Edgar Filing: Cooper-Standard Holdings Inc.

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-54305

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 x 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 x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

As of August 1, 2013 there were 13,139,442 shares of the registrant’s common stock, $0.001 par value, outstanding.

COOPER-STANDARD HOLDINGS INC.

Form 10-Q

For the period ended June 30, 2013


		Page

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Comprehensive Income		3

	Condensed Consolidated Balance Sheets		4

	Condensed Consolidated Statements of Cash Flows		5

	Notes to Condensed Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		34

Item 4.	Controls and Procedures		34

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		35

Item 1A.	Risk Factors		35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		35

Item 6.	Exhibits		37

SIGNATURES			38

EXHIBITS INDEX AND EXHIBITS			39

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

COOPER-STANDARD HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollar amounts in thousands except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2013			2012			2013
Sales	$	734,501		$	784,707		$	1,499,765		$	1,532,284
Cost of products sold		620,054			652,443			1,263,660			1,279,707

Gross profit		114,447			132,264			236,105			252,577
Selling, administration & engineering expenses		68,971			72,745			141,011			147,839
Amortization of intangibles		3,891			3,858			7,724			7,749
Restructuring		(507	)		1,088			5,587			5,848

Operating profit		42,092			54,573			81,783			91,141
Interest expense, net of interest income		(10,814	)		(13,575	)		(22,001	)		(24,782	)
Equity earnings		2,792			3,363			3,549			6,098
Other expense, net		(4,514	)		(6,013	)		(1,567	)		(6,345	)

Income before income taxes		29,556			38,348			61,764			66,112
Income tax expense (benefit)		(46,226	)		12,202			(38,164	)		20,093

Net income		75,782			26,146			99,928			46,019
Net loss attributable to noncontrolling interests		1,534			1,286			1,175			2,114

Net income attributable to Cooper-Standard Holdings Inc.	$	77,316		$	27,432		$	101,103		$	48,133


Net income available to Cooper-Standard Holdings Inc. common stockholders	$	61,315		$	20,552		$	78,498		$	35,913


Earnings per share
Basic	$	3.49		$	1.45		$	4.45		$	2.33

Diluted	$	3.28		$	1.34		$	4.15		$	2.19


Comprehensive income	$	46,064		$	11,858		$	86,208		$	23,801
Comprehensive loss attributable to noncontrolling interests		2,665			872			1,933			1,830

Comprehensive income attributable to Cooper-Standard Holdings Inc.	$	48,729		$	12,730		$	88,141		$	25,631

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

COOPER-STANDARD HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands except share amounts)


	December 31, 2012			June 30, 2013
				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	270,555		$	160,451
Accounts receivable, net		350,013			407,434
Tooling receivable		116,947			150,160
Inventories		143,253			169,540
Prepaid expenses		21,902			30,560
Other		87,802			90,780

Total current assets		990,472			1,008,925
Property, plant and equipment, net		628,608			633,358
Goodwill		133,716			133,360
Intangibles, net		116,724			106,756
Deferred tax assets		72,718			56,660
Other assets		83,739			88,074

	$	2,025,977		$	2,027,133


Liabilities and Equity
Current liabilities:
Debt payable within one year	$	32,556		$	32,997
Accounts payable		271,355			276,461
Payroll liabilities		102,857			109,330
Accrued liabilities		80,148			75,942

Total current liabilities		486,916			494,730
Long-term debt		450,809			646,883
Pension benefits		201,104			190,880
Postretirement benefits other than pensions		69,142			67,051
Deferred tax liabilities		10,801			10,123
Other liabilities		42,131			39,348

Total liabilities		1,260,903			1,449,015

Redeemable noncontrolling interests		14,194			12,819

7% Cumulative participating convertible preferred stock, $0.001 par value, 10,000,000 shares authorized at December 31, 2012, and June 30, 2013; 964,247 shares issued and 958,333 outstanding at December 31, 2012 and 820,659 shares issued and 810,382 outstanding at June 30, 2013		121,649			103,489

Equity:
Common stock, $0.001 par value, 190,000,000 shares authorized at December 31, 2012 and June 30, 2013; 18,426,831 shares issued and 17,275,852 outstanding at December 31, 2012 and 14,772,143 shares issued and 13,139,435 outstanding at June 30, 2013		16			13
Additional paid-in capital		471,851			380,574
Retained earnings		201,907			149,312
Accumulated other comprehensive loss		(45,448	)		(67,950	)

