Cooper Standard
Cooper-Standard Holdings Inc. (Form: 10-Q, Received: 08/04/2017 15:44:14)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
   ___________________________________ 
FORM 10-Q
   ___________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
or
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number: 001-36127
    ______________________________
COOPER-STANDARD HOLDINGS INC.
(Exact name of registrant as specified in its charter)
    ______________________________
Delaware
 
20-1945088
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
39550 Orchard Hill Place Drive
Novi, Michigan 48375
(Address of principal executive offices)
(Zip Code)
(248) 596-5900
(Registrant’s telephone number, including area code)
 ______________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
As of July 28, 2017 there were 17,734,153 shares of the registrant’s common stock, $0.001 par value, outstanding.




COOPER-STANDARD HOLDINGS INC.
Form 10-Q
For the period ended June 30, 2017
 
 
 
Page
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
Item 2.
Item 6.


2



PART I — FINANCIAL INFORMATION
Item 1.         Financial Statements
COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited)
(Dollar amounts in thousands except per share amounts)  
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Sales
$
909,145

 
$
879,304

 
$
1,811,196

 
$
1,741,801

Cost of products sold
736,905

 
707,343

 
1,468,871

 
1,410,016

Gross profit
172,240

 
171,961

 
342,325

 
331,785

Selling, administration & engineering expenses
86,104

 
92,672

 
173,738

 
176,130

Amortization of intangibles
3,536

 
3,239

 
7,131

 
6,517

Impairment charges

 

 
4,270

 

Restructuring charges
8,323

 
12,206

 
18,311

 
23,038

Other operating loss

 

 

 
155

Operating profit
74,277

 
63,844

 
138,875

 
125,945

Interest expense, net of interest income
(10,293
)
 
(9,995
)
 
(21,532
)
 
(19,747
)
Equity in earnings of affiliates
1,400

 
2,667

 
3,075

 
4,437

Loss on refinancing and extinguishment of debt
(1,020
)
 

 
(1,020
)
 

Other expense, net
(2,184
)
 
(255
)
 
(2,824
)
 
(8,071
)
Income before income taxes
62,180

 
56,261

 
116,574

 
102,564

Income tax expense
20,530

 
16,021

 
32,420

 
30,787

Net income
41,650

 
40,240

 
84,154

 
71,777

Net income attributable to noncontrolling interests
(1,194
)
 
(51
)
 
(1,992
)
 
(265
)
Net income attributable to Cooper-Standard Holdings Inc.
$
40,456

 
$
40,189

 
$
82,162

 
$
71,512

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
2.26

 
$
2.33

 
$
4.61

 
$
4.12

Diluted
$
2.14

 
$
2.16

 
$
4.34

 
$
3.83

The accompanying notes are an integral part of these financial statements.


3



COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollar amounts in thousands)  
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
41,650

 
$
40,240

 
$
84,154

 
$
71,777

Other comprehensive income (loss):
 
 
 
 
 
 
 
Currency translation adjustment
14,378

 
(8,661
)
 
24,669

 
9,666

Benefit plan liabilities adjustment, net of tax
(2,535
)
 
1,253

 
(2,728
)
 
(471
)
Fair value change of derivatives, net of tax
490

 
(410
)
 
1,583

 
(2,485
)
Other comprehensive income (loss), net of tax
12,333

 
(7,818
)
 
23,524

 
6,710

Comprehensive income
53,983

 
32,422

 
107,678

 
78,487

Comprehensive (income) loss attributable to noncontrolling interests
(1,604
)
 
224

 
(2,585
)
 
(51
)
Comprehensive income attributable to Cooper-Standard Holdings Inc.
$
52,379

 
$
32,646

 
$
105,093

 
$
78,436

The accompanying notes are an integral part of these financial statements.


4



COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except share amounts)
 
 
June 30, 2017
 
December 31, 2016
 
(unaudited)
 

Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
400,186

 
$
480,092

Accounts receivable, net
546,522

 
460,503

Tooling receivable
108,155

 
90,974

Inventories
168,397

 
146,449

Prepaid expenses
39,392

 
37,142

Other current assets
89,895

 
81,021

Total current assets
1,352,547

 
1,296,181

Property, plant and equipment, net
886,975

 
832,269

Goodwill
169,304

 
167,441

Intangible assets, net
75,132

 
81,363

Other assets
103,579

 
114,448

Total assets
$
2,587,537

 
$
2,491,702

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Debt payable within one year
$
29,817

 
$
33,439

Accounts payable
496,162

 
475,426

Payroll liabilities
130,501

 
144,812

Accrued liabilities
108,927

 
105,665

Total current liabilities
765,407

 
759,342

Long-term debt
722,988

 
729,480

Pension benefits
179,922

 
172,950

Postretirement benefits other than pensions
55,300

 
54,225

Other liabilities
46,174

 
53,914

Total liabilities
1,769,791

 
1,769,911

7% Cumulative participating convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding

 

Equity:
 
 
 
Common stock, $0.001 par value, 190,000,000 shares authorized; 19,870,559 shares issued and 17,781,844 shares outstanding as of June 30, 2017, and 19,686,917 shares issued and 17,690,611 outstanding as of December 31, 2016
18

 
17

Additional paid-in capital
515,154

 
513,934

Retained earnings
495,190

 
425,972

Accumulated other comprehensive loss
(219,632
)
 
(242,563
)
Total Cooper-Standard Holdings Inc. equity
790,730

 
697,360

Noncontrolling interests
27,016

 
24,431

Total equity
817,746

 
721,791

Total liabilities and equity
$
2,587,537

 
$
2,491,702

The accompanying notes are an integral part of these financial statements.

5



COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
(Dollar amounts in thousands except share amounts)  
 
Total Equity
 
Common Shares
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Cooper-Standard Holdings Inc. Equity
 
Noncontrolling Interests
 
Total Equity
Balance as of December 31, 2016
17,690,611

 
$
17

 
$
513,934

 
$
425,972

 
$
(242,563
)
 
$
697,360

 
$
24,431

 
$
721,791

Repurchase of common stock
(92,409
)
 

 
(2,236
)
 
(7,083
)
 

 
(9,319
)
 

 
(9,319
)
Warrant exercises
25,949

 

 
707

 

 

 
707

 

 
707

Share-based compensation, net
157,693

 
1

 
2,749

 
(5,861
)
 

 
(3,111
)
 

 
(3,111
)
Net income

 

 

 
82,162

 

 
82,162

 
1,992

 
84,154

Other comprehensive income

 

 

 

 
22,931

 
22,931

 
593

 
23,524

Balance as of June 30, 2017
17,781,844

 
$
18

 
$
515,154

 
$
495,190

 
$
(219,632
)
 
$
790,730

 
$
27,016

 
$
817,746

The accompanying notes are an integral part of these financial statements.
 

