Cooper Standard
Cooper-Standard Holdings Inc. (Form: 10-Q, Received: 11/01/2017 16:16:32)


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 September 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 October 27, 2017 there were 17,530,796 shares of the registrant’s common stock, $0.001 par value, outstanding.




COOPER-STANDARD HOLDINGS INC.
Form 10-Q
For the period ended September 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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Sales
$
869,016

 
$
855,656

 
$
2,680,212

 
$
2,597,457

Cost of products sold
718,187

 
690,984

 
2,187,058

 
2,101,000

Gross profit
150,829

 
164,672

 
493,154

 
496,457

Selling, administration & engineering expenses
94,145

 
92,368

 
267,883

 
268,498

Amortization of intangibles
3,432

 
3,457

 
10,563

 
9,974

Impairment charges

 

 
4,270

 

Restructuring charges
9,909

 
10,430

 
28,220

 
33,468

Other operating loss

 

 

 
155

Operating profit
43,343

 
58,417

 
182,218

 
184,362

Interest expense, net of interest income
(10,256
)
 
(10,114
)
 
(31,788
)
 
(29,861
)
Equity in earnings of affiliates
660

 
1,386

 
3,735

 
5,823

Loss on refinancing and extinguishment of debt

 

 
(1,020
)
 

Other expense, net
(451
)
 
(518
)
 
(3,275
)
 
(8,589
)
Income before income taxes
33,296

 
49,171

 
149,870

 
151,735

Income tax expense
7,838

 
12,525

 
40,258

 
43,312

Net income
25,458

 
36,646

 
109,612

 
108,423

Net income attributable to noncontrolling interests
(818
)
 
(284
)
 
(2,810
)
 
(549
)
Net income attributable to Cooper-Standard Holdings Inc.
$
24,640

 
$
36,362

 
$
106,802

 
$
107,874

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.39

 
$
2.08

 
$
6.01

 
$
6.20

Diluted
$
1.32

 
$
1.94

 
$
5.67

 
$
5.77

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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
25,458

 
$
36,646

 
$
109,612

 
$
108,423

Other comprehensive income (loss):
 
 
 
 
 
 
 
Currency translation adjustment
16,535

 
2,663

 
41,204

 
12,330

Benefit plan liabilities adjustment, net of tax
3,963

 
(149
)
 
1,235

 
(620
)
Fair value change of derivatives, net of tax
(966
)
 
1,881

 
617

 
(605
)
Other comprehensive income, net of tax
19,532

 
4,395

 
43,056

 
11,105

Comprehensive income
44,990

 
41,041

 
152,668

 
119,528

Comprehensive income attributable to noncontrolling interests
(1,306
)
 
(266
)
 
(3,891
)
 
(317
)
Comprehensive income attributable to Cooper-Standard Holdings Inc.
$
43,684

 
$
40,775

 
$
148,777

 
$
119,211

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)
 
 
September 30, 2017
 
December 31, 2016
 
(unaudited)
 

Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
372,984

 
$
480,092

Accounts receivable, net
571,515

 
460,503

Tooling receivable
111,543

 
90,974

Inventories
179,470

 
146,449

Prepaid expenses
42,685

 
37,142

Other current assets
97,845

 
81,021

Total current assets
1,376,042

 
1,296,181

Property, plant and equipment, net
916,496

 
832,269

Goodwill
170,765

 
167,441

Intangible assets, net
72,060

 
81,363

Other assets
100,233

 
114,448

Total assets
$
2,635,596

 
$
2,491,702

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Debt payable within one year
$
32,448

 
$
33,439

Accounts payable
491,202

 
475,426

Payroll liabilities
138,127

 
144,812

Accrued liabilities
123,955

 
105,665

Total current liabilities
785,732

 
759,342

Long-term debt
722,557

 
729,480

Pension benefits
178,406

 
172,950

Postretirement benefits other than pensions
56,876

 
54,225

Other liabilities
47,859

 
53,914

Total liabilities
1,791,430

 
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; 19,602,827 shares issued and 17,596,621 shares outstanding as of September 30, 2017, and 19,686,917 shares issued and 17,690,611 outstanding as of December 31, 2016
17

