Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) – November 1, 2018
 
 
COOPER-STANDARD HOLDINGS INC.
(Exact name of registrant as specified in its charter)
 
 

Delaware
 
001-36127
 
20-1945088
(State or other jurisdiction
 of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
39550 Orchard Hill Place Drive, Novi, Michigan
 
48375
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code (248) 596-5900
 
 
 
Check the appropriate box below in the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.                              ¨






Item 2.02 Results of Operations and Financial Condition.
On November 1, 2018, Cooper-Standard Holdings Inc. (the “Company”) issued a press release regarding its results of operations and financial condition for the third quarter ended September 30, 2018. The press release is furnished as Exhibit 99 hereto and incorporated by reference herein.

Item 9.01    Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit is furnished pursuant to Item 9.01 of Form 8-K:
 
                        
          Exhibit 99                Press release dated November 1, 2018.
            

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Cooper-Standard Holdings Inc.
 
 
 
 
 
 
/s/ Aleksandra A. Miziolek
Name:
 
Aleksandra A. Miziolek
Title:
 
Senior Vice President, General Counsel
and Secretary
Date: November 2, 2018



Exhibit
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Cooper Standard Reports Third Quarter Results and
Announces Significant Progress on Several Strategic Initiatives

NOVI, Mich., November 1, 2018 -- Cooper-Standard Holdings Inc. (NYSE: CPS) today reported results for the third quarter 2018.

Summary

Sales totaled $861.7 million
Net income of $32.2 million or $1.77 per diluted share
Adjusted EBITDA of $69.6 million or 8.1 percent of sales
Adjusted net income of $19.1 million or $1.05 per diluted share
Net new business awards of $92 million, on track for record year
Signed second agreement to license FortrexTM material technology outside the automotive industry

During the third quarter of 2018, the Company generated net income of $32.2 million, or $1.77 per diluted share, and adjusted EBITDA of $69.6 million on sales of $861.7 million. These results compare to net income of $24.6 million, or $1.32 per diluted share, and adjusted EBITDA of $96.0 million on sales of $869.0 million in the third quarter of 2017. The Company’s net income margin and adjusted EBITDA margin were 3.7 percent and 8.1 percent, respectively, for the third quarter of 2018 compared to 2.8 percent and 11.1 percent, respectively, in the third quarter of 2017.

“In the third quarter, challenging market conditions, especially in Asia and Europe, and increasing commodity costs negatively impacted our results,” stated Jeffrey Edwards, chairman and CEO of Cooper Standard. “Our global team is focused on improving our operating efficiency and executing our strategy to help offset these negative market impacts and drive improving returns going forward. We believe the long-term outlook for Cooper Standard remains positive with opportunities for profitable growth and value creation in both our automotive and non-automotive businesses.”
 
The Company’s third quarter net income, excluding restructuring and other special items (“adjusted net income”), totaled $19.1 million, or $1.05 per diluted share, compared to $39.5 million, or $2.11 per diluted share in the third quarter of 2017.

For the first nine months of 2018, the Company reported net income of $130.8 million, or $7.13 per diluted share on sales of $2.76 billion. Adjusted EBITDA for the first nine months of the year was $300.1 million. By comparison, the Company reported net income of $106.8 million, or $5.67 per diluted share, and adjusted EBITDA of $320.8 million on sales of $2.68 billion in the first nine months of 2017.
Adjusted net income for the first nine months of 2018 was $133.2 million or $7.26 per diluted share compared to adjusted net income of $144.4 million or $7.66 per diluted share in the first nine months of 2017.

Adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted earnings per share are non-GAAP measures. Definitions of these measures and reconciliations to the most directly comparable financial measures, calculated and presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), are provided in the attached supplemental schedules.




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Notable Developments

During the third quarter, Cooper Standard launched 51 new customer programs and was awarded $92 million in annual net new business. New contract awards related to the Company’s recent product innovations, including both new and replacement business, totaled $98 million in the quarter. In addition to these innovation awards, the Company received its first production contract award for its FortrexTM automotive sealing products in Europe after the end of the third quarter. Cooper Standard’s expanding portfolio of commercialized innovation products includes: MagAlloy™; ArmorHose™; ArmorHose™ TPV; Gen III Posi-Lock; TP Microdense; and FortrexTM.

