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) August 1, 2019
 
 
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 August 1, 2019, Cooper-Standard Holdings Inc. (the “Company”) issued a press release regarding its results of operations and financial condition for the second quarter ended June 30, 2019. 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 August 1, 2019.
            

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/ Joanna M. Totsky
Name:
 
Joanna M. Totsky
Title:
 
Senior Vice President, Chief Legal Officer
and Secretary
Date: August 2, 2019



Exhibit
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Cooper Standard Reports Second Quarter Results and
Announces Significant New FortrexTM Technology Agreement

NOVI, Mich., August 1, 2019 -- Cooper-Standard Holdings Inc. (NYSE: CPS) today reported results for the second quarter 2019.

Second Quarter 2019 Summary

Sales totaled $764.8 million
Net income of $145.3 million or $8.36 per diluted share
Adjusted EBITDA of $58.1 million or 7.6 percent of sales
Adjusted net income of $5.4 million or $0.31 per diluted share
Contract awards related to innovation products for annualized sales of $171 million
Significant new FortrexTM technology agreement signed subsequent to quarter end

“Our results for the quarter were once again negatively impacted by continuing weak production volume and mix in China and Europe, as well as the slower than expected ramp up of an important new vehicle platform in North America,” said Jeffrey Edwards, chairman and CEO, Cooper Standard. “Looking ahead, we expect these challenging market dynamics to continue at least through the end of the year, and we have revised our full-year outlook accordingly.

“We are working to mitigate these headwinds as much as possible by accelerating planned restructuring and further streamlining the business under our global management structure,” Edwards added. “We expect these actions will help us to improve our overall efficiency in the near-term and better position the Company for long-term profitable growth. We remain on track with our new program launches, cost reduction initiatives and the strategic diversification of our business.”

Consolidated Results

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(dollar amounts in millions except per share amounts)
Sales
$
764.8

 
$
928.3

 
$
1,644.8

 
$
1,895.7

Net income
$
145.3

 
$
41.9

 
$
141.8

 
$
98.7

Adjusted net income
$
5.4

 
$
50.3

 
$
17.2

 
$
114.1

Earnings per diluted share
$
8.36

 
$
2.28

 
$
8.11

 
$
5.36

Adjusted earnings per diluted share
$
0.31

 
$
2.74

 
$
0.99

 
$
6.19

Adjusted EBITDA
$
58.1

 
$
107.9

 
$
124.5

 
$
230.5

 
The year-over-year change in second quarter sales was primarily attributable to the sale of the Company's Anti-Vibration Systems (AVS) business, unfavorable volume and mix, and foreign exchange.

Net income for the second quarter 2019 included a $189.9 million gain on the sale of the AVS business, certain project costs related to acquisitions and divestitures, and restructuring charges related to headcount reduction actions. Adjusted net income, which excludes these items and their related tax impact, declined in the second quarter 2019 compared to the prior year due largely to unfavorable volume and mix, general inflation, customer

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price adjustments and higher material costs, partially offset by operating efficiencies and other cost saving initiatives.

Adjusted net income, adjusted EBITDA and adjusted earnings per diluted share are non-GAAP measures. 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.

Notable Developments

The Company continues at a record pace for new program launches and contract awards related to recent product innovations. During the second quarter, the Company successfully launched 84 new customer programs, an increase of 75 percent compared to the second quarter of 2018. Also during the quarter, the Company received new contract awards related to product innovations, including both new and replacement business, totaling $171 million in annualized sales. These awards included the first production order for FlushSeal™ glass sealing technology on an all-new electric vehicle platform. In the first six months of the year, contract awards related to product innovations totaled $252 million in annualized sales. Net new business awards received during the second quarter and in the first six months of the year totaled $53 million and $129 million in annualized sales, respectively. Cooper Standard’s expanding portfolio of commercialized innovation products includes: MagAlloy™; ArmorHose™; ArmorHose™ TPV; LightHose; Gen III Posi-Lock; TP Microdense; Microdense EPDM; FlushSealTM glass sealing technology; and FortrexTM.

Subsequent to the end of the second quarter, Cooper Standard signed a new Fortrex™ technology agreement with a multinational industrial products manufacturer based in Asia. Under the agreement, the customer is expected to initially focus on developing three to four new product applications using Fortrex™ technology. The new agreement, which is the third the Company has signed this year, is further demonstration of the versatility of the FortrexTM chemistry platform and the diverse market applications that it can address.