Total Cooper-Standard Holdings Inc. equity		628,326			461,949
Noncontrolling interests		905			(139	)

Total equity		629,231			461,810

Total liabilities and equity	$	2,025,977		$	2,027,133

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

COOPER-STANDARD HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollar amounts in thousands)


	Six Months Ended June 30,
	2012			2013
Operating Activities:
Net income	$	99,928		$	46,019
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		54,393			50,237
Amortization of intangibles		7,724			7,749
Stock-based compensation expense		8,037			5,634
Equity earnings, net of dividends related to earnings		(2,667	)		(2,844	)
Gain on sale of fixed assets		(929	)		—
Deferred income taxes		(46,947	)		15,232
Other		280			(843	)
Changes in operating assets and liabilities		(155,084	)		(148,672	)

Net cash used in operating activities		(35,265	)		(27,488	)
Investing activities:
Capital expenditures, including other intangible assets		(58,496	)		(70,072	)
Acquisition of businesses, net of cash acquired		(1,084	)		—
Return on equity investments		—			2,120
Proceeds from sale of fixed assets		8,323			269

Net cash used in investing activities		(51,257	)		(67,683	)
Financing activities:
Proceeds from issuance of Senior PIK Toggle Notes, net of debt issuance costs		—			194,943
Increase in short term debt, net		—			4,307
Principal payments on long-term debt		(2,576	)		(2,593	)
Preferred stock cash dividends paid		(3,463	)		(1,651	)
Purchase of noncontrolling interest		—			(1,911	)
Repurchase of preferred stock		(4,870	)		—
Repurchase of common stock		(13,594	)		(217,240	)
Proceeds from exercise of warrants		—			11,252
Other		511			(4,325	)

Net cash used in financing activities		(23,992	)		(17,218	)
Effects of exchange rate changes on cash and cash equivalents		826			2,285

Changes in cash and cash equivalents		(109,688	)		(110,104	)
Cash and cash equivalents at beginning of period		361,745			270,555

Cash and cash equivalents at end of period	$	252,057		$	160,451

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

1. Overview

Basis of presentation

Cooper-Standard Holdings Inc. (together with its consolidated subsidiaries, the “Company,” “Cooper-Standard,” “we,” “our,” or “us”) is a leading manufacturer of fluid handling, body sealing, and Anti-Vibration Systems (“AVS”) components, systems, subsystems, and modules. 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 Securities and Exchange Commission (“SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2012 Annual Report on Form 10-K, 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 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. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. The operating results for the interim period ended June 30, 2013 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.

Recent accounting pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU requires that a liability related to an unrecognized tax benefit be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if certain criteria are met. The guidance is effective for fiscal years beginning after December 15, 2013. The Company is currently evaluating the impact of this update.

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU requires companies to present the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under U.S. generally accepted accounting principles (“U.S. GAAP”) to be reclassified to net income in its entirety in the same reporting period. The guidance is effective for fiscal years beginning after December 15, 2012. The Company adopted this guidance effective January 1, 2013. The effects of adoption were not significant and the additional required disclosures are included in Note 8. “Accumulated Other Comprehensive Income (Loss), Equity and Redeemable Noncontrolling Interests.”

In July 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-lived Intangible Assets for Impairment. This ASU permits companies to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired before performing the quantitative impairment test. This ASU is effective for fiscal years beginning after September 15, 2012 (early adoption is permitted). The Company adopted this guidance effective January 1, 2013. The impact of the adoption of this ASU did not have a material impact on the condensed consolidated financial statements.

2. Goodwill and Intangibles

Effective April 1, 2013, the Company changed its basis of presentation from two to four segments. The changes in the carrying amount of goodwill by reportable operating segment for the six months ended June 30, 2013 are summarized as follows:


	North America			Europe			South America		Asia Pacific		Total
Balance at January 1, 2013	$	115,420		$	13,836		$	—	$	4,460	$	133,716
Foreign exchange translation		(240	)		(183	)		—		67		(356	)

Balance at June 30, 2013	$	115,180		$	13,653		$	—	$	4,527	$	133,360

Goodwill is not amortized but is tested for impairment, either annually or when events or circumstances indicate that impairment may exist, by reporting units determined in accordance with ASC 350, “Goodwill and Other Intangible Assets.”