Also during the third quarter, Company management approved a plan to sell its anti-vibration systems (“AVS”) business.  The Company expects to sell the business within one year from management's approval of the plan.

Subsequent to the end of the third quarter, Cooper Standard announced significant progress on several key strategic initiatives including: the signing of a new agreement to license FortrexTM material technology for applications outside of the automotive industry; the acquisition of Hutchings Automotive Products; and the closing of the previously announced LS Mtron acquisition.

The new non-automotive license agreement for FortrexTM is with a major North American material compounding company. It is expected to expand the reach and application of the technology into a broad range of products and industries through the licensee’s network of customers, and provide a stream of royalty income based on the licensee’s sales of FortrexTM product to its customers.

Hutchings Automotive Products is a North American supplier of high quality fluid carrying products for automotive powertrain and coolant systems applications. This acquisition broadens Cooper Standard’s product portfolios for fluid transfer systems and fuel and brake delivery systems, expanding its total addressable market by an estimated $1.25 billion. The acquisition is also expected to strengthen the Company’s market position in these core product areas, while enhancing its relationships with key North American customers.

LS Mtron is a large industrial company based in South Korea. The acquisition of the LS Mtron automotive business enhances Cooper Standard’s product and technology portfolio, improves its positioning with key Korean automotive customers and expands its market presence in Korea, China and Brazil.


Consolidated Results

Third quarter 2018 sales decreased by $7.4 million or 0.8 percent compared to the third quarter of 2017. The year-over-year change was primarily attributable to unfavorable volume and mix in Europe and Asia, unfavorable foreign exchange, and customer price reductions, partially offset by favorable volume and mix in North America.

Third quarter adjusted EBITDA decreased by $26.5 million or 27.6 percent compared to the third quarter of 2017. The year-over-year change was primarily attributable to unfavorable volume and mix in Europe and Asia, customer price reductions, higher net material costs and general inflation, partially offset by lower selling, general administrative and engineering (“SGA&E”) expense and net operational efficiencies.


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The Company has adopted a new accounting standard related to Compensation - Retirement Benefits (ASU 2017-07) that reclassifies the presentation of the components of net periodic benefit costs in the statements of net income. As a result, prior period data have been recast.


Segment Results

North America

The Company’s North America segment reported sales of $471.6 million in the third quarter, an increase of 7.8 percent compared to $437.4 million in sales reported in the third quarter 2017. The year-over-year improvement was primarily attributable to favorable volume and mix, net of customer price reductions, and incremental sales related to acquisitions.

North America segment profit was $48.9 million, or 10.4 percent of sales, in the third quarter. This compared to segment profit of $44.2 million or 10.1 percent of sales in the third quarter 2017. The year-over-year improvement in segment profit was driven primarily by net operational efficiencies, lower SGA&E expense and incremental profit from acquisitions, partially offset by higher material costs and customer price reductions.

Europe

The Company’s Europe segment reported sales of $228.3 million in the third quarter, compared to sales of $254.4 million in the third quarter 2017. The year-over-year change was primarily attributable to unfavorable volume and mix, net of customer price reductions, and unfavorable foreign exchange.
 
The Europe segment reported a loss of $3.2 million in the third quarter compared to segment loss of $9.0 million in the third quarter of 2017. The year-over-year improvement was primarily attributable to a gain recorded on the sale of a property in France, the non-recurrence of prior period settlement charges related to U.K. pension plans, lower restructuring expense and net operating efficiencies, partially offset by unfavorable volume and mix, net of customer price reductions, and higher material costs.

Asia Pacific

The Company’s Asia Pacific segment reported sales of $136.2 million in the third quarter, compared to sales of $148.5 million in the third quarter 2017. The year-over-year change was largely attributable to unfavorable volume and mix, net of customer price reductions, primarily in China, and unfavorable foreign exchange.