6



COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
 
 
Six Months Ended June 30,
 
2017
 
2016
Operating Activities:
 
 
 
Net income
$
84,154

 
$
71,777

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
57,914

 
53,856

Amortization of intangibles
7,131

 
6,517

Impairment charges
4,270

 

Share-based compensation expense
11,694

 
10,909

Equity in earnings of affiliates, net of dividends related to earnings
2,307

 
(1,415
)
Loss on refinancing and extinguishment of debt
1,020

 

Other
9,829

 
947

Changes in operating assets and liabilities
(114,141
)
 
(27,350
)
Net cash provided by operating activities
64,178

 
115,241

Investing activities:
 
 
 
Capital expenditures
(98,149
)
 
(81,429
)
Loan to affiliate

 
(4,906
)
Acquisition of businesses, net of cash acquired

 
(3,020
)
Proceeds from sale of fixed assets and other
348

 
73

Net cash used in investing activities
(97,801
)
 
(89,282
)
Financing activities:
 
 
 
Principal payments on long-term debt
(11,297
)
 
(4,886
)
Increase in short-term debt, net
541

 
1,331

Restricted cash deposit for overdraft facility

 
(25,000
)
Repurchase of common stock
(7,514
)
 
(23,800
)
Proceeds from exercise of warrants
707

 
413

Taxes withheld and paid on employees' share based payment awards
(11,671
)
 
(4,896
)
Other
(792
)
 
43

Net cash used in financing activities
(30,026
)
 
(56,795
)
Effects of exchange rate changes on cash and cash equivalents
(16,257
)
 
(7,861
)
Changes in cash and cash equivalents
(79,906
)
 
(38,697
)
Cash and cash equivalents at beginning of period
480,092

 
378,243

Cash and cash equivalents at end of period
$
400,186

 
$
339,546

The accompanying notes are an integral part of these financial statements.

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)


1. Overview
Basis of Presentation
Cooper-Standard Holdings Inc. (together with its consolidated subsidiaries, the “Company” or “Cooper Standard”), through its wholly-owned subsidiary, Cooper-Standard Automotive Inc. (“CSA U.S.”), is a leading manufacturer of sealing, fuel and brake delivery, fluid transfer, and anti-vibration systems. The Company’s products are primarily for use in passenger vehicles and light trucks that are manufactured by global automotive original equipment manufacturers (“OEMs”) and replacement markets. The Company conducts substantially all of its activities through its subsidiaries.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “ 2016 Annual Report”), as filed with the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These financial statements include all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of the Company. The operating results for the interim period ended June 30, 2017 are not necessarily indicative of results for the full year. In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
The Company’s financial statements for the three months ended June 30, 2016 have been recast to reflect the effects of the Company’s adoption of Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , which was adopted in the second quarter of 2016 . The financial statement line items affected were selling, administration & engineering expenses, income tax expense, net income and basic and diluted earnings per share.
Recently Adopted Accounting Pronouncements
In the first quarter of 2017, the Company adopted ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This ASU amended the guidelines for the measurement of inventory from lower of cost or market to the lower of cost and net realizable value. This new guidance has been adopted prospectively and had an immaterial impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope Modification Accounting . This guidance clarifies that modification accounting is required only if the fair value, vesting conditions, or classification (as equity or liability) of share-based payment award changes due to changes in the terms or conditions. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost . This guidance requires the service cost component of net periodic benefit cost to be recorded in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost must be presented separately outside of operating income. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . This guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. This guidance is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . This guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as

8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

restricted cash and restricted cash equivalents should now be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated statement of cash flows.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory . This guidance will require companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, and should be applied on a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. Early adoption is permitted at the beginning of an annual period. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments provide guidance on eight specific cash flow issues, thereby reducing diversity in practice. The amendments are effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The guidance requires companies to use a retrospective transition method upon adoption. The Company’s current accounting practices are consistent with the issues addressed by this guidance. Therefore, this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . The guidance revises existing U.S. GAAP by requiring lessees to recognize right-of-use assets and lease liabilities for all leases (with the exception of short-term leases). The standard also requires additional disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from lease transactions. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required with certain practical expedients available. The Company continues to perform a comprehensive evaluation on the impacts of adopting this standard and plans on adopting this ASU effective January 1, 2019. The Company believes this standard will primarily result in an increase in the assets and liabilities on its consolidated balance sheet and will not have a material impact on its consolidated income statement.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . The guidance prescribes a single, common revenue standard that replaces most existing revenue recognition guidance in U.S. GAAP. The standard outlines a five-step model whereby revenue is recognized as performance obligations within a contract are satisfied. The standard also requires new, expanded revenue disclosures.
Several ASUs have been issued since the issuance of ASU 2014-09. These ASUs, which modify certain sections of ASU 2014-09, are intended to promote a more consistent interpretation and application of the principles outlined in the standard. The Company will adopt the guidance effective January 1, 2018, the standard’s effective date, using the modified retrospective method. Under this method, the cumulative effect of adopting the standard is recognized in equity at the date of initial application.
To assess the impact of the new standard, the Company developed a comprehensive project plan. This project plan includes analyzing the standard’s impact on customer contracts across the Company’s business segments, comparing its historical accounting policies and practices to the requirements of the new standard, and identifying potential differences from applying the new standard’s requirements. The Company has yet to determine the effect on its consolidated financial statements, but expects this determination will near completion by the third quarter of 2017.
The new standard could impact how the Company accounts for pre-production costs related to long-term supply arrangements, such as reimbursable tooling. Under current guidance, such reimbursements from customers are recorded as cost offsets. Under the new guidance, revenue could potentially be recognized for pre-production activities that are transferred to the customer. Since final clarification on the accounting treatment is still outstanding, the Company’s evaluation of pre-production costs is ongoing.
In addition, the Company’s internal control framework is not expected to significantly change. Instead, existing internal controls will be modified and augmented, as necessary. While implementing the new standard, the Company will continue to monitor FASB activities and interpretations of various non-authoritative industry groups for any possible impact on the Company’s findings.