 
17

Additional paid-in capital
513,609

 
513,934

Retained earnings
502,806

 
425,972

Accumulated other comprehensive loss
(200,588
)
 
(242,563
)
Total Cooper-Standard Holdings Inc. equity
815,844

 
697,360

Noncontrolling interests
28,322

 
24,431

Total equity
844,166

 
721,791

Total liabilities and equity
$
2,635,596

 
$
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
(306,072
)
 

 
(7,407
)
 
(24,045
)
 

 
(31,452
)
 

 
(31,452
)
Warrant exercises
50,145

 

 
836

 

 

 
836

 

 
836

Share-based compensation, net
161,937

 

 
6,246

 
(5,923
)
 

 
323

 

 
323

Net income

 

 

 
106,802

 

 
106,802

 
2,810

 
109,612

Other comprehensive income

 

 

 

 
41,975

 
41,975

 
1,081

 
43,056

Balance as of September 30, 2017
17,596,621

 
$
17

 
$
513,609

 
$
502,806

 
$
(200,588
)
 
$
815,844

 
$
28,322

 
$
844,166

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)
 
 
Nine Months Ended September 30,
 
2017
 
2016
Operating Activities:
 
 
 
Net income
$
109,612

 
$
108,423

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
88,850

 
81,725

Amortization of intangibles
10,563

 
9,974

Impairment charges
4,270

 

Share-based compensation expense
19,006

 
18,533

Equity in earnings of affiliates, net of dividends related to earnings
1,647

 
(2,801
)
Loss on refinancing and extinguishment of debt
1,020

 

Other
14,706

 
1,396

Changes in operating assets and liabilities
(145,124
)
 
(35,205
)
Net cash provided by operating activities
104,550

 
182,045

Investing activities:
 
 
 
Capital expenditures
(137,446
)
 
(116,788
)
Acquisition of businesses, net of cash acquired
(478
)
 
(37,478
)
Cash from consolidation of joint venture

 
3,395

Proceeds from sale of fixed assets and other
1,236

 
156

Net cash used in investing activities
(136,688
)
 
(150,715
)
Financing activities:
 
 
 
Principal payments on long-term debt
(15,616
)
 
(9,787
)
Increase in short-term debt, net
6,070

 
1,703

Repurchase of common stock
(30,680
)
 
(23,800
)
Proceeds from exercise of warrants
836

 
2,498

Taxes withheld and paid on employees' share based payment awards
(11,949
)
 
(11,979
)
Other
(795
)
 
101

Net cash used in financing activities
(52,134
)
 
(41,264
)
Effects of exchange rate changes on cash and cash equivalents
(22,836
)
 
(7,880
)
Changes in cash and cash equivalents
(107,108
)
 
(17,814
)
Cash and cash equivalents at beginning of period
480,092

 
378,243

Cash and cash equivalents at end of period
$
372,984

 
$
360,429

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 September 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.
Recently Adopted Accounting Pronouncements
In the first quarter of 2017, the Company adopted Accounting Standards Update (“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 August 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018. 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 May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting . This guidance clarifies that modification accounting is required only if there is a change in the fair value, vesting conditions, or classification (as equity or liability) of a share-based payment award 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. 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

8

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

amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as 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. The adoption of this ASU is not expected to have a material impact on the Company’s 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 (except for 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 addressing revenue recognition 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 substantially completed its assessment and does not expect that adopting the new standard will have a material impact on its consolidated financial statements. As a result, it expects to recognize substantially all of its revenue at a point in time, generally when products are either shipped or delivered. The Company will finalize its evaluation of the effect on its consolidated financial statements during the fourth quarter of 2017.
The Company has completed its evaluation of pre-production costs related to long-term supply arrangements, such as reimbursable tooling, and expects to continue accounting for pre-production costs in accordance with existing guidance. 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.
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 $107,000 has been incurred to date. We expect to incur total employee separation costs of approximately $63,000 to $66,000 , 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.
Restructuring expense by segment for the three and nine months ended September 30, 2017 and 2016 was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
North America
$
2,503