Segment Results of Operations

Sales

 
Three Months Ended June 30,
 
 
Variance Due To:
 
2019
 
2018
 
Change
 
 
Volume / Mix*
 
Foreign Exchange
 
Acquisitions/Divestiture,
net
 
(dollar amounts in thousands)
Sales to external customers
 
 
 
 
 
 
 
 
 
 
 
 
North America
$
404,863

 
$
477,608

 
$
(72,745
)
 
 
$
(39,189
)
 
$
(1,629
)
 
$
(31,927
)
Europe
216,217

 
279,124

 
(62,907
)
 
 
(28,740
)
 
(13,686
)
 
(20,481
)
Asia Pacific
118,603

 
147,994

 
(29,391
)
 
 
(36,146
)
 
(8,061
)
 
14,816

South America
25,123

 
23,536

 
1,587

 
 
3,817

 
(2,230
)
 

Consolidated
$
764,806

 
$
928,262

 
$
(163,456
)
 
 
$
(100,258
)
 
$
(25,606
)
 
$
(37,592
)
* Net of customer price reductions
The impact of foreign currency exchange primarily relates to the Euro, Chinese Renminbi, Brazilian Real and the Canadian Dollar.

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Adjusted EBITDA

 
Three Months Ended June 30,
 
 
Variance Due To:
 
2019
 
2018
 
Change
 
 
Volume / Mix*
 
Foreign Exchange
 
Cost (Increases) / Decreases
 
Acquisitions/Divestiture,
net
 
(dollar amounts in thousands)
Segment adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America
$
54,867

 
$
82,672

 
$
(27,805
)
 
 
$
(25,927
)
 
$
(583
)
 
$
2,286

 
$
(3,581
)
Europe
6,082

 
16,292

 
(10,210
)
 
 
(11,611
)
 
(1,185
)
 
2,498

 
88

Asia Pacific
(1,586
)
 
11,304

 
(12,890
)
 
 
(17,096
)
 
(1,452
)
 
5,821

 
(163
)
South America
(1,284
)
 
(2,361
)
 
1,077

 
 
1,298

 
206

 
(427
)
 

Consolidated adjusted EBITDA
$
58,079

 
$
107,907

 
$
(49,828
)
 
 
$
(53,336
)
 
$
(3,014
)
 
$
10,178

 
$
(3,656
)
* Net of customer price reductions

The impact of foreign currency exchange is primarily driven by the Chinese Renminbi, Euro, Canadian Dollar, Mexican Peso, Polish Zloty and Czech Koruna.
The Cost (Increases) / Decreases category above includes:
The increase in commodity cost pressure, general inflation and tariffs;
Launch related activity for engineering, prototypes and tooling; and
Net operational efficiencies of $26.5 million primarily driven by our North America, Europe and Asia Pacific segments.

Liquidity and Cash Flow

At June 30, 2019, Cooper Standard had cash and cash equivalents totaling $310.8 million. Net cash used in operating activities in the second quarter 2019 was $7.1 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 $43.0 million.

In addition to cash and cash equivalents, the Company had $158.8 million available under its amended senior asset-based revolving credit facility (“ABL”), inclusive of outstanding letters of credit, for total liquidity of $469.6 million at June 30, 2019.

Total debt at June 30, 2019 was $792.2 million. Net debt (defined as total debt minus cash and cash equivalents) was $481.4 million. Cooper Standard’s net leverage ratio (defined as net debt divided by trailing 12 months adjusted EBITDA) at June 30, 2019 was 1.8 times.

On April 1, 2019, the Company completed the sale of its AVS business. The total sale price of the transaction was $265.5 million and the Company received $243.4 million in cash proceeds after adjusting for certain liabilities assumed by the purchaser. The estimated net cash proceeds after taxes and transaction-related expenses and fees are expected to be approximately $215 to $220 million.

In June 2018, the Company’s board of directors approved a common stock repurchase program authorizing the Company to repurchase, in aggregate, up to $150.0 million of its outstanding common stock. In May 2019, the

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Company entered into an accelerated share repurchase (“ASR”) agreement in the amount of $30.0 million. The ASR is expected to be completed no later than the third quarter of 2019. As of June 30, 2019, approximately $98.7 million remained available under the 2018 board of directors repurchase authorization.