9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

2. Acquisitions
AMI Acquisition
In 2016, the Company acquired the North American fuel and brake business of AMI Industries (the “AMI Business”) for cash consideration of $32,000 (the “AMI Acquisition”). This acquisition directly aligns with the Company’s growth strategy by expanding the Company’s fuel and brake business. The results of operations of the AMI Business are included in the Company’s condensed consolidated financial statements from the date of acquisition, August 15, 2016, and reported within the North America segment. This acquisition was accounted for as a business combination, resulting in the recognition of intangible assets of $19,410 and goodwill of $7,175 in 2016. In the second quarter of 2017, the Company agreed to purchase the China fuel and brake business of AMI Industries, which is subject to regulatory approval and is expected to close in the second half of 2017.
Other Acquisitions
In 2016, the Company acquired a business in furtherance of the Company’s China operations. The total purchase price of the acquisition was $5,478 , of which $3,020 was paid during the first quarter of 2016 and $2,458 was paid in the third quarter of 2016. The Company recognized $2,972 of goodwill in 2016 as a result of this acquisition.
Also in 2016, the Company obtained control of its 51% -owned joint venture, Shenya Sealing (Guangzhou) Company Limited (“Guangzhou”) through an amendment of the joint venture governing document. This joint venture was previously accounted for as an investment under the equity method. The results of operations of Guangzhou are included in the Company’s consolidated financial statements from the date of consolidation, August 4, 2016, and reported within the Asia Pacific segment. Business combination accounting was completed, resulting in the recognition of intangible assets of $6,605 and goodwill of $9,741 in 2016. There was no gain or loss recognized on the remeasurement of the Company’s equity method investment in Guangzhou.
3. Restructuring
On an ongoing basis, the Company evaluates its business and objectives to ensure that it is properly configured and sized based on changing market conditions. Accordingly, the Company has implemented several restructuring initiatives, including closure or consolidation of facilities throughout the world and the reorganization of its operating structure.
In January 2015, the Company announced its intention to further restructure its European manufacturing footprint based on anticipated market demands. The total estimated cost of this initiative, which is expected to be substantially completed by the end of 2017, is approximately $120,000 to $125,000 , of which approximately $102,000 has been incurred to date. We expect to incur total employee separation costs of approximately $64,000 to $67,000 , other related exit costs of approximately $56,000 to $58,000 and non-cash asset impairments related to restructuring activities of approximately $500 .
The Company’s restructuring charges consist of severance, retention and outplacement services, and severance-related postemployment benefits (collectively, “employee separation costs”), other related exit costs and asset impairments related to restructuring activities.
The following table summarizes the restructuring expense by segment for the three and six months ended June 30, 2017 and 2016 :
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
North America
$
817

 
$
395

 
$
817

 
$
1,355

Europe
6,816

 
11,658

 
16,105

 
20,493

Asia Pacific
690

 
153

 
1,389

 
1,190

Total
$
8,323

 
$
12,206

 
$
18,311

 
$
23,038


10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

The following table summarizes the activity for restructuring initiatives for the six months ended June 30, 2017 :
 
Employee Separation Costs
 
Other Exit Costs
 
Total
Balance as of December 31, 2016
$
21,927

 
$
2,311

 
$
24,238

Expense
10,861

 
7,450

 
18,311

Cash payments
(19,258
)
 
(6,927
)
 
(26,185
)
Foreign exchange translation and other
1,529

 
68

 
1,597

Balance as of June 30, 2017
$
15,059

 
$
2,902

 
$
17,961

4. Inventories
Inventories were comprised of the following as of June 30, 2017 and December 31, 2016 :
 
June 30, 2017
 
December 31, 2016
Finished goods
$
51,328

 
$
43,511

Work in process
37,244

 
32,839

Raw materials and supplies
79,825

 
70,099

 
$
168,397

 
$
146,449

5. Property, Plant and Equipment
Property, plant and equipment was comprised of the following as of June 30, 2017 and December 31, 2016 :
 
June 30, 2017
 
December 31, 2016
 Land and improvements
$
70,889

 
$
71,002

 Buildings and improvements
282,792

 
265,824

 Machinery and equipment
950,951

 
864,337

 Construction in progress
176,643

 
153,924

 
1,481,275

 
1,355,087

 Accumulated depreciation
(594,300
)
 
(522,818
)
 Property, plant and equipment, net
$
886,975

 
$
832,269

Impairment of Long-Lived Assets
Due to the Company’s decision to divest two of its inactive European sites, the Company recorded impairment charges of $4,270 in the six months ended June 30, 2017 . Fair value was determined based on current real estate market conditions.
6. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill by reportable operating segment for the six months ended June 30, 2017 are summarized as follows:
 
North America
 
Europe
 
Asia Pacific
 
Total
Balance as of December 31, 2016
$
121,996

 
$
10,753

 
$
34,692

 
$
167,441

Foreign exchange translation
108

 
864

 
891

 
1,863

Balance as of June 30, 2017
$
122,104

 
$
11,617

 
$
35,583

 
$
169,304

Goodwill is tested for impairment by reporting unit annually or more frequently if events or circumstances indicate that an impairment may exist. There were no indicators of potential impairment during the six months ended June 30, 2017 .