 
$
306

 
$
3,320

 
$
1,661

Europe
6,236

 
9,691

 
22,341

 
30,184

Asia Pacific
1,170

 
433

 
2,559

 
1,623

Total
$
9,909

 
$
10,430

 
$
28,220

 
$
33,468


10

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

Restructuring activity for the nine months ended September 30, 2017 was as follows:
 
Employee Separation Costs
 
Other Exit Costs
 
Total
Balance as of December 31, 2016
$
21,927

 
$
2,311

 
$
24,238

Expense
14,991

 
13,229

 
28,220

Cash payments
(22,224
)
 
(11,811
)
 
(34,035
)
Foreign exchange translation and other
1,769

 
450

 
2,219

Balance as of September 30, 2017
$
16,463

 
$
4,179

 
$
20,642

4. Inventories
Inventories consist of the following:
 
September 30, 2017
 
December 31, 2016
Finished goods
$
48,596

 
$
43,511

Work in process
39,499

 
32,839

Raw materials and supplies
91,375

 
70,099

 
$
179,470

 
$
146,449

5. Property, Plant and Equipment
Property, plant and equipment consists of the following:
 
September 30, 2017
 
December 31, 2016
Land and improvements
$
72,737

 
$
71,002

Buildings and improvements
293,257

 
265,824

Machinery and equipment
998,643

 
864,337

Construction in progress
184,991

 
153,924

 
1,549,628

 
1,355,087

Accumulated depreciation
(633,132
)
 
(522,818
)
Property, plant and equipment, net
$
916,496

 
$
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 nine months ended September 30, 2017 . Fair value was determined based on current real estate market conditions.
6. Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill by reportable operating segment for the nine months ended September 30, 2017 were as follows:
 
North America
 
Europe
 
Asia Pacific
 
Total
Balance as of December 31, 2016
$
121,996

 
$
10,753

 
$
34,692

 
$
167,441

Acquisition

 
236

 

 
236

Foreign exchange translation
240

 
1,259

 
1,589

 
3,088

Balance as of September 30, 2017
$
122,236

 
$
12,248

 
$
36,281

 
$
170,765

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 nine months ended September 30, 2017 .

11

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

Intangible Assets
Intangible assets and accumulated amortization balances as of September 30, 2017 and December 31, 2016 were as follows:
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships
$
135,680

 
$
(83,044
)
 
$
52,636

Developed technology
9,144

 
(9,053
)
 
91

Other
21,863

 
(2,530
)
 
19,333

Balance as of September 30, 2017
$
166,687

 
$
(94,627
)
 
$
72,060

 
 
 
 
 
 
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
A summary of outstanding debt as of September 30, 2017 and December 31, 2016 was as follows:
 
September 30, 2017
 
December 31, 2016
Senior Notes
$
393,505

 
$
393,060

Term Loan
331,382

 
332,827

Other borrowings
30,118

 
37,032

Total debt
755,005

 
762,919

Less current portion
(32,448
)
 
(33,439
)
Total long-term debt
$
722,557

 
$
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 September 30, 2017 and December 31, 2016 , the Company has $6,495 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 in the second quarter of 2017, which was due to the partial write off of new and unamortized debt issuance costs and unamortized original issue discount.
As of September 30, 2017 and December 31, 2016 , the Company had $3,689 and $4,352 of unamortized debt issuance costs, respectively, and $2,379 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 under the ABL Facility 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 September 30, 2017 , there were no borrowings under the ABL Facility, and subject to borrowing base availability, the Company had $197,074 in availability, less outstanding letters of credit of $8,542 .
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 September 30, 2017 and December 31, 2016 , the Company had $1,440 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 September 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 September 30, 2017 and December 31, 2016 was as follows:
 
September 30, 2017
 
December 31, 2016
 
Input
Forward foreign exchange contracts - other current assets
$
888

 
$
764

 
Level 2
Forward foreign exchange contracts - accrued liabilities
(1,140
)
 
(535
)
 