The Asia Pacific segment reported a loss of $11.6 million in the third quarter of 2018, compared to segment profit of $3.1 million in the third quarter 2017. The year-over-year change was primarily attributable to unfavorable volume and mix, net of customer price reductions, primarily in China, partially offset by lower SGA&E expense.

South America

The Company’s South America segment reported sales of $25.6 million in the third quarter, compared to sales of $28.7 million in the third quarter of 2017. The year-over-year change was primarily attributable to unfavorable foreign exchange.

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The South America segment reported a loss of $2.6 million in the third quarter, compared to a segment loss of $4.9 million in the third quarter of 2017. The year-over-year improvement was largely attributable to favorable volume and mix, net of customer price adjustments, and the non-recurrence of a one-time pre-tax charge recorded in the third quarter of 2017 related to a voluntary tax amnesty program.

Liquidity and Cash Flow

At September 30, 2018, Cooper Standard had cash and cash equivalents totaling $282.4 million. Net cash used in operating activities in the third quarter 2018 was $20.3 million and free cash flow for the quarter (defined as net cash used in/provided by operating activities minus capital expenditures) was an outflow of $73.7 million.

In addition to cash and cash equivalents, the Company had $197.7 million available under its amended senior asset-based revolving credit facility (“ABL”) for total liquidity of $480.1 million at September 30, 2018.

Total debt at September 30, 2018 was $764.1 million. Net debt (defined as total debt minus cash and cash equivalents) was $481.7 million. Cooper Standard’s net leverage ratio (defined as net debt divided by trailing 12 months adjusted EBITDA) at September 30, 2018 was 1.1 times.

Through the first nine months of 2018, the Company used $43.5 million of cash to repurchase shares of its common stock through an accelerated share repurchase program as well as open market transactions. The accelerated share repurchase program was concluded during the third quarter. In June 2018, the Company’s board of directors approved a new common stock repurchase program authorizing the Company to repurchase, in aggregate, up to $150.0 million of its outstanding common stock. The full amount of this authorization remains available.

Outlook

Based on the results achieved year-to-date and the industry and economic outlook, including commodity price expectations, for the rest of the year, the Company has refined its guidance for the full year 2018 as summarized below:
 
Previous Guidance (8/1/2018)
Current Guidance
Sales
$3.60 - $3.70 billion
$3.63 - $3.68 billion
Adjusted EBITDA Margin1
12.7% - 13.0%
10.5% - 11.0%
Capital Expenditures as a percent of sales
5.7% - 5.9%
5.9% - 6.0%
Cash Restructuring
$35 - $40 million
$35 - $40 million
Effective Tax Rate
18% - 22%
13% - 17%
1 Adjusted EBITDA Margin is a non-GAAP financial measure. We have not provided a reconciliation of projected adjusted EBITDA margin range to projected net income margin range because full-year net income will include special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end. Due to this uncertainty, we cannot reconcile projected adjusted EBITDA margin range to a comparable US GAAP net income margin range without unreasonable effort.


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Conference Call Details

Cooper Standard management will host a conference call and webcast on November 2, 2018 at 9 a.m. ET to discuss its third quarter 2018 results, provide a general business update and respond to investor questions. A link to the live webcast of the call (listen only) and presentation materials will be available on Cooper Standard’s Investor Relations website at www.ir.cooperstandard.com/events.cfm.

To participate by phone, callers in the United States and Canada should dial toll-free (877) 374-4041. International callers should dial (253) 237-1156. Provide the conference ID 4069804 or ask to be connected to the Cooper Standard conference call. Representatives of the investment community will have the opportunity to ask questions after the presentation. Callers should dial in at least five minutes prior to the start of the call.

Individuals unable to participate during the live call may visit the investors’ portion of the Cooper Standard website (www.ir.cooperstandard.com) for a replay of the webcast.

About Cooper Standard

Cooper Standard, headquartered in Novi, Mich., is a leading global supplier of systems and components for the automotive industry. Products include rubber and plastic sealing, fuel and brake lines, fluid transfer hoses and anti-vibration systems. Cooper Standard employs more than 33,000 people globally and operates in 21 countries around the world. For more information, please visit www.cooperstandard.com.