11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

Intangible Assets
The following table presents intangible assets and accumulated amortization balances of the Company as of June 30, 2017 and December 31, 2016 , respectively:
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships
$
135,387

 
$
(79,731
)
 
$
55,656

Developed technology
9,025

 
(8,899
)
 
126

Other
21,639

 
(2,289
)
 
19,350

Balance as of June 30, 2017
$
166,051

 
$
(90,919
)
 
$
75,132

 
 
 
 
 
 
Customer relationships
$
134,918

 
$
(73,088
)
 
$
61,830

Developed technology
8,762

 
(8,386
)
 
376

Other
20,965

 
(1,808
)
 
19,157

Balance as of December 31, 2016
$
164,645

 
$
(83,282
)
 
$
81,363

7. Debt
Outstanding debt consisted of the following as of June 30, 2017 and December 31, 2016 :
 
June 30, 2017
 
December 31, 2016
Senior Notes
$
393,326

 
$
393,060

Term Loan
331,982

 
332,827

Other borrowings
27,497

 
37,032

Total debt
752,805

 
762,919

Less current portion
(29,817
)
 
(33,439
)
Total long-term debt
$
722,988

 
$
729,480

5.625% Senior Notes due 2026
In November 2016, the Company issued $400,000 aggregate principal amount of its 5.625% Senior Notes due 2026 (the “Senior Notes”). The Senior Notes mature on November 15, 2026 . Interest on the Senior Notes is payable semi-annually in arrears in cash on May 15 and November 15 of each year, commencing on May 15, 2017.
Debt issuance costs related to the Senior Notes are amortized into interest expense over the term of the Senior Notes. As of June 30, 2017 and December 31, 2016 , the Company has $6,674 and $6,940 of unamortized debt issuance costs, respectively, related to the Senior Notes, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheets.
Term Loan Facility
Also in November 2016, the Company entered into Amendment No. 1 to its senior term loan facility (“Term Loan Facility”), which provides for loans in an aggregate principal amount of $340,000 . Subject to certain conditions, the Term Loan Facility, without the consent of the then existing lenders (but subject to the receipt of commitments), may be expanded (or a new term loan or revolving facility added) by an amount that will not cause the consolidated secured net debt ratio to exceed 2.25 to 1.00 plus $400,000 plus any voluntary prepayments, including the senior asset-based revolving credit facility (“ABL Facility”) to the extent commitments are reduced, not funded from proceeds of long-term indebtedness. The Term Loan Facility matures on November 2, 2023 , unless earlier terminated.
On May 2, 2017, the Company entered into Amendment No. 2 to the Term Loan Facility to modify the interest rate. In accordance with this amendment, borrowings under the Term Loan Facility bear interest, at the Company’s option, at either (1) with respect to Eurodollar rate loans, the greater of the applicable Eurodollar rate and 0.75%, plus 2.25% per annum, or (2) with respect to base rate loans, the base rate (which is the highest of the then current federal funds rate plus 0.5%, the prime rate most recently announced by the administrative agent under the term loan, and the one-month Eurodollar rate plus 1.0%), plus 1.25% per annum . As a result of the amendment, the Company recognized a loss on refinancing and extinguishment of

12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

debt of $1,020 , which was due to the partial write off of new and unamortized debt issuance costs and unamortized original issue discount.
As of June 30, 2017 and December 31, 2016 , the Company had $3,841 and $4,352 of unamortized debt issuance costs, respectively, and $2,477 and $2,821 of unamortized original issue discount, respectively, related to the Term Loan Facility, which are presented as direct deductions from the principal balance in the condensed consolidated balance sheets. Both the debt issuance costs and the original issue discount are amortized into interest expense over the term of the Term Loan Facility.
ABL Facility
In November 2016, the Company entered into a $210,000 Third Amended and Restated Loan Agreement of its senior asset-based revolving credit facility (“ABL Facility”).
The ABL Facility provides for an aggregate revolving loan availability of up to $210,000 , subject to borrowing base availability, including a $100,000 letter of credit sub-facility and a $25,000 swing line sub-facility. The ABL Facility also provides for an uncommitted $100,000 incremental loan facility, for a potential total ABL Facility of $310,000 , if requested by the Borrowers and the lenders agree to fund such increase. No consent of any lender is required to effect any such increase, except for those participating in the increase. As of June 30, 2017 , there were no borrowings under the ABL Facility, and subject to borrowing base availability, the Company had $189,750 in availability, less outstanding letters of credit of $9,815 .
Any borrowings under our ABL Facility will mature, and the commitments of the lenders under our ABL Facility will terminate, on November 2, 2021.
As of June 30, 2017 and December 31, 2016 , the Company had $1,529 and $1,706 , respectively, of unamortized debt issuance costs related to the ABL Facility, which are presented in other assets in the condensed consolidated balance sheets.
Debt Covenants
The Company was in compliance with all covenants of the Senior Notes, Term Loan Facility and ABL Facility, as of June 30, 2017 .
Other
Other borrowings reflect borrowings under capital leases, local bank lines and accounts receivable factoring sold with recourse classified in debt payable within one year on the condensed consolidated balance sheets.
8. Fair Value Measurements and Financial Instruments
Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy is utilized, which prioritizes the inputs used in measuring fair value as follows:
Level 1:
Observable inputs such as quoted prices in active markets;
Level 2:
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

Items Measured at Fair Value on a Recurring Basis
Estimates of the fair value of foreign currency and interest rate derivative instruments are determined using exchange traded prices and rates. The Company also considers the risk of non-performance in the estimation of fair value and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. In certain instances where market data is not available, the Company uses management judgment to develop assumptions that are used to determine fair value. Fair value measurements and the fair value hierarchy level for the Company’s assets and liabilities measured or disclosed at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 , are shown below:
 
June 30, 2017
 
December 31, 2016
 
Input
Forward foreign exchange contracts - other current assets
$
2,022

 
$
764

 
Level 2
Forward foreign exchange contracts - accrued liabilities
(594
)
 
(535
)
 
Level 2
Interest rate swaps - accrued liabilities
(1,452
)
 
(2,458
)
 
Level 2
Interest rate swaps - other liabilities
(231
)
 
(661
)
 
Level 2
Items Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, the Company measures certain assets and liabilities at fair value on a nonrecurring basis, which are not included in the table above. As these nonrecurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy. For further information on assets and liabilities measured at fair value on a nonrecurring basis see Note 2. “Acquisitions,” Note 3. “Restructuring” and Note 5. “Property, Plant and Equipment.”
Items Not Carried At Fair Value
Fair values of the Company’s debt instruments are shown below:
 