Level 2
Interest rate swaps - accrued liabilities
(1,090
)
 
(2,458
)
 
Level 2
Interest rate swaps - other liabilities

 
(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 were as follows:
 
September 30, 2017
 
December 31, 2016
Aggregate fair value
$
746,746

 
$
735,850

Aggregate carrying value (1)
737,450

 
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. Gains or losses on derivative instruments resulting 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.
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

14

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

the Brazilian Real. As of September 30, 2017 , the notional amount of these contracts was $107,053 and consisted of hedges of transactions up to September 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 September 30, 2017 , the notional amount of these contracts was $150,000 , 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 were as follows:
 
Gain (Loss) Recognized in AOCI
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Forward foreign exchange contracts
$
(763
)
 
$
854

 
$
1,860

 
$
(3,384
)
Interest rate swaps
22

 
131

 
(27
)
 
(2,123
)
Total
$
(741
)
 
$
985

 
$
1,833

 
$
(5,507
)
Pretax amounts related to the Company’s cash flow hedges that were reclassified from AOCI were as follows:
 
 
 
Gain (Loss) Reclassified from AOCI to Income (Effective Portion)
 
Gain (Loss) Reclassified from AOCI to Income (Ineffective Portion)
 
 
 
Three Months Ended September 30,
 
Classification
 
2017
 
2016
 
2017
 
2016
Forward foreign exchange contracts
Cost of products sold
 
$
915

 
$
(769
)
 
$

 
$

Interest rate swaps
Interest expense, net of interest income
 
(570
)
 
(803
)
 
107

 

Total
 
 
$
345

 
$
(1,572
)
 
$
107

 
$

 
 
 
Gain (Loss) Reclassified from AOCI to Income (Effective Portion)
 
Gain (Loss) Reclassified from AOCI to Income (Ineffective Portion)
 
 
 
Nine Months Ended September 30,
 
Classification
 
2017
 
2016
 
2017
 
2016
Forward foreign exchange contracts
Cost of products sold
 
$
2,371

 
$
(2,380
)
 
$

 
$

Interest rate swaps
Interest expense, net of interest income
 
(2,048
)
 
(2,393
)
 
284

 

Total
 
 
$
323

 
$
(4,773
)
 
$
284

 
$

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 $1,090 .
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 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.

15

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

Amounts outstanding under receivable transfer agreements entered into by various locations were as follows:
 
September 30, 2017
 
December 31, 2016
Without recourse
$
62,594

 
$
56,936

With recourse
5,018

 
5,258

Accounts receivable factored and related costs were as follows:
 
Without Recourse
 
With Recourse
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Accounts receivable factored
$
98,244

 
$
120,220

 
$
390,354

 
$
381,190

 
$
6,326

 
$
7,550

 
$
20,432

 
$
18,078

Costs
452

 
391

 
1,517

 
1,286

 
29

 
55

 
74

 
185

Repurchase of accounts receivable
During the three months ended September 30, 2017 , the Company repurchased $12,043 of its accounts receivable in Europe that were previously sold to certain third party financial institutions through receivable purchase agreements. In addition, the Company repurchased $19,378 of its receivables in Europe in October 2017. The repurchases were made as part of the Company’s transition to a pan-European program under a single third party financial institution, which is expected to be completed in the fourth quarter of 2017.
10. Pension and Postretirement Benefits Other Than Pensions
The components of net periodic benefit (income) cost for the three and nine months ended September 30, 2017 and 2016 for the Company’s defined benefit plans and other postretirement benefit plans were as follows:
 
 Pension Benefits
 
Three Months Ended September 30,
 
2017
 
2016
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
204

 
$
1,018

 
$
202

 
$
861

Interest cost
2,925

 
1,140

 
3,145

 
1,267

Expected return on plan assets
(4,003
)
 
(694
)
 
(3,959
)
 
(788
)
Amortization of prior service cost and actuarial loss
468

 
760

 
429

 
555

Settlement

 
5,717

 

 

Net periodic benefit (income) cost
$
(406
)
 
$
7,941

 
$
(183
)
 