Forward Looking Statements
This press release includes “forward-looking statements” within the meaning of U.S. federal securities laws, and we intend that such forward-looking statements be subject to the safe harbor created thereby. Our use of words “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” or future or conditional verbs, such as “will,” “should,” “could,” “would,” or “may,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you that these expectations, beliefs and projections will be achieved. Forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties that may cause actual results or achievements to be materially different from the future results or achievements expressed or implied by the forward-looking statements. Among other items, such factors may include: prolonged or material contractions in automotive sales and production volumes; our inability to realize sales represented by awarded business; escalating pricing pressures; loss of large customers or significant platforms; our ability to successfully compete in the automotive parts industry; availability and increasing volatility in costs of manufactured components and raw materials; disruption in our supply base; entering new markets; possible variability of our working capital requirements; risks associated with our international operations, including changes in laws, regulations, and policies governing the terms of foreign trade such as increased trade restrictions and tariffs; foreign currency exchange rate fluctuations; our ability to control the operations of our joint ventures for our sole benefit; our substantial amount of indebtedness; our ability to obtain adequate financing sources in the future; operating and financial restrictions imposed on us under our debt instruments; the underfunding of our pension plans; significant changes in discount rates and the actual return on pension assets; effectiveness of continuous improvement programs and other cost savings plans; manufacturing facility closings or consolidation; our ability to execute new program launches; our ability to meet customers’ needs for new and improved products; the possibility that our acquisitions and divestitures may not be successful; product liability, warranty and recall claims brought against us; laws and regulations, including environmental, health and safety laws and regulations; legal proceedings, claims or investigations against us; work stoppages or other labor disruptions; the ability of our intellectual property to withstand legal challenges; cyber-attacks or other

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disruptions in our information technology systems; the possible volatility of our annual effective tax rate; changes in our assumptions used for evaluation of deemed repatriation tax and the remeasurement of our deferred tax assets and liabilities, including as a result of IRS issuing guidance on the Tax Cuts and Jobs Act that may change our assumptions; the possibility of future impairment charges to our goodwill and long-lived assets; and our dependence on our subsidiaries for cash to satisfy our obligations.
You should not place undue reliance on these forward-looking statements. We undertake no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except where we are expressly required to do so by law.
This press release also contains estimates and other information that is based on industry publications, surveys and forecasts. This information involves a number of assumptions and limitations, and we have not independently verified the accuracy or completeness of the information.


CPS_F

Contact for Analysts:
Contact for Media:
Roger Hendriksen
Sharon Wenzl
Cooper Standard
Cooper Standard
(248) 596-6465
(248) 596-6211
roger.hendriksen@cooperstandard.com
sswenzl@cooperstandard.com

Financial statements and related notes follow:



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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,
 
2018
 
2017
 
2018
 
2017
Sales
$
861,653

 
$
869,016

 
$
2,757,306

 
$
2,680,212

Cost of products sold
741,998

 
718,207

 
2,315,406

 
2,187,213

Gross profit
119,655

 
150,809

 
441,900

 
492,999

Selling, administration & engineering expenses
82,134

 
87,791

 
238,913

 
260,360

Amortization of intangibles
3,791

 
3,432

 
10,596

 
10,563

Gain on sale of land
(10,714
)
 

 
(10,714
)
 

Impairment charges

 

 

 
4,270

Restructuring charges
2,703

 
9,909

 
19,841

 
28,220

Operating profit
41,741

 
49,677

 
183,264

 
189,586

Interest expense, net of interest income
(9,983
)
 
(10,256
)
 
(29,756
)
 
(31,788
)
Equity in earnings of affiliates
1,413

 
660

 
4,348

 
3,735

Loss on refinancing and extinguishment of debt

 

 
(770
)
 
(1,020
)
Other expense, net
(1,697
)
 
(6,785
)
 
(3,973
)
 
(10,643
)
Income before income taxes
31,474

 
33,296

 
153,113

 
149,870

Income tax expense (benefit)
(1,190
)
 