June 30, 2017
 
December 31, 2016
Aggregate fair value
$
739,873

 
$
735,850

Aggregate carrying value (1)
738,300

 
740,000

(1) Excludes unamortized debt issuance costs and unamortized original issue discount.
Fair values were based on quoted market prices and are classified within Level 1 of the fair value hierarchy.
Derivative Instruments and Hedging Activities
The Company is exposed to fluctuations in foreign currency exchange rates, interest rates and commodity prices. The Company enters into derivative instruments primarily to hedge portions of its forecasted foreign currency denominated cash flows and designates these derivative instruments as cash flow hedges in order to qualify for hedge accounting. Certain foreign exchange contracts that do not qualify for hedge accounting are entered into hedge recognized foreign currency transactions. All gains or losses on derivative instruments which are not designated for hedge accounting treatment or do not qualify for hedge accounting, or result from hedge ineffectiveness, are reported in earnings.
The Company formally documents its hedge relationships, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the cash flow hedges. The Company also formally assesses whether a cash flow hedge is highly effective in offsetting changes in the cash flows of the hedged item. Derivatives are recorded at fair value in other current assets, other assets, accrued liabilities and other long-term liabilities. For a cash flow hedge, the effective portion of the change in fair value of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”) in the consolidated balance sheet and reclassified into earnings when the underlying hedged transaction is realized. The realized gains and losses are recorded on the same line as the hedged transaction in the consolidated statements of net income.
The Company is exposed to credit risk in the event of nonperformance by its counterparties on its derivative financial instruments. The Company mitigates this credit risk exposure by entering into agreements directly with major financial institutions with high credit standards that are expected to fully satisfy their obligations under the contracts.

14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

Cash Flow Hedges
Forward Foreign Exchange Contracts —The Company uses forward contracts to mitigate the potential volatility to earnings and cash flow arising from changes in currency exchange rates that impact the Company’s foreign currency transactions. The principal currencies hedged by the Company include various European currencies, the Canadian Dollar, the Mexican Peso, and the Brazilian Real. As of June 30, 2017 , the notional amount of these contracts was $144,305 and consisted of hedges of transactions up to June 2018 .
Interest rate swaps - The Company uses interest rate swap transactions to manage cash flow variability associated with its variable rate Term Loan Facility. The interest rate swap contracts, which fix the interest payments of variable rate debt instruments, are used to manage exposure to fluctuations in interest rates. As of June 30, 2017 , the notional amount of these contracts was $300,000 , with maturities through September 2018 . The fair market value of all outstanding interest rate swap contracts is subject to change due to fluctuations in interest rates.
Pretax amounts related to the Company’s cash flow hedges that were recognized in AOCI are shown below:
 
Gain (loss) recognized in AOCI
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Foreign currency derivatives
$
1,682

 
$
(2,006
)
 
$
2,623

 
$
(4,238
)
Interest rate swaps
(175
)
 
(596
)
 
(49
)
 
(2,254
)
Total
$
1,507

 
$
(2,602
)
 
$
2,574

 
$
(6,492
)
Pretax amounts related to the Company’s cash flow hedges that were reclassified from AOCI are shown below:
 
 
 
Gain (loss) reclassified from AOCI to income (effective portion)
 
Gain (loss) reclassified from AOCI to income (ineffective portion)
 
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
Location
 
2017
 
2016
 
2017
 
2016
Foreign currency derivatives
Cost of products sold
 
$
1,335

 
$
(1,402
)
 
$

 
$

Interest rate swaps
Interest expense, net of interest income
 
(684
)
 
(795
)
 
92

 

Total
 
 
$
651

 
$
(2,197
)
 
$
92

 
$

 
 
 
Gain (loss) reclassified from AOCI to income (effective portion)
 
Gain (loss) reclassified from AOCI to income (ineffective portion)
 
 
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
Location
 
2017
 
2016
 
2017
 
2016
Foreign currency derivatives
Cost of products sold
 
$
1,456

 
$
(1,611
)
 
$

 
$

Interest rate swaps
Interest expense, net of interest income
 
(1,478
)
 
(1,590
)
 
177

 

Total
 
 
$
(22
)
 
$
(3,201
)
 
$
177

 
$

The amount of losses to be reclassified from AOCI into income in the next twelve months related to the interest rate swap is expected to be approximately $1,451 .
9. Accounts Receivable Factoring
As a part of its working capital management, the Company sells certain receivables through third party financial institutions with and without recourse. The amount sold varies each month based on the amount of underlying receivables and cash flow needs of the Company. The Company continues to service the receivables. These are permitted transactions under the Company’s credit agreement governing the ABL Facility, the Term Loan Facility and the Senior Notes. Costs incurred on the sale of receivables are recorded in other expense, net and interest expense, net of interest income in the condensed consolidated statements of net income. Receivables sold with recourse are accounted for as secured borrowings and are recorded in debt

15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

payable within one year, and receivables are pledged equal to the balance of the borrowings. Receivables sold without recourse are accounted for as true sales and are excluded from accounts receivable in the condensed consolidated balance sheet.
The amounts outstanding under receivable transfer agreements entered into by various locations are shown below:
 
June 30, 2017
 
December 31, 2016
Without recourse
$
79,837

 
$
56,936

With recourse
4,893

 
5,258

The total amounts of accounts receivable factored and the costs incurred on the sale of receivables are as follows:
 
Without Recourse
 
With Recourse
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Accounts receivable factored
$
143,186

 
$
135,653

 
$
292,110

 
$
260,970

 
$
6,455

 
$
4,572

 
$
14,106

 
$
10,528

Costs
610

 
511

 
1,065

 
990

 
19

 
14

 
45

 
35

10. Pension and Postretirement Benefits Other Than Pensions
The following tables disclose the components of net periodic benefit (income) cost for the three and six months ended June 30, 2017 and 2016 for the Company’s defined benefit plans and other postretirement benefit plans:
 
 Pension Benefits
 
Three Months Ended June 30,
 
2017
 
2016
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
204

 
$
969

 
$
202

 
$
867

Interest cost
2,925

 
1,072

 
3,145

 
1,291

Expected return on plan assets
(4,003
)
 
(650
)
 
(3,959
)
 
(810
)
Amortization of prior service cost and actuarial loss
468

 
715

 
429

 
562

Net periodic benefit (income) cost
$
(406
)
 
$
2,106

 
$
(183
)
 
$
1,910

 
 
 
 
 
 
 
 
 
 Pension Benefits
 
Six Months Ended June 30,
 
2017
 
2016
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
408

 
$
1,908

 
$
404

 
$
1,714

Interest cost
5,850

 
2,128

 
6,290

 
2,538

Expected return on plan assets
(8,006
)
 
(1,307
)
 
(7,918
)
 