$
1,895

 
 
 
 
 
 
 
 
 
 Pension Benefits
 
Nine Months Ended September 30,
 
2017
 
2016
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
612

 
$
2,926

 
$
606

 
$
2,575

Interest cost
8,775

 
3,268

 
9,435

 
3,805

Expected return on plan assets
(12,009
)
 
(2,001
)
 
(11,877
)
 
(2,367
)
Amortization of prior service cost and actuarial loss
1,404

 
2,171

 
1,287

 
1,664

Settlement

 
5,717

 

 

Net periodic benefit (income) cost
$
(1,218
)
 
$
12,081

 
$
(549
)
 
$
5,677

 

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 September 30,
 
2017
 
2016
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
79

 
$
110

 
$
90

 
$
94

Interest cost
324

 
179

 
346

 
172

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

 

 
1

 

Net periodic benefit (income) cost
$
(75
)
 
$
285

 
$
(70
)
 
$
250

 
 
 
 
 
 
 
 
 
 Other Postretirement Benefits
 
Nine Months Ended September 30,
 
2017
 
2016
 
 U.S.
 
 Non-U.S.
 
 U.S.
 
 Non-U.S.
Service cost
$
237

 
$
316

 
$
270

 
$
280

Interest cost
972

 
516

 
1,038

 
510

Amortization of prior service credit and actuarial gain
(1,437
)
 
(12
)
 
(1,521
)
 
(47
)
Other
3

 

 
3

 

Net periodic benefit (income) cost
$
(225
)
 
$
820

 
$
(210
)
 
$
743

U.K Pension Settlement
During 2016, the Company undertook an initiative to de-risk pension obligations in the U.K. by purchasing a bulk annuity policy designed to match the liabilities of the plan, and subsequently entered into a wind-up process. During the three months ended September 30, 2017 , the Company completed the wind-up process, resulting in a non-cash settlement charge of $ 5,717 and administrative expenses of $185 , both of which are recorded in selling, administration & engineering expenses in the condensed consolidated statements of net income. As a result of the settlement, the Company’s overall projected benefit obligation as of December 31, 2016 was reduced by $17,100 .
Contributions
The Company made a discretionary contribution of $3,500 to its U.S. pension plan in the three months ended September 30, 2017 .
11. Other Expense, Net
The components of other expense, net were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Foreign currency losses
$
(1,455
)
 
$
(331
)
 
$
(4,033
)
 
$
(2,035
)
Secondary offering underwriting fees

 

 

 
(5,900
)
Losses on sales of receivables
(221
)
 
(207
)
 
(781
)
 
(674
)
Miscellaneous income
1,225

 
20

 
1,539

 
20

Other expense, net
$
(451
)
 
$
(518
)
 
$
(3,275
)
 
$
(8,589
)
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.

17

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

Income tax expense, income before income taxes and the corresponding effective tax rate for the three and nine months ended September 30, 2017 and 2016 , was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Income tax expense
$
7,838

 
$
12,525

 
$
40,258

 
$
43,312

Income before income taxes
33,296

 
49,171

 
149,870

 
151,735

Effective tax rate
24
%
 
25
%
 
27
%
 
29
%
The effective tax rate for the three and nine months ended September 30, 2017 compared to the three and 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 three and nine months ended September 30, 2017 . The income tax rate for the three and nine months ended September 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.
Information used to compute basic and diluted net income per share attributable to Cooper-Standard Holdings Inc. was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income attributable to Cooper-Standard Holdings Inc.
$
24,640

 
$
36,362

 
$
106,802

 
$
107,874

Increase in fair value of share-based awards

 
37

 

 
49

Diluted net income available to Cooper-Standard Holdings Inc. common stockholders
$
24,640

 
$
36,399

 
$
106,802

 
$
107,923

 
 
 
 
 
 
 
 
Basic weighted average shares of common stock outstanding
17,703,660

 
17,469,156

 
17,769,808

 
17,388,541

Dilutive effect of common stock equivalents
976,858

 
1,291,507

 
1,068,479

 
1,315,037

Diluted weighted average shares of common stock outstanding
18,680,518

 
18,760,663

 
18,838,287

 
18,703,578

 
 