7,838

 
19,831

 
40,258

Net income
32,664

 
25,458

 
133,282

 
109,612

Net income attributable to noncontrolling interests
(508
)
 
(818
)
 
(2,457
)
 
(2,810
)
Net income attributable to Cooper-Standard Holdings Inc.
$
32,156

 
$
24,640

 
$
130,825

 
$
106,802

 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
17,828,358

 
17,703,660

 
17,939,544

 
17,769,808

Diluted
18,209,168

 
18,680,518

 
18,348,616

 
18,838,287

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.80

 
$
1.39

 
$
7.29

 
$
6.01

Diluted
$
1.77

 
$
1.32

 
$
7.13

 
$
5.67





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COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
 
September 30, 2018
 
December 31, 2017
 
 (unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
282,357

 
$
515,952

Accounts receivable, net
462,619

 
494,049

Tooling receivable
134,072

 
112,561

Inventories
182,743

 
170,196

Prepaid expenses
37,221

 
33,205

Other current assets
86,547

 
100,778

Assets held for sale
120,940

 

Total current assets
1,306,499

 
1,426,741

Property, plant and equipment, net
966,581

 
952,178

Goodwill
183,698

 
171,852

Intangible assets, net
91,393

 
69,091

Other assets
111,753

 
105,786

Total assets
$
2,659,924

 
$
2,725,648

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Debt payable within one year
$
36,947

 
$
34,921

Accounts payable
452,197

 
523,296

Payroll liabilities
108,111

 
123,090

Accrued liabilities
109,915

 
145,650

Liabilities held for sale
75,044

 

Total current liabilities
782,214

 
826,957

Long-term debt
727,183

 
723,325

Pension benefits
130,646

 
180,173

Postretirement benefits other than pensions
53,030

 
61,921

Other liabilities
55,696

 
78,183

Total liabilities
1,748,769

 
1,870,559

7% Cumulative participating convertible preferred stock

 

Equity:
 
 
 
Common stock
18

 
18

Additional paid-in capital
510,349

 
512,815

Retained earnings
609,962

 
511,367

Accumulated other comprehensive loss
(239,009
)
 
(197,631
)
Total Cooper-Standard Holdings Inc. equity
881,320

 
826,569

Noncontrolling interests
29,835

 
28,520

Total equity
911,155

 
855,089

Total liabilities and equity
$
2,659,924

 
$
2,725,648


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COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands) 
 
 
 
 
 
Nine Months Ended September 30,
 
2018
 
2017
Operating Activities:
 
 
 
Net income
$
133,282

 
$
109,612

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
98,675

 
88,850

Amortization of intangibles
10,596

 
10,563

Impairment charges

 
4,270

Share-based compensation expense
14,117

 
19,006

Equity in earnings of affiliates, net of dividends related to earnings
160

 
1,647

Loss on refinancing and extinguishment of debt
770

 
1,020

Other
8,666

 
14,706

Changes in operating assets and liabilities
(188,262
)
 
(144,584
)
Net cash provided by operating activities
78,004

 
105,090

Investing activities:
 
 
 
Capital expenditures
(160,088
)
 
(137,446
)
Acquisition of businesses, net of cash acquired
(98,673
)
 
(478
)
Proceeds from sale of fixed assets and other
8,173

 
1,236

Net cash used in investing activities
(250,588
)
 
(136,688
)
Financing activities:
 
 
 
Principal payments on long-term debt
(2,928
)
 
(15,616
)
Increase in short-term debt, net
3,554

 
6,070

Purchase of noncontrolling interests
(2,450
)
 

Repurchase of common stock
(43,525
)
 
(30,680
)
Proceeds from exercise of warrants

 
836

Taxes withheld and paid on employees' share-based payment awards
(11,571
)
 
(11,949
)
Other
(88
)
 
(795
)
Net cash used in financing activities
(57,008
)
 
(52,134
)
Effects of exchange rate changes on cash, cash equivalents and restricted cash
(3,045
)
 