(1,579
)
Amortization of prior service cost and actuarial loss
936

 
1,411

 
858

 
1,109

Net periodic benefit (income) cost
$
(812
)
 
$
4,140

 
$
(366
)
 
$
3,782

 

16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

 
 Other Postretirement Benefits
 
Three Months Ended June 30,
 
2017
 
2016
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
79

 
$
102

 
$
90

 
$
96

Interest cost
324

 
167

 
346

 
174

Amortization of prior service credit and actuarial gain
(479
)
 
(4
)
 
(507
)
 
(16
)
Other
1

 

 
1

 

Net periodic benefit (income) cost
$
(75
)
 
$
265

 
$
(70
)
 
$
254

 
 
 
 
 
 
 
 
 
 Other Postretirement Benefits
 
Six Months Ended June 30,
 
2017
 
2016
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
158

 
$
206

 
$
180

 
$
186

Interest cost
648

 
337

 
692

 
338

Amortization of prior service credit and actuarial gain
(958
)
 
(8
)
 
(1,014
)
 
(31
)
Other
2

 

 
2

 

Net periodic benefit (income) cost
$
(150
)
 
$
535

 
$
(140
)
 
$
493

11. Other Expense, Net
The components of other expense, net are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Foreign currency losses
$
(1,906
)
 
$
(15
)
 
$
(2,578
)
 
$
(1,704
)
Secondary offering underwriting fees

 

 

 
(5,900
)
Losses on sales of receivables
(342
)
 
(240
)
 
(560
)
 
(467
)
Miscellaneous income
64

 

 
314

 

Other expense, net
$
(2,184
)
 
$
(255
)
 
$
(2,824
)
 
$
(8,071
)
12. Income Taxes
The Company determines its effective tax rate each quarter based upon its estimated annual effective tax rate. The Company records the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year where no tax benefit can be recognized are excluded from the estimated annual effective tax rate.
A summary of income tax expense, income before income taxes and the corresponding effective tax rate for the three and six months ended June 30, 2017 and 2016 , is shown below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Income tax expense
$
20,530

 
$
16,021

(1)
$
32,420

 
$
30,787

Income before income taxes
62,180

 
56,261

(1)
116,574

 
102,564

Effective tax rate
33
%
 
28
%
(1)
28
%
 
30
%
(1) Amounts were recast to reflect the adoption of ASU 2016-09 in the second quarter of 2016. See Note 16.


17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

The effective tax rate for the three months ended June 30, 2017 compared to the three months ended June 30, 2016 was higher primarily due to discrete tax adjustments for excess tax benefits on share-based compensation recorded in the three months ended June 30, 2016 . The effective tax rate for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was lower primarily due to earnings mix between tax benefited and non-tax benefited jurisdictions. The income tax rate for the three and six months ended June 30, 2017 varies 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. 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 valuation allowances until it is more likely than not that the deferred tax assets will be realized.
13. Net Income Per Share Attributable to Cooper-Standard Holdings Inc.
Basic net income per share attributable to Cooper-Standard Holdings Inc. was computed by dividing net income attributable to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share attributable to Cooper-Standard Holdings Inc. was computed using the treasury stock method by dividing diluted net income available to Cooper-Standard Holdings Inc. by the weighted average number of shares of common stock outstanding, including the dilutive effect of common stock equivalents, using the average share price during the period.
A summary of information used to compute basic and diluted net income per share attributable to Cooper-Standard Holdings Inc. is shown below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income attributable to Cooper-Standard Holdings Inc.
$
40,456

 
$
40,189

(1)  
$
82,162

 
$
71,512

(Decrease) increase in fair value of share-based awards
(24
)
 
12

 
(6
)
 
12

Diluted net income available to Cooper-Standard Holdings Inc. common stockholders
$
40,432

 
$
40,201

(1)  
$
82,156

 
$
71,524

 
 
 
 
 
 
 
 
Basic weighted average shares of common stock outstanding
17,863,203

 
17,242,277

 
17,803,430

 
17,342,321

Dilutive effect of common stock equivalents
1,002,764

 
1,349,370

 
1,116,161

 
1,326,802

Diluted weighted average shares of common stock outstanding
18,865,967

 
18,591,647

 
18,919,591

 
18,669,123

 
 
 
 
 
 
 
 
Basic net income per share attributable to Cooper-Standard Holdings Inc.
$
2.26

 
$
2.33

(1)  
$
4.61

 
$
4.12

 
 
 
 
 
 
 
 
Diluted net income per share attributable to Cooper-Standard Holdings Inc.
$
2.14

 
$
2.16

(1)  
$
4.34

 
$
3.83

(1) Amounts were recast to reflect the adoption of ASU 2016-09 in the second quarter of 2016. See Note 16.
For the three and six months ended June 30, 2017 , approximately 109,000 securities were excluded from the calculation of diluted earnings per share because the inclusion of such securities in the calculation would have been anti-dilutive.

18

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

14. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component for the three and six months ended June 30, 2017 and 2016 , net of related tax, are as follows:
 
Three Months Ended June 30, 2017
 
Cumulative currency translation adjustment
 
Benefit plan
liabilities
 
Fair value change of derivatives
 
Total
Balance as of March 31, 2017
$
(133,373
)
 
$
(97,805
)
 
$
(377
)
 
$
(231,555
)
Other comprehensive income (loss) before reclassifications
13,968

(1)  
(3,057
)
(2)  
1,135

(3)  
12,046

Amounts reclassified from accumulated other comprehensive income (loss)

 
522

(4)  
(645
)
(5)  
(123
)
Balance as of June 30, 2017
$
(119,405
)
 
$
(100,340
)
 
$
113

 
$
(219,632
)
(1)
Includes $1,928 of other comprehensive income related to intra-entity foreign currency balances that are of a long-term investment nature.
(2)
Net of tax benefit of $30 .
(3)
Net of tax expense of $372 . See Note 8.
(4)
Includes actuarial losses of $810 , offset by prior service credits of $80 , net of tax of $208 . See Note 10.
(5)
Net of tax expense of $98 . See Note 8.
 