 
 
 
 
 
 
Basic net income per share attributable to Cooper-Standard Holdings Inc.
$
1.39

 
$
2.08

 
$
6.01

 
$
6.20

 
 
 
 
 
 
 
 
Diluted net income per share attributable to Cooper-Standard Holdings Inc.
$
1.32

 
$
1.94

 
$
5.67

 
$
5.77

Approximately 107,000 securities were excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2017 , 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)
Changes in accumulated other comprehensive income (loss) by component for the three and nine months ended September 30, 2017 and 2016 , net of related tax, were as follows:
 
Three Months Ended September 30, 2017
 
Cumulative currency translation adjustment
 
Benefit plan
liabilities
 
Fair value change of derivatives
 
Total
Balance as of June 30, 2017
$
(119,405
)
 
$
(100,340
)
 
$
113

 
$
(219,632
)
Other comprehensive income (loss) before reclassifications
16,047

(1)  
(1,714
)
(2)  
(619
)
(3)  
13,714

Amounts reclassified from accumulated other comprehensive income (loss)

 
5,677

(4)  
(347
)
(5)  
5,330

Balance as of September 30, 2017
$
(103,358
)
 
$
(96,377
)
 
$
(853
)
 
$
(200,588
)
(1)
Includes $4,314 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 $130 .
(3)
Net of tax benefit of $122 . See Note 8.
(4)
Includes losses related to the U.K. pension settlement of $6,288 and actuarial losses of $901 , offset by prior service credits of $84 , net of tax of $1,428 . See Note 10.
(5)
Net of tax expense of $105 . See Note 8.
 
Three Months Ended September 30, 2016
 
Cumulative currency translation adjustment
 
Benefit plan
liabilities
 
Fair value change of derivatives
 
Total
Balance as of June 30, 2016
$
(120,780
)
 
$
(84,595
)
 
$
(4,766
)
 
$
(210,141
)
Other comprehensive income (loss) before reclassifications
2,681

(1)  
(497
)
(2)  
828

(3)  
3,012

Amounts reclassified from accumulated other comprehensive income (loss)

 
348

(4)  
1,053

(5)  
1,401

Balance as of September 30, 2016
$
(118,099
)
 
$
(84,744
)
 
$
(2,885
)
 
$
(205,728
)
(1)
Includes $511 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 $46 .
(3)
Net of tax expense of $157 . See Note 8.
(4)
Includes actuarial losses of $555 , offset by prior service credits of $79 , net of tax of $128 . See Note 10.
(5)
Net of tax benefit of $519 . See Note 8.
 
Nine Months Ended September 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
40,123

(1)  
(5,428
)
(2)  
1,242

(3)  
35,937

Amounts reclassified from accumulated other comprehensive income (loss)

 
6,663

(4)  
(625
)
(5)  
6,038

Balance as of September 30, 2017
$
(103,358
)
 
$
(96,377
)
 
$
(853
)
 
$
(200,588
)
(1)
Includes $10,484 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 $189 .
(3)
Net of tax expense of $591 . See Note 8.
(4)
Includes losses related to the U.K. pension settlement of $6,288 and actuarial losses of $2,443 , offset by prior service credits of $248 , net of tax of $1,820 . See Note 10.

19

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

(5)
Net of tax benefit of $18 . See Note 8.
 
Nine Months Ended September 30, 2016
 
Cumulative currency translation adjustment
 
Benefit plan
liabilities
 
Fair value change of derivatives
 
Total
Balance as of December 31, 2015
$
(130,661
)
 
$
(84,124
)
 
$
(2,280
)
 
$
(217,065
)
Other comprehensive income (loss) before reclassifications
12,562

(1)  
(1,638
)
(2)  
(3,803
)
(3)  
7,121

Amounts reclassified from accumulated other comprehensive income (loss)


1,018

(4)  
3,198

(5)  
4,216

Balance as of September 30, 2016
$
(118,099
)
 