(22,836
)
Changes in cash, cash equivalents and restricted cash
(232,637
)
 
(106,568
)
Cash, cash equivalents and restricted cash at beginning of period
518,461

 
482,979

Cash, cash equivalents and restricted cash at end of period
$
285,824

 
$
376,411

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet:
 
Balance as of
 
September 30, 2018
 
December 31, 2017
Cash and cash equivalents
$
282,357

 
$
515,952

Restricted cash included in other current assets
614

 
88

Restricted cash included in other assets
2,853

 
2,421

Total cash, cash equivalents and restricted cash shown in the statement of cash flows
$
285,824

 
$
518,461


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Non-GAAP Measures
EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, net debt and free cash flow are measures not recognized under U.S. GAAP and which exclude certain non-cash and special items that may obscure trends and operating performance not indicative of the Company’s core financial activities. Management considers EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, net debt and free cash flow to be key indicators of the Company’s operating performance and believes that these and similar measures are widely used by investors, securities analysts and other interested parties in evaluating the Company’s performance. In addition, similar measures are utilized in the calculation of the financial covenants and ratios contained in the Company’s financing arrangements and management uses these measures for developing internal budgets and forecasting purposes. EBITDA is defined as net income adjusted to reflect income tax expense, interest expense net of interest income, depreciation and amortization, and adjusted EBITDA is defined as EBITDA further adjusted to reflect certain items that management does not consider to be reflective of the Company’s core operating performance. Adjusted EBITDA margin is defined as adjusted EBITDA divided by sales. Adjusted net income is defined as net income adjusted to reflect certain items that management does not consider to be reflective of the Company’s core operating performance. Adjusted basic and diluted earnings per share is defined as adjusted net income divided by the weighted average number of basic and diluted shares, respectively, outstanding during the period. Net debt is defined as total debt minus cash and cash equivalents. Free cash flow is defined as net cash provided by operating activities minus capital expenditures and is useful to both management and investors in evaluating the Company’s ability to service and repay its debt.
When analyzing the Company’s operating performance, investors should use EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, net debt and free cash flow as supplements to, and not as alternatives for, net income, operating income, or any other performance measure derived in accordance with U.S. GAAP, and not as an alternative to cash flow from operating activities as a measure of the Company’s liquidity. EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, net debt and free cash flow have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of the Company’s results of operations as reported under U.S. GAAP. Other companies may report EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, net debt and free cash flow differently and therefore the Company’s results may not be comparable to other similarly titled measures of other companies. In addition, in evaluating adjusted EBITDA and adjusted net income, it should be noted that in the future the Company may incur expenses similar to or in excess of the adjustments in the below presentation. This presentation of adjusted EBITDA and adjusted net income should not be construed as an inference that the Company’s future results will be unaffected by special items. Reconciliations of EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income and free cash flow follow.

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Reconciliation of Non-GAAP Measures

EBITDA and Adjusted EBITDA
(Unaudited)
(Dollar amounts in thousands)

The following table provides reconciliation of EBITDA and adjusted EBITDA from net income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income attributable to Cooper-Standard Holdings Inc.
$
32,156

 
$
24,640

 
$
130,825

 
$
106,802

Income tax expense (benefit)
(1,190
)
 
7,838

 
19,831

 
40,258

Interest expense, net of interest income
9,983

 
10,256

 
29,756

 
31,788

Depreciation and amortization
36,098

 
34,368

 
109,271

 
99,413

EBITDA
$
77,047

 
$
77,102

 
$
289,683

 
$
278,261

Gain on sale of land (1)
(10,714
)
 

 
(10,714
)
 

Restructuring charges
2,703

 
9,909

 
19,841

 
28,220

Amortization of inventory write-up (2)
535

 

 
535

 

Settlement charges (3)

 
5,902

 

 
5,902

Foreign tax amnesty program (4)

 
3,121

 

 
3,121

Loss on refinancing and extinguishment of debt (5)

 

 
770

 
1,020

Impairment charges (6)

 

 

 
4,270

Adjusted EBITDA
$
69,571

 
$
96,034

 
$
300,115

 
$
320,794

 
 