Three Months Ended June 30, 2016
 
Cumulative currency translation adjustment
 
Benefit plan
liabilities
 
Fair value change of derivatives
 
Total
Balance as of March 31, 2016
$
(112,395
)
 
$
(85,848
)
 
$
(4,355
)
 
$
(202,598
)
Other comprehensive income (loss) before reclassifications
(8,385
)
(1)  
928

(2)  
(1,883
)
(3)  
(9,340
)
Amounts reclassified from accumulated other comprehensive income (loss)

 
325

(4)  
1,472

(5)  
1,797

Balance as of June 30, 2016
$
(120,780
)
 
$
(84,595
)
 
$
(4,766
)
 
$
(210,141
)
(1)
Includes $169 of other comprehensive income related to intra-entity foreign currency balances that are of a long-term investment nature.
(2)
Net of tax expense of $47 .
(3)
Net of tax benefit of $719 . See Note 8.
(4)
Includes actuarial losses of $528 , offset by prior service credits of $85 , net of tax of $118 . See Note 10.
(5)
Net of tax benefit of $725 . See Note 8.
 
Six Months Ended June 30, 2017
 
Cumulative currency translation adjustment
 
Benefit plan
liabilities
 
Fair value change of derivatives
 
Total
Balance as of December 31, 2016
$
(143,481
)
 
$
(97,612
)
 
$
(1,470
)
 
$
(242,563
)
Other comprehensive income (loss) before reclassifications
24,076

(1)  
(3,714
)
(2)  
1,861

(3)  
22,223

Amounts reclassified from accumulated other comprehensive income (loss)

 
986

(4)  
(278
)
(5)  
708

Balance as of June 30, 2017
$
(119,405
)
 
$
(100,340
)
 
$
113

 
$
(219,632
)
(1)
Includes $6,170 of other comprehensive income related to intra-entity foreign currency balances that are of a long-term investment nature.
(2)
Net of tax benefit of $59 .
(3)
Net of tax expense of $713 . See Note 8.
(4)
Includes actuarial losses of $1,542 , offset by prior service credits of $164 , net of tax of $392 . See Note 10.
(5)
Net of tax benefit of $123 . See Note 8.

19

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

 
Six Months Ended June 30, 2016
 
Cumulative currency translation adjustment
 
Benefit plan
liabilities
 
Fair value change of derivatives
 
Total
Balance as of December 31, 2015
$
(130,660
)
 
$
(84,124
)
 
$
(2,281
)
 
$
(217,065
)
Other comprehensive income (loss) before reclassifications
9,880

(1)  
(1,142
)
(2)  
(4,630
)
(3)  
4,108

Amounts reclassified from accumulated other comprehensive income (loss)


671

(4)  
2,145

(5)  
2,816

Balance as of June 30, 2016
$
(120,780
)
 
$
(84,595
)
 
$
(4,766
)
 
$
(210,141
)
(1)
Includes $9,187 of other comprehensive income related to intra-entity foreign currency balances that are of a long-term investment nature.
(2)
Net of tax benefit of $168 .
(3)
Net of tax benefit of $1,862 . See Note 8.
(4)
Includes actuarial losses of $1,082 offset by prior service credits of $167 , net of tax of $244 . See Note 10.
(5)
Net of tax benefit of $1,056 . See Note 8.
15. Common Stock
Share Repurchase Program and Secondary Offering
In March 2016, the Company’s Board of Directors approved a securities repurchase program (the “Program”) authorizing the Company to repurchase, in the aggregate, up to $125,000 of its 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 the Company’s management and in accordance with prevailing market conditions and federal securities laws and regulations. During the six months ended June 30, 2017 , the Company repurchased 92,409 shares at an average purchase price of $100.85 per share, excluding commissions, for a total cost of $9,319 , of which $7,514 was settled in cash during the quarter.
In March 2016, certain selling stockholders affiliated with Silver Point Capital, L.P., Oak Hill Advisors, L.P. and Capital World Investors (the “Selling Stockholders”) sold 2,278,031 shares, including overallotments, of the Company’s common stock at a public offering price of $68.00 per share, in a secondary public offering. Of the 2,278,031 shares sold in the offering, 350,000 shares were purchased by the Company for $23,800 . The Company paid the underwriting discounts and commissions payable on the shares sold by the Selling Stockholders, excluding the shares the Company repurchased, resulting in $5,900 of fees incurred for the six months ended June 30, 2016 , which is included in other expense, net in the condensed consolidated statement of net income. The Company also incurred approximately $600 of other expenses related to legal and audit services for the six months ended June 30, 2016 , which is included in selling, administration & engineering expenses in the condensed consolidated statement of net income. The Company did not sell or receive any proceeds from the sales of shares by the Selling Stockholders.
As of June 30, 2017 , the Company had approximately $91,900 of repurchase authorization remaining under the Program.
16. Share-Based Compensation
The Company’s long-term incentive plans allow for the grant of various types of share-based awards to key employees and directors of the Company and its affiliates. The Company generally awards grants on an annual basis.
In February 2017, the Company granted Restricted Stock Units (“RSUs”), Performance Units (“PUs”) and stock options. The RSUs cliff vest after three years, the PUs cliff vest at the end of their three-year performance period, and the stock options vest ratably over three years. The number of PUs that will vest depends on the Company’s achievement of target performance goals related to the Company’s return on invested capital (“ROIC”), which may range from 0% to 200% of the target award amount. The grant-date fair value of the RSUs and PUs was determined using the closing price of the Company’s common stock on the date of grant. The grant-date fair value of the stock options was determined using the Black-Scholes option pricing model.

20

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

A summary of the Company’s share-based compensation expense is shown below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
RSUs
$
2,479

 
$
2,186

 
$
4,844

 
$
3,753

PUs
1,444

 
3,459

 
4,844

 
5,334

Stock options
967

 
830

 
2,006

 
1,822

Total
$
4,890

 
$
6,475

 
$
11,694

 
$
10,909

In the second quarter of 2016, the Company early adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . The provisions related to forfeitures were adopted on the modified retrospective basis to record actual forfeitures as they occur in the consolidated financial statements, and the impact from adoption resulted in a cumulative effect adjustment of $473 to retained earnings as of January 1, 2016. Provisions related to income taxes and forfeitures were adopted prospectively from January 1, 2016, and resulted in a tax benefit of $2,425 and $3,212 and additional share-based compensation expense of $162 and $225 for the three and six months ended June 30, 2016 , respectively. Provisions related to the statement of cash flows have been adopted prospectively and resulted in the recognition of excess tax benefits in cash provided by operating activities instead of financing activities.
17. Related Party Transactions
The following table summarizes the material related party transactions with affiliates accounted for under the equity method:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Sales (1)
$
8,524