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

The following table presents intangible assets and accumulated amortization balances of the Company as of December 31, 2012 and June 30, 2013, respectively:


	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	135,741	$	(34,184	)	$	101,557
Developed technology		9,574		(4,143	)		5,431
Other		10,337		(601	)		9,736

Balance at December 31, 2012	$	155,652	$	(38,928	)	$	116,724


Customer relationships	$	133,404	$	(40,230	)	$	93,174
Developed technology		9,520		(4,912	)		4,608
Other		9,796		(822	)		8,974

Balance at June 30, 2013	$	152,720	$	(45,964	)	$	106,756

Amortization expense totaled $3,891 and $3,858 for the three months ended June 30, 2012 and 2013, respectively, and $7,724 and $7,749 for the six months ended June 30, 2012 and 2013, respectively. Amortization expense is estimated to be approximately $15,300 for the year ending December 31, 2013.

3. Restructuring

Restructuring activities initiated prior to 2012

The Company implemented several restructuring initiatives in prior years including the closure or consolidation of facilities throughout the world, the establishment of a centralized shared services function in Europe and the reorganization of the Company’s operating structure. The Company commenced these initiatives prior to December 31, 2012 and continued to execute these initiatives during 2013. The majority of the costs associated with these initiatives were incurred shortly after the original implementation. However, the Company continues to incur costs on some of the initiatives related principally to the disposal of the respective facilities.

The following table summarizes the restructuring expense for these initiatives for the three and six months ended June 30, 2012 and 2013:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012			2013		2012			2013
Employee separation costs	$	(2,110	)	$	100	$	(1,811	)	$	245
Other exit costs		1,183			239		3,373			1,142
Asset Impairments		(111	)		—		147			87
Postretirement benefit curtailment gain		—			—		(1,539	)		—

	$	(1,038	)	$	339	$	170		$	1,474

The following table summarizes the activity in the restructuring liability for these initiatives for the six months ended June 30, 2013:


	Employee Separation Costs			Other Exit Costs			Asset Impairments			Total
Balance at January 1, 2013	$	2,054		$	61		$	—		$	2,115
Expense		245			1,142			87			1,474
Cash payments		(709	)		(1,120	)		—			(1,829	)
Utilization of reserve		—			—			(87	)		(87	)

Balance at June 30, 2013	$	1,590		$	83		$	—		$	1,673

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

Restructuring activities initiated in 2012

During 2012, the Company initiated the restructuring of certain facilities in Europe to change the Company’s European footprint to improve operating performance. The majority of the costs have been recognized, however, additional costs may be incurred. The Company has recognized $23,505 of costs related to these initiatives.

The following table summarizes the restructuring expense for these initiatives for the three and six months ended June 30, 2012 and 2013:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2013		2012		2013
Employee separation costs	$	5,256	$	612	$	5,256	$	2,616
Other exit costs		—		137		—		137

	$	5,256	$	749	$	5,256	$	2,753

The following table summarizes the activity in the restructuring liability for these initiatives for the six months ended June 30, 2013:


	Employee Separation Costs			Other Exit Costs			Asset Impairments		Total
Balance at January 1, 2013	$	13,507		$	—		$	—	$	13,507
Expense		2,616			137			—		2,753
Cash payments and foreign exchange translation		(11,126	)		(137	)		—		(11,263	)

Balance at June 30, 2013	$	4,997		$	—		$	—	$	4,997

In the first quarter of 2012, the Company initiated the closure of a facility in North America and a restructuring liability of $4,886 was recorded. During the second quarter of 2012, the Company was able to negotiate a new contract with the union, therefore enabling the facility to remain open. As a result, $4,725 of restructuring expense was reversed during June, 2012.

Restructuring activities initiated in 2013

In the first quarter of 2013, the Company eliminated certain positions within the organization that resulted in restructuring expense of $1,621. As of June 30, 2013, there is a liability of $1,621 associated with this initiative recorded on the Company’s condensed consolidated balance sheet. No additional expense is expected to be incurred related to this initiative.

