months Ended September 30, 2017 | 2016 | Nine Months Ended September 30, 2017 | 2016 | |
|---|---|---|---|---|
| Net income attributable to Cooper-Standard Holdings Inc. | $24,640 | $36,362 | $106,802 | $107,874 |
| Income tax expense | 7,838 | 12,525 | 40,258 | 43,312 |
| Interest expense, net of interest income | 10,256 | 10,114 | 31,788 | 29,861 |
| Depreciation and amortization | 34,368 | 31,325 | 99,413 | 91,699 |
| EBITDA | $77,102 | $90,326 | $278,261 | $272,746 |
| Restructuring charges | 9,909 | 10,430 | 28,220 | 33,468 |
| Settlement charges (1) | 5,902 | — | 5,902 | — |
| Foreign tax amnesty program (2) | 3,121 | — | 3,121 | — |
| Impairment charges (3) | — | — | 4,270 | — |
| Loss on refinancing and extinguishment of debt (4) | — | — | 1,020 | — |
| Secondary offering underwriting fees and other expenses (5) | — | — | — | 6,500 |
| Other | — | — | — | 155 |
| Adjusted EBITDA | $96,034 | $100,756 | $320,794 | $312,869 |
(1) Non-cash settlement charges of $5.7 million and administrative fees of $0.2 million relating to the U.K. pension plan.
(2) Relates to indirect taxes recorded in cost of products sold.
(3) Impairment charges related to fixed assets.
(4) Loss on refinancing and extinguishment of debt related to the May 2017 amendment of the Term Loan Facility.
(5) Fees and other expenses associated with the March 2016 secondary offering.
Contingencies and Environmental Matters
The information concerning contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters, contained in Note 18. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, is incorporated herein by references.
Recently Issued Accounting Pronouncements
See Note 1. “Overview” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
Critical Accounting Estimates
There have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2017.
Forward-Looking Statements
This quarterly report on Form 10-Q includes “forward-looking statements” within the meaning of U.S. federal securities laws, and we intend that such forward-looking statements be subject to the safe harbor created thereby. Our use of words “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” or future or conditional verbs, such as “will,” “should,” “could,” “would,” or “may,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you that these expectations, beliefs, and projections will be achieved. Forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties and other factors that may cause actual results or achievements to be materially different from the future results or achievements expressed or implied by the forward-looking statements. Among other items, such factors may include: prolonged or material contractions in automotive sales and production volumes; our inability to realize sales represented by awarded business; escalating pricing pressures; loss of large customers or significant platforms; our ability to successfully compete in the automotive parts industry; availability and increasing volatility in costs of manufactured components and raw materials; disruption in our supply base; possible variability of our working capital requirements; risks associated with our international operations; foreign currency exchange rate fluctuations; our ability to control the operations of our joint ventures for our sole benefit; our substantial amount of indebtedness; our ability to obtain adequate financing sources in the future; operating and financial restrictions imposed on us under our debt instruments; the underfunding of our pension plans; significant changes in discount rates and the actual return on pension assets; effectiveness of continuous improvement programs and other cost savings plans; manufacturing facility closings or consolidation; our ability to execute new program launches; our ability to meet customers' needs for new and improved products; the possibility that our acquisitions and divestitures may not be successful; product liability, warranty and recall claims brought against us; laws and regulations, including environmental, health and safety laws and regulations; legal proceedings, claims or investigations against us; work stoppages or other labor disruptions; the ability of our intellectual property to withstand legal challenges; cyber-attacks or other disruptions in our information technology systems; the possible volatility of our annual effective tax rate; the possibility of future impairment charges to our goodwill and long-lived assets; and our dependence on our subsidiaries for cash to satisfy our obligations.
You should not place undue reliance on these forward-looking statements. We undertake no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except where we are expressly required to do so by law.
This quarterly report on Form 10-Q also contains estimates and other information that is based on industry publications, surveys, and forecasts. This information involves a number of assumptions and limitations, and we have not independently verified the accuracy or completeness of the information.
Market risk
As filed, 184 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 2016 Annual Report.
Controls and procedures
As filed, 1,217 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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, 2017 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2017-09-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2017-07-01 to 2017-09-30 | $0 | us-gaap:Revenues |
| Revenue | 9 months2017-01-01 to 2017-09-30 | $0 | us-gaap:Revenues |
| Gross profit | 3 months2017-07-01 to 2017-09-30 | $150.8m | us-gaap:GrossProfit |
| Gross profit | 9 months2017-01-01 to 2017-09-30 | $493.2m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months2017-07-01 to 2017-09-30 | $94.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months2017-01-01 to 2017-09-30 | $267.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months2017-07-01 to 2017-09-30 | $43.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2017-01-01 to 2017-09-30 | $182.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months2017-07-01 to 2017-09-30 | $7.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2017-01-01 to 2017-09-30 | $40.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2017-07-01 to 2017-09-30 | $24.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months2017-01-01 to 2017-09-30 | $106.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2017-07-01 to 2017-09-30 | $1.32 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2017-01-01 to 2017-09-30 | $5.67 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2017-07-01 to 2017-09-30 | $1.39 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2017-01-01 to 2017-09-30 | $6.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2017-07-01 to 2017-09-30 | 18,680,518 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2017-01-01 to 2017-09-30 | 18,838,287 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2017-01-01 to 2017-09-30 | $104.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2017-01-01 to 2017-09-30 | $137.4m | us-gaap:PaymentsToAcquireProductiveAssets |
| Share repurchases | 9 months2017-01-01 to 2017-09-30 | $30.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | At period end2017-09-30 | $373.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2017-09-30 | $1.38bn | us-gaap:AssetsCurrent |
| Total assets | At period end2017-09-30 | $2.64bn | us-gaap:Assets |
| Current liabilities | At period end2017-09-30 | $785.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2017-09-30 | $1.79bn | us-gaap:Liabilities |
| Current portion of debt | At period end2017-09-30 | $32.4m | us-gaap:DebtCurrent |
| Shareholders' equity | At period end2017-09-30 | $815.8m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001320461-17-000048. Last ingested by Listed: Nov 5, 2026, 16:52 ET. Listed shows no prices and gives no investment advice.