 
$
8,434

 
$
17,836

 
$
16,998

Purchases (1)
204

 
119

 
394

 
195

Dividends received (2)
2,742

 

 
5,382

 
3,022

(1) Relates to transactions with Nishikawa Cooper LLC (“NISCO”)
(2) From NISCO and Nishikawa Tachaplalert Cooper Ltd.
Amounts receivable from NISCO and Sujan Cooper Standard AVS Private Limited as of June 30, 2017 and December 31, 2016 were $3,791 and $4,078 , respectively.
In March 2016, as part of the secondary offering, the Company paid $5,900 of fees incurred on behalf of the Selling Stockholders as defined in Note 15. “Common Stock.”
18. Commitments and Contingencies
The Company is periodically involved in claims, litigation and various legal matters that arise in the ordinary course of business. The Company accrues for litigation exposure when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified. As of June 30, 2017 , the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for claims, litigation and various legal matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company’s financial condition, results of operations or cash flows could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.
In addition, the Company conducts and monitors environmental investigations and remedial actions at certain locations. As of June 30, 2017 and December 31, 2016 , the undiscounted reserve for environmental investigation and remediation was approximately $5,288 and $5,490 , respectively. The Company does not believe that the environmental liabilities associated with its current and former properties will have a material adverse impact on its financial condition, results of operations or cash flows; however, no assurances can be given in this regard.

21

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)

19. Segment Reporting
The Company has determined that it operates in four reportable segments, North America, Europe, Asia Pacific and South America. The Company’s principal products within each of these segments are sealing, fuel and brake delivery, fluid transfer and anti-vibration systems. The Company evaluates segment performance based on segment profit before tax. The results of each segment include certain allocations for general, administrative, interest and other shared costs.
The following tables detail information on the Company’s reportable segments:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Sales to external customers
 
 
 
 
 
 
 
North America
$
481,626

 
$
460,687

 
$
965,864

 
$
910,388

Europe
260,441

 
282,312

 
521,947

 
551,638

Asia Pacific
140,842

 
116,230

 
273,433

 
243,309

South America
26,236

 
20,075

 
49,952

 
36,466

Consolidated
$
909,145

 
$
879,304

 
$
1,811,196

 
$
1,741,801

 
 
 
 
 
 
 
 
Intersegment sales
 
 
 
 
 
 
 
North America
$
3,225

 
$
2,850

 
$
6,823

 
$
6,499

Europe
3,746

 
3,130

 
7,327

 
6,481

Asia Pacific
1,479

 
1,180

 
2,310

 
2,499

South America
7

 
2

 
9

 
4

Eliminations
(8,457
)
 
(7,162
)
 
(16,469
)
 
(15,483
)
Consolidated
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
Segment profit (loss)
 
 
 
 
 
 
 
North America
$
64,476

 
$
60,593

(1)  
$
126,757

 
$
114,826

Europe
(3,050
)
 
730

(1)  
(11,609
)
 
(1,878
)
Asia Pacific
4,509

 
536

(1)  
7,986

 
3,036

South America
(3,755
)
 
(5,598
)
(1)  
(6,560
)
 
(13,420
)
Consolidated income before income taxes
$
62,180

 
$
56,261

(1)  
$
116,574

 
$
102,564

(1) Amounts were recast to reflect the adoption of ASU 2016-09 in the second quarter of 2016. See Note 16.

 
June 30,
2017
 
December 31,
2016
Segment assets
 
 
 
North America
$
1,038,979

 
$
985,809

Europe
562,756

 
582,385

Asia Pacific
594,592

 
611,849

South America
48,978

 
46,125

Eliminations and other
342,232

 
265,534

Consolidated
$
2,587,537

 
$
2,491,702


22



Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations
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. 
While the U.S. economy has been relatively stable, indicators in the market show signs consumer demand may be softening going into the second half of 2017. In North America, the mix of vehicles produced continues to shift away from passenger cars into crossover utility vehicles and light trucks. For the remainder of 2017, we anticipate production levels to be slightly lower than the second half of 2016 as inventory levels become better aligned with consumer demand.
Although the economic recovery in Europe is gaining momentum, the current geopolitical climate creates uncertainty in the region. We expect this will result in tempered growth in vehicle demand and production in 2017.
We expect moderated growth in light vehicle production will continue in the Asia Pacific region, driven mainly by China. Overall economic growth 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 the Brazilian government, 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, the Asia Pacific Region 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.

23



Light vehicle production in certain regions for the three and six months ended June 30, 2017 and 2016 was:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions of units)
2017 (1)
 
2016 (1)
 
% Change
 
2017 (1)
 
2016 (1)
 
% Change
North America
4.5

 
4.6

 
(3.0)%
 
9.0

 
9.1

 
(0.7)%
Europe
5.7

 
5.9

 
(3.0)%
 
11.6

 
11.4

 
1.3%
Asia Pacific (2)
11.4

 
11.3

 
1.4%
 
24.0

 
23.2

 
3.6%
South America
0.8

 
0.7

 
15.9%
 
1.5

 
1.3

 
16.8%
(1)
Production data based on IHS Automotive, July 2017 .
(2)
Includes Greater China units of 6.1 for both the three months ended June 30, 2017 and 2016 , and 13.0 and 12.6 for the six months ended June 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.
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 reductions. 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.

24



Results of Operations
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
 
(dollar amounts in thousands)
Sales
$
909,145

 
$
879,304

 
$
29,841

 
$
1,811,196

 
$
1,741,801

 
$
69,395

Cost of products sold
736,905

 
707,343

 
29,562

 
1,468,871

 
1,410,016

 
58,855

Gross profit
172,240

 
171,961

 
279

 
342,325

 
331,785

 
10,540

Selling, administration & engineering expenses
86,104

 
92,672

 
(6,568
)
 
173,738

 
176,130

 
(2,392
)
Amortization of intangibles
3,536

 
3,239

 
297

 
7,131

 
6,517

 
614

Impairment charges

 

 

 
4,270

 

 
4,270

Restructuring charges
8,323

 
12,206

 
(3,883
)
 
18,311

 
23,038

 
(4,727
)
Other operating loss