4. Inventories

Inventories were comprised of the following at December 31, 2012 and June 30, 2013:


	December 31, 2012		June 30, 2013
Finished goods	$	37,415	$	42,422
Work in process		32,383		39,234
Raw materials and supplies		73,455		87,884

	$	143,253	$	169,540

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

5. Debt

Outstanding debt consisted of the following at December 31, 2012 and June 30, 2013:


	December 31, 2012			June 30, 2013
Senior notes	$	450,000		$	450,000
Senior PIK toggle notes		—			196,078
Other borrowings		33,365			33,802

Total debt	$	483,365		$	679,880
Less current portion		(32,556	)		(32,997	)

Total long-term debt	$	450,809		$	646,883

Senior ABL Facility

On April 8, 2013 the Company entered into the Amended and Restated Senior ABL Facility of its senior secured asset-based revolving credit facility (“the Senior ABL Facility”), with certain lenders, which amended and restated the existing Senior ABL Facility. The Senior ABL Facility provides for an aggregate revolving loan availability of up to $150,000, subject to borrowing base availability, including a $50,000 letter of credit sub-facility and a $25,000 swing line sub-facility. The Senior ABL Facility also provides for an uncommitted $75,000 incremental loan facility, for a potential total Senior ABL Facility of $225,000 (if requested by the Company and the lenders agree to fund such increase). No consent of any lender (other than those participating in the increase) is required to effect any such increase. As of June 30, 2013, no amounts were drawn under the Senior ABL Facility, but there was approximately $25,991 of letters of credit outstanding under the facility.

Senior PIK Toggle Notes

On April 3, 2013, Cooper-Standard Holdings Inc. issued $175,000 aggregate principal amount of its Senior PIK Toggle Notes (the “Senior PIK Toggle Notes”). The Senior PIK Toggle Notes bear an interest rate of 7.375% and mature on April 1, 2018. The Senior PIK Toggle Notes were issued pursuant to an indenture dated April 3, 2013. The Senior PIK Toggle Notes were issued at a discount of $3,938. On May 20, 2013, Cooper-Standard Holdings Inc. issued additional $25,000 Senior PIK Toggle Notes pursuant to the indenture dated April 3, 2013. The Senior PIK Toggle Notes were issued at a discount of $188. The Company used the proceeds from the issuance of the Senior PIK Toggle Notes, together with cash on hand, to finance the purchase of shares pursuant to the Equity Tender Offer.

Cooper-Standard Holdings Inc. will pay the first interest payment on the Senior PIK Toggle Notes in cash (“Cash Interest”). For each interest period thereafter (other than for the final interest period ending at stated maturity, which will be made in cash), Cooper-Standard Holdings Inc. will be required to pay Cash Interest, unless the conditions described in the indenture are satisfied, in which case Cooper-Standard Holdings Inc. will be entitled to pay, to the extent described in the indenture, interest by increasing the principal amount of the outstanding Senior PIK Toggle Notes or issuing new Senior PIK Toggle Notes (such increase or issuance, “PIK Interest”). Cash Interest will accrue on the Senior PIK Toggle Notes at a rate equal to 7.375% per annum. PIK Interest will accrue on the Senior PIK Toggle Notes at a rate equal to 8.125% per annum.

The Senior PIK Toggle Notes were not guaranteed as of the date of issuance. If any of Cooper-Standard Holdings Inc.’s wholly-owned domestic restricted subsidiaries guarantees certain debt of Cooper-Standard Holdings Inc., such subsidiary will also be required to guarantee the Senior PIK Toggle Notes.

The Senior PIK Toggle Notes constitute senior debt of Cooper-Standard Holdings Inc. and (1) rank equally in right of payment with all of Cooper-Standard Holdings Inc.’s existing and future senior debt, (2) rank senior in right of payment to any future subordinated debt of Cooper-Standard Holdings Inc., (3) are effectively subordinated in right of payment to all of Cooper-Standard Holdings Inc.’s existing and future secured indebtedness and secured obligations to the extent of the value of the collateral securing such indebtedness and obligations and (4) are structurally subordinated to all existing and future indebtedness and other liabilities of Cooper-Standard Holdings Inc.’s subsidiaries (other than indebtedness and liabilities owed to Cooper-Standard Holdings Inc.).