Outlook

Based on the results achieved in the first two quarters and the industry and economic outlook for the rest of the year, the Company has revised its guidance for the full year 2019 as summarized below:
 
Previous Guidance (5/1/2019)
Current Guidance1
Sales
$3.2 - $3.4 billion
$3.0 - $3.2 billion
Adjusted EBITDA2
$300 - $340 million
$270 - $300 million
Capital Expenditures
$180 - $190 million
$175 - $185 million
Cash Restructuring
$15 - $25 million
$25 - $35 million
Effective Tax Rate
16% - 18%
21% - 25%
1 Guidance is representative of management's estimates and expectations as of the date it is published. Current guidance as presented in this press release is reflective of June 2019 IHS production forecasts for relevant light vehicle platforms and models, customer production schedules and other internal assumptions.
2 Adjusted EBITDA is a non-GAAP financial measure. The Company has not provided a reconciliation of projected adjusted EBITDA to projected net income 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, the Company cannot reconcile projected adjusted EBITDA to U.S. GAAP net income without unreasonable effort.

Conference Call Details

Cooper Standard management will host a conference call and webcast on August 2, 2019 at 9 a.m. ET to discuss its second quarter 2019 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 8455478 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 sealing, fuel and brake delivery, and fluid transfer systems. Cooper Standard employs approximately 30,000 people globally and operates in 21 countries around the world. For more information, please visit www.cooperstandard.com.


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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,” “outlook,” “guidance,” “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; competitive threats and commercial risks associated with us 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, other disruptions in or the inability to implement upgrades to, our information technology systems; the possible volatility of our annual effective tax rate; changes in our assumptions as a result of IRS issuing guidance on the Tax Cuts and Jobs Act; the possibility of future impairment charges to our goodwill and long-lived assets; our dependence on our subsidiaries for cash to satisfy our obligations; and other risks and uncertainties, including those detailed from time to time in the Company’s periodic reports filed with the Securities and Exchange Commission.

You should not place undue reliance on these forward-looking statements. Our forward-looking statements speak only as of the date of this press release and 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


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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 OPERATIONS
(Unaudited)
(Dollar amounts in thousands except per share and share amounts) 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Sales
$
764,806

 
$
928,262

 
$
1,644,844

 
$
1,895,653

Cost of products sold
666,828

 
776,897

 
1,429,318

 
1,573,408

Gross profit
97,978

 
151,365

 
215,526

 
322,245

Selling, administration & engineering expenses
74,170

 
76,339

 
161,144

 
156,779

Gain on sale of business
(189,910
)
 

 
(189,910
)
 

Amortization of intangibles
5,148

 
3,399

 
8,923

 
6,805

Restructuring charges
5,927

 
10,013

 
23,642

 
17,138

Impairment charges
2,188

 

 
2,188

 

Operating profit
200,455

 
61,614

 
209,539

 
141,523

Interest expense, net of interest income
(11,575
)
 
(9,973
)
 
(23,507
)
 
(19,773
)
Equity in earnings of affiliates
1,891

 
1,248

 
4,249

 
2,935

Loss on refinancing and extinguishment of debt

 

 

 
(770
)
Other expense, net
(1,781
)
 
(557
)
 
(2,577
)
 
(2,276
)
Income before income taxes
188,990

 
52,332

 
187,704

 
121,639

Income tax expense
44,239

 
9,130

 
46,570

 
21,021

Net income
144,751

 
43,202

 
141,134

 
100,618

Net loss (income) attributable to noncontrolling interests
545

 
(1,325
)
 
702

 
(1,949
)
Net income attributable to Cooper-Standard Holdings Inc.
$
145,296

 
$
41,877

 
$
141,836

 
$
98,669

 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
17,312,359

 
18,000,579

 
17,423,162

 
17,996,058

Diluted
17,376,458

 
18,371,775

 
17,490,968

 
18,419,952

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
8.39

 
$
2.33

 
$
8.14

 
$
5.48

Diluted
$
8.36

 
$
2.28

 
$
8.11

 
$
5.36





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COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
 