 
 
 
 
 
 
Sales
$
861,653

 
$
869,016

 
$
2,757,306

 
$
2,680,212

Net income margin
3.7
%
 
2.8
%
 
4.7
%
 
4.0
%
Adjusted EBITDA margin
8.1
%
 
11.1
%
 
10.9
%
 
12.0
%

(1)
Gain on sale of land in Europe that was contemplated in conjunction with our restructuring plan.
(2)
Amortization of write-up of inventory to fair value for the Lauren acquisition.
(3)
Non-cash settlement charges of $5.7 million and administrative fees of $0.2 million relating to U.K. pension plan.
(4)
Relates to indirect taxes recorded in cost of products sold.
(5)
Loss on refinancing and extinguishment of debt related to the applicable amendment of the Term Loan Facility entered into during such period.
(6)
Non-cash impairment charges related to fixed assets.







    

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Adjusted Net Income and Adjusted Earnings Per Share
(Unaudited)
(Dollar amounts in thousands, except per share amounts)
 
The following table provides reconciliation of net income to adjusted net income and the respective earnings per share amounts:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income attributable to Cooper-Standard Holdings Inc.
$
32,156

 
$
24,640

 
$
130,825

 
$
106,802

Gain on sale of land (1)
(10,714
)
 

 
(10,714
)
 

Restructuring charges
2,703

 
9,909

 
19,841

 
28,220

Amortization of inventory write-up (2)
535

 

 
535

 

Settlement charges (3)

 
5,902

 

 
5,902

Foreign tax amnesty program (4)

 
3,121

 

 
3,121

Loss on refinancing and extinguishment of debt (5)

 

 
770

 
1,020

Impairment charges (6)

 

 

 
4,270

Tax impact of adjusting items (7)
1,486

 
(4,068
)
 
(1,010
)
 
(4,943
)
Impact of U.S. tax reform (8)
(7,070
)
 

 
(7,070
)
 

Adjusted net income
$
19,096

 
$
39,504

 
$
133,177

 
$
144,392

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
17,828,358

 
17,703,660

 
17,939,544

 
17,769,808

Diluted
18,209,168

 
18,680,518

 
18,348,616

 
18,838,287

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.80

 
$
1.39

 
$
7.29

 
$
6.01

Diluted
$
1.77

 
$
1.32

 
$
7.13

 
$
5.67

 
 
 
 
 
 
 
 
Adjusted earnings per share:
 
 
 
 
 
 
 
Basic
$
1.07

 
$
2.23

 
$
7.42

 
$
8.13

Diluted
$
1.05

 
$
2.11

 
$
7.26

 
$
7.66

(1)
Gain on sale of land in Europe that was contemplated in conjunction with our restructuring plan.
(2)
Amortization of write-up of inventory to fair value for the Lauren acquisition.
(3)
Non-cash settlement charges of $5.7 million and administrative fees of $0.2 million relating to U.K. pension plan.
(4)
Relates to indirect taxes recorded in cost of products sold.
(5)
Loss on refinancing and extinguishment of debt related to the applicable amendment of the Term Loan Facility entered into during such period.
(6)
Non-cash impairment charges related to fixed assets.
(7)
Represents the elimination of the income tax impact of the above adjustments by calculating the income tax impact of these adjusting items using the appropriate tax rate for the jurisdiction where the charges were incurred.
(8)
Tax impact of adjustments recorded to the transition tax on undistributed foreign earnings and the tax effect of adjusting deferred taxes for the Tax Cuts and Jobs Act enacted into law on December 22, 2017.

Free Cash Flow
(Unaudited)
(Dollar amounts in thousands)
The following table defines free cash flow:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net cash (used in) provided by operating activities
$
(20,307
)
 
$
40,389

 
$
78,004

 
$
105,090

Capital expenditures
(53,389
)
 
(39,297
)
 
(160,088
)
 
(137,446
)
Free cash flow
$
(73,696
)
 
$
1,092

 
$
(82,084
)
 
$
(32,356
)

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