$
(84,744
)
 
$
(2,885
)
 
$
(205,728
)
(1)
Includes $9,699 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 $122 .
(3)
Net of tax benefit of $1,704 . See Note 8.
(4)
Includes actuarial losses of $1,636 offset by prior service credits of $246 , net of tax of $372 . See Note 10.
(5)
Net of tax benefit of $1,575 . 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 nine months ended September 30, 2017 , the Company repurchased 306,072 shares at an average purchase price of $102.76 per share, excluding commissions, for a total cost of $31,452 , of which $30,680 was settled in cash as of September 30, 2017 .
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 nine months ended September 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 nine months ended September 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 September 30, 2017 , the Company had approximately $69,700 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)

Share-based compensation expense was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
PUs
$
4,327

 
$
4,635

 
$
9,171

 
$
9,953

RSUs
2,052

 
2,052

 
6,896

 
5,805

Stock options
933

 
953

 
2,939

 
2,775

Total
$
7,312

 
$
7,640

 
$
19,006

 
$
18,533

17. Related Party Transactions
A summary of the material related party transactions with affiliates accounted for under the equity method was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Sales (1)
$
8,288

 
$
9,029

 
$
26,124

 
$
26,027

Purchases (1)
186

 
170

 
580

 
365

Dividends received (2)

 

 
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 September 30, 2017 and December 31, 2016 were $3,789 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 September 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 September 30, 2017 and December 31, 2016 , the undiscounted reserve for environmental investigation and remediation was approximately $4,742 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.
The Company is participating in a voluntary foreign tax amnesty program, which allows for the settlement of certain tax matters at reduced amounts. During the three months ended September 30, 2017 , the Company incurred charges of $3,121 , of which $2,886 was a non-cash charge offset by the utilization of tax net operating loss carryforwards, resulting in a net $235 expense impact to net income. The Company does not expect to incur additional material losses under this program, however the settlement of these tax matters is outstanding and the outcome of the program is uncertain.

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.
Certain financial information on the Company’s reportable segments was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Sales to external customers
 
 
 
 
 
 
 
North America
$
437,406

 
$
450,795

 
$
1,403,270

 
$
1,361,183

Europe
254,399

 
242,773

 
776,346

 
794,411

Asia Pacific
148,493

 
137,174

 
421,926

 
380,483

South America
28,718

 
24,914

 
78,670

 
61,380

Consolidated
$
869,016

 
$
855,656

 
$
2,680,212

 
$
2,597,457

 
 
 
 
 
 
 
 
Intersegment sales
 
 
 
 
 
 
 
North America
$
3,285

 
$
3,409

 
$
10,108

 
$
9,908

Europe
3,861

 
3,600

 
11,188

 
10,081

Asia Pacific
1,566

 
1,426

 
3,876

 
3,925

South America
2

 
1

 
11

 
5

Eliminations
(8,714
)
 
(8,436
)
 
(25,183
)
 
(23,919
)
Consolidated
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
Segment profit (loss)
 
 
 
 
 
 
 
North America
$
44,214

 
$
55,031

 
$
170,971

 
$
169,857

Europe
(9,024
)
 
(5,632
)
 
(20,633
)
 
(7,510
)
Asia Pacific
3,050

 
3,037

 
11,036

 
6,073

South America
(4,944
)
 
(3,265
)
 
(11,504
)
 
(16,685
)
Consolidated income before income taxes
$
33,296

 
$
49,171

 
$
149,870

 
$
151,735


 
September 30,
2017
 
December 31,
2016
Segment assets
 
 
 
North America
$
1,030,321

 
$
985,809

Europe
648,588

 
582,385

Asia Pacific
653,688

 
611,849

South America
57,794

 
46,125

Eliminations and other
245,205

 
265,534

Consolidated
$
2,635,596

 
$
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. 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.

23



Light vehicle production in certain regions for the three and nine months ended September 30, 2017 and 2016 was:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions of units)
2017 (1)
 
2016 (1)
 
% Change
 
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.

24



Results of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
 
(dollar amounts in thousands)
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