June 30, 2019
 
December 31, 2018
 
 (unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
310,779

 
$
264,980

Accounts receivable, net
458,504

 
418,607

Tooling receivable
177,191

 
141,106

Inventories
184,435

 
175,572

Prepaid expenses
32,154

 
36,878

Other current assets
80,072

 
108,683

Assets held for sale

 
103,898

Total current assets
1,243,135

 
1,249,724

Property, plant and equipment, net
993,933

 
984,241

Operating lease right-of-use assets, net
94,646

 

Goodwill
142,151

 
143,681

Intangible assets, net
90,627

 
99,602

Other assets
140,342

 
145,855

Total assets
$
2,704,834

 
$
2,623,103

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Debt payable within one year
$
54,447

 
$
101,323

Accounts payable
415,301

 
452,320

Payroll liabilities
120,396

 
92,604

Accrued liabilities
92,843

 
98,907

Current operating lease liabilities
25,730

 

Liabilities held for sale

 
71,195

Total current liabilities
708,717

 
816,349

Long-term debt
737,757

 
729,805

Pension benefits
134,644

 
138,771

Postretirement benefits other than pensions
47,868

 
40,901

Long-term operating lease liabilities
70,102

 

Other liabilities
46,594

 
37,775

Total liabilities
1,745,682

 
1,763,601

7% Cumulative participating convertible preferred stock

 

Equity:
 
 
 
Common stock
17

 
17

Additional paid-in capital
483,792

 
501,511

Retained earnings
701,647

 
576,025

Accumulated other comprehensive loss
(249,211
)
 
(246,088
)
Total Cooper-Standard Holdings Inc. equity
936,245

 
831,465

Noncontrolling interests
22,907

 
28,037

Total equity
959,152

 
859,502

Total liabilities and equity
$
2,704,834

 
$
2,623,103


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COOPER-STANDARD HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands) 
 
 
 
 
 
Six Months Ended June 30,
 
2019
 
2018
Operating Activities:
 
 
 
Net income
$
141,134

 
$
100,618

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Depreciation
65,550

 
66,367

Amortization of intangibles
8,923

 
6,805

Gain on sale of business
(189,910
)
 

Impairment charges
2,188

 

Share-based compensation expense
6,482

 
10,342

Equity in earnings of affiliates, net of dividends related to earnings
668

 
1,573

Loss on refinancing and extinguishment of debt

 
770

Deferred income taxes
19,117

 
1,420

Other
2,030

 
1,029

Changes in operating assets and liabilities
(65,148
)
 
(90,613
)
Net cash (used in) provided by operating activities
(8,966
)
 
98,311

Investing activities:
 
 
 
Capital expenditures
(95,496
)
 
(106,699
)
Acquisition of businesses, net of cash acquired
(452
)
 
(6,195
)
Proceeds from sale of business
243,362

 

Proceeds from sale of fixed assets and other
2,099

 
(139
)
Net cash provided by (used in) investing activities
149,513

 
(113,033
)
Financing activities:
 
 
 
Principal payments on long-term debt
(2,067
)
 
(2,062
)
(Decrease) increase in short-term debt, net
(47,351
)
 
224

Purchase of noncontrolling interests
(4,797
)
 
(2,450
)
Repurchase of common stock
(36,550
)
 
(43,525
)
Taxes withheld and paid on employees' share-based payment awards
(2,733
)
 
(11,279
)
Contribution from noncontrolling interest and other
2,277

 
(327
)
Net cash used in financing activities
(91,221
)
 
(59,419
)
Effects of exchange rate changes on cash, cash equivalents and restricted cash
(2,882
)
 
(865
)
Changes in cash, cash equivalents and restricted cash
46,444

 
(75,006
)
Cash, cash equivalents and restricted cash at beginning of period
267,399

 
518,461

Cash, cash equivalents and restricted cash at end of period
$
313,843

 
$
443,455

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet:
 
Balance as of
 
June 30, 2019
 
December 31, 2018
Cash and cash equivalents
$
310,779

 
$
264,980

Restricted cash included in other current assets
55

 
18

Restricted cash included in other assets
3,009

 
2,401

Total cash, cash equivalents and restricted cash shown in the statement of cash flows
$
313,843

 
$
267,399


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Non-GAAP Measures
EBITDA, adjusted EBITDA, 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 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 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 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 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 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 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 a reconciliation of EBITDA and adjusted EBITDA from net income:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net income attributable to Cooper-Standard Holdings Inc.
$
145,296

 
$
41,877

 
$
141,836

 
$
98,669

Income tax expense
44,239

 
9,130

 
46,570

 
21,021

Interest expense, net of interest income
11,575

 
9,973

 
23,507

 
19,773

Depreciation and amortization
37,868

 
36,914

 
74,473

 
73,173

EBITDA
$
238,978

 
$
97,894

 
$
286,386

 
$
212,636

Gain on sale of business (1)
(189,910
)
 

 
(189,910
)
 

Restructuring charges
5,927

 
10,013

 
23,642

 
17,138

Impairment charges (2)
2,188

 

 
2,188

 

Project costs (3)
405

 

 
1,668

 

Lease termination costs (4)
491

 

 
491

 

Loss on refinancing and extinguishment of debt (5)

 

 

 
770

Adjusted EBITDA
$
58,079

 
$
107,907

 
$
124,465

 
$
230,544

 
 
 
 
 
 
 
 
Sales
$
764,806

 
$
928,262

 
$
1,644,844

 
$
1,895,653

Net income margin
19.0
%
 
4.5
%
 
8.6
%
 
5.2
%
Adjusted EBITDA margin
7.6
%
 
11.6
%
 
7.6
%
 
12.2
%

(1)
Gain on sale of AVS product line.
(2)
Non-cash impairment charges related to fixed assets.
(3)
Project costs recorded in selling, administration and engineering expense related to acquisitions and divestiture.
(4)
Lease termination costs no longer recorded as restructuring charges in accordance with ASC 842.
(5)
Loss on refinancing and extinguishment of debt related to the applicable amendment of the Term Loan Facility entered into during such period.









    

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Adjusted Net Income and Adjusted Earnings Per Share
(Unaudited)
(Dollar amounts in thousands except per share and share amounts)
 
The following table provides a reconciliation of net income to adjusted net income and the respective earnings per share amounts:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net income attributable to Cooper-Standard Holdings Inc.
$
145,296

 
$
41,877

 
$
141,836

 
$
98,669

Gain on sale of business (1)
(189,910
)
 

 
(189,910
)
 

Restructuring charges
5,927

 
10,013

 
23,642

 
17,138

Impairment charges (2)
2,188

 

 
2,188

 

Project costs (3)
405

 

 
1,668

 

Lease termination costs (4)
491

 

 
491

 

Loss on refinancing and extinguishment of debt (5)

 

 

 
770

Tax impact of adjusting items (6)
41,006

 
(1,595
)
 
37,325

 
(2,496
)
Adjusted net income
$
5,403

 
$
50,295

 
$
17,240

 
$
114,081

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
17,312,359

 
18,000,579

 
17,423,162

 
17,996,058

Diluted
17,376,458

 
18,371,775

 
17,490,968

 
18,419,952

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
8.39

 
$
2.33

 
$
8.14

 
$
5.48

Diluted
$
8.36

 
$
2.28

 
$
8.11

 
$
5.36

 
 
 
 
 
 
 
 
Adjusted earnings per share:
 
 
 
 
 
 
 
Basic
$
0.31

 
$
2.79

 
$
0.99

 
$
6.34

Diluted
$
0.31

 
$
2.74

 
$
0.99

 
$
6.19


(1)
Gain on sale of AVS product line.
(2)
Non-cash impairment charges related to fixed assets.
(3)
Project costs recorded in selling, administration and engineering expense related to acquisitions and divestiture.
(4)
Lease termination costs no longer recorded as restructuring charges in accordance with ASC 842.
(5)
Loss on refinancing and extinguishment of debt related to the applicable amendment of the Term Loan Facility entered into during such period.
(6)
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.




Free Cash Flow
(Unaudited)
(Dollar amounts in thousands)
The following table defines free cash flow:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net cash (used in) provided by operating activities
$
(7,118
)
 
$
108,867

 
$
(8,966
)
 
$
98,311

Capital expenditures
(35,863
)
 
(38,841
)
 
(95,496
)
 
(106,699
)
Free cash flow
$
(42,981
)
 
$
70,026

 
$
(104,462
)
 
$
(8,388
)

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