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

Cooper-Standard Holdings Inc. has the right to redeem the Senior PIK Toggle Notes at the redemption prices set forth as follows:

•

at any time (which may be more than once) before April 1, 2014, Cooper-Standard Holdings Inc. may redeem up to 100% of the aggregate principal amount of the Senior PIK Toggle Notes with the net proceeds of one or more equity offerings at a price of 102.000% of the face amount of the Senior PIK Toggle Notes, plus accrued and unpaid interest to the date of redemption;

•

prior to April 1, 2014, Cooper-Standard Holdings Inc. may redeem the Senior PIK Toggle Notes at its option, in whole at any time or in part from time to time, at a redemption price equal to 100% of the principal amount thereof plus the applicable make-whole premium as of, and accrued and unpaid interest thereon, if any, up to, but not including, the applicable redemption date; and

•

on or after April 1, 2014 Cooper-Standard Holdings Inc. may redeem all or a part of the Senior PIK Toggle Notes, at 102.000% of the principal amount thereof if redeemed during the twelve-month period beginning on April 1, 2014, 101.000% of the principal amount thereof if redeemed during the twelve-month period beginning on April 1, 2015 and 100% of the principal amount thereof if redeemed on or after April 1, 2016, in each case, plus accrued and unpaid interest to the redemption date.

If a change of control occurs with respect to Cooper-Standard Holdings Inc., unless Cooper-Standard Holdings Inc. has exercised its right to redeem all of the outstanding Senior PIK Toggle Notes, each noteholder shall have the right to require Cooper-Standard Holdings Inc. to repurchase such noteholder’s Senior PIK Toggle Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase.

The Senior PIK Toggle Notes indenture contains covenants and events of default customary for an issuer of non-investment grade debt.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

6. Pension and Postretirement Benefits other than Pensions

The following tables disclose the amount of net periodic benefit cost for the three and six months ended June 30, 2012 and 2013 for the Company’s defined benefit plans and other postretirement benefit plans:


	Pension Benefits
	Three Months Ended June 30,
	2012						2013
	U.S.			Non-U.S.			U.S.			Non-U.S.
Service cost	$	287		$	785		$	305		$	877
Interest cost		3,476			1,939			3,052			1,691
Expected return on plan assets		(3,868	)		(997	)		(4,342	)		(936	)
Amortization of prior service cost and recognized actuarial loss		124			93			344			326
Settlement		—			—			783			—

Net periodic benefit cost	$	19		$	1,820		$	142		$	1,958


	Pension Benefits
	Six Months Ended June 30,
	2012						2013
	U.S.			Non-U.S.			U.S.			Non-U.S.
Service cost	$	574		$	1,588		$	610		$	1,765
Interest cost		6,952			3,911			6,104			3,401
Expected return on plan assets		(7,736	)		(2,000	)		(8,684	)		(1,885	)
Amortization of prior service cost and recognized actuarial loss		248			188			688			656
Settlement		—			—			783			—

Net periodic benefit cost (gain)	$	38		$	3,687		$	(499	)	$	3,937


	Other Postretirement Benefits
	Three Months Ended June 30,
	2012						2013
	U.S.			Non-U.S.			U.S.			Non-U.S.
Service cost	$	136		$	131		$	147		$	166
Interest cost		449			198			407			186
Amortization of prior service credit and recognized actuarial gain		(444	)		(61	)		(281	)		(35	)
Other		19			—			6			—

Net periodic benefit cost	$	160		$	268		$	279		$	317


	Other Postretirement Benefits
	Six Months Ended June 30,
	2012						2013
	U.S.			Non-U.S.			U.S.			Non-U.S.
Service cost	$	272		$	323		$	294		$	334
Interest cost		898			408			814			374
Amortization of prior service credit and recognized actuarial gain		(888	)		(27	)		(562	)		(71	)
Other		38			—			12			—
Curtailment gain		(1,539	)		—			—			—

Net periodic benefit cost (gain)	$	(1,219	)	$	704		$	558		$	637

The curtailment gain for the six months ended June 30, 2012 in the table above resulted from the closure of a U.S. facility and was recorded as a reduction to restructuring expense.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

7. Income Taxes

Under ASC Topic 270, “Interim Reporting,” the Company is required to determine its effective tax rate each quarter based upon its estimated annual effective tax rate. The Company is also required to record 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.

The effective tax rate for the three and six months ended June 30, 2013 is 32% and 30%, respectively. The effective tax rate for the three and six months ended June 30, 2012 was (156%) and (62%), respectively, which included a benefit of $(53,400) resulting from changes in determinations relating to the potential realization of deferred tax assets and the resulting reversal of a valuation allowance on net deferred tax assets in the United States recorded discretely in the three months ended June 30, 2012. Excluding the impact of releasing the U.S. valuation allowance discretely in the quarter, the effective tax rate for the three and six months ended June 30, 2012 was 24% and 25%, respectively. The income tax rate for the three and six months ended June 30, 2013 varies from statutory rates due to a discrete benefit for the effect of the American Taxpayer Relief Act of 2012 which retroactively reinstated the Federal Research and Development Tax Credit (as signed into law in early 2013), as well as the exclusion from U.S. federal taxable income of certain interest, dividends, rents, and royalty income of foreign affiliates, and the benefits of the credits with that income. Additionally, the income tax rate varies from statutory rates due to 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, withholding taxes, 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 allowances until it is more likely than not that the deferred tax assets will be realized.

8. Accumulated Other Comprehensive Income (Loss), Equity and Redeemable Noncontrolling Interests

The changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2013, net of related tax are as follows:


	Cumulative currency translation adjustment			Benefit plan liability			Fair value change of derivatives			Accumulated other comprehensive loss



Balance at January 1, 2013	$	18,320		$	(64,018	)	$	250		$	(45,448	)
Other comprehensive income (loss) before reclassifications		(23,431	)		905			(183	)		(22,709	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			440			(233	)		207

Net current period other comprehensive income (loss)¹		(23,431	)		1,345			(416	)		(22,502	)

Balance at June 30, 2013	$	(5,111	)	$	(62,673	)	$	(166	)	$	(67,950	)

Amounts in parentheses indicate debits.

(1)	Other comprehensive income (loss) related to the benefit plan liability is net of a tax effect of ($400). Other comprehensive income (loss) related to the fair value change of derivatives is net of a tax effect of $125.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

The reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2013 are as follows:


	Gain (loss) reclassified
Details about accumulated other comprehensive loss components	Three months ended June 30, 2013			Six months ended June 30, 2013			Location of gain (loss) reclassified into income
Fair value change of derivatives
Interest rate contracts	$	270		$	230		Interest expense, net of interest income
Foreign exchange contracts		63			113		Cost of products sold

		333			343		Income before income taxes
		(107	)		(110	)	Provision for income tax expense

	$	226		$	233		Consolidated net income


Amortization of defined benefit and other postretirement benefit plans
Prior service credits	$	153		$	311	¹
Actuarial losses		(461	)		(932	) ¹

		(308	)		(621	)	Income before income taxes
		84			181		Benefit for income tax expense

	$	(224	)	$	(440	)	Consolidated net income


Total reclassifications for the period	$	2		$	(207	)

¹	These accumulated other comprehensive income components are included in the computation of net periodic pension cost. (See Note 6. “Pension and Postretirement Benefits other than Pensions” for additional details.)

The following table summarizes the Company’s equity and redeemable noncontrolling interest activity for the six months ended June 30, 2013:


	Cooper- Standard Holdings Inc.			Noncontrolling Interest			Total Equity			Redeemable Noncontrolling Interests
Equity at January 1, 2013	$	628,326		$	905		$	629,231		$	14,194
Net income (loss)		48,133			(17	)		48,116			(2,097	)
Preferred stock dividends		(3,150	)		—			(3,150	)		—
Repurchase of common stock		(217,240	)		—			(217,240	)		—
Conversion of preferred shares		18,252			—			18,252
Warrant exercise		11,252			—			11,252			—
Other comprehensive income (loss)		(22,502	)		(1	)		(22,503	)		285
Stock-based compensation		628			—			628			—
Shares issued under stock option plans		(428	)		—			(428	)		—
Accretion of redeemable noncontrolling interests		(437	)		—			(437	)		437
Purchase of noncontrolling interest		(885	)		(1,026	)		(1,911	)		—

Equity at June 30, 2013	$	461,949		$	(139	)	$	461,810		$	12,819

Equity Tender Offer

On April 5, 2013, the Company commenced a cash tender offer to purchase up to 4,651,162 shares of its common stock at a price of $43.00 per share (the “Equity Tender Offer”). On May 2, 2013, the Company purchased 4,651,162 shares pursuant to the Equity Tender Offer at a purchase price of $43.00 per share for an aggregate purchase price of approximately $200,000. The Company used the proceeds from the issuance of the Senior PIK Toggle Notes (see Note 5. “Debt”), together with cash on hand, to finance the purchase of shares of common stock pursuant to the Equity Tender Offer.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

9. Net Income Per Share Attributable to Cooper-Standard Holdings Inc.

Basic net income per share attributable to Cooper-Standard Holdings Inc. was computed using the two-class method by dividing net income attributable to Cooper-Standard Holdings Inc., after deducting dividends on the Company’s 7% preferred stock, premium paid for redemption of preferred stock and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period excluding unvested restricted shares. The Company’s shares of 7% preferred stock outstanding are considered participating securities. A summary of information used to compute basic net income per share attributable to Cooper-Standard Holdings Inc. is shown below:


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2013			2012			2013
Net income attributable to Cooper-Standard Holdings Inc.	$	77,316		$	27,432		$	101,103		$	48,133
Less: Preferred stock dividends (paid or unpaid)		(1,699	)		(1,473	)		(3,388	)		(3,150	)
Less: Premium paid for redemption of preferred stock		—			—			(974	)		—
Less: Undistributed earnings allocated to participating securities		(14,302	)		(5,407	)		(18,243	)		(9,070	)

Net income available to Cooper-Standard Holdings Inc. common stockholders	$	61,315		$	20,552		$	78,498		$	35,913


Weighted average shares of common stock outstanding		17,575,596			14,214,589			17,640,757			15,411,207


Basic net income per share attributable to Cooper-Standard Holdings Inc.	$	3.49		$	1.45		$	4.45		$	2.33

Diluted net income per share attributable to Cooper-Standard Holdings Inc. was computed using the treasury stock method dividing diluted net income attributable 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. Diluted net income per share attributable to Cooper-Standard Holdings Inc. computed using the two-class method was anti-dilutive. A summary of information used to compute diluted net income per share attributable to Cooper-Standard Holdings Inc. is shown below:


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2013		2012		2013

Basic net income available to Cooper-Standard Holdings Inc. common stockholders	$	61,315	$	20,552	$	78,498	$	35,913
Increase in fair value of share-based awards	$	—	$	155	$	—	$	245

Diluted net income available to Cooper-Standard Holdings Inc. common stockholders	$	61,315	$	20,707	$	78,498	$	36,158


Weighted average common shares outstanding		17,575,596		14,214,589		17,640,757		15,411,207
Dilutive effect of:
Common restricted stock		273,464		222,862		319,051		245,328
Preferred restricted stock		57,371		21,867		62,159		29,703
Warrants		702,545		807,885		764,267		721,754
Options		103,777		144,003		127,681		120,063

Weighted average dilutive shares of common stock outstanding		18,712,753		15,411,206		18,913,915		16,528,055


Diluted net income per share attributable to Cooper-Standard Holdings Inc.	$	3.28	$	1.34	$	4.15	$	2.19

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

The effect of certain common stock equivalents, including the convertible preferred stock and options, were excluded from the computation of weighted average diluted shares outstanding for the three and six months ended June 30, 2012 and 2013, as inclusion would have resulted in antidilution. A summary of these preferred shares (as if converted) and options are shown below:


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2013		2012		2013
Number of options		277,002		444,900		277,002		444,900
Exercise price	$	43.50-46.75	$	45.00-52.50	$	43.50-46.75	$	45.00-52.50
Preferred shares, as if converted		4,099,679		3,739,686		4,099,679		3,891,923
Preferred dividends, undistributed earnings and premium allocated to participating securities that would be added back in the diluted calculation	$	16,001	$	6,880	$	22,605	$	12,220

10. Redeemable Preferred Stock

The following table summarizes the Company’s 7% preferred stock activity for the six months ended June 30, 2013:


	Preferred Shares			Preferred Stock
Balance at January 1, 2013		958,333		$	121,649
Stock-based compensation		—			653
Converted preferred stock shares		(142,590	)		(18,252	)
Repurchased preferred stock shares		(4,363	)		(561	)
Forfeited shares		(998	)		—

Balance at June 30, 2013		810,382		$	103,489

11. Stock-Based Compensation

On May 27, 2010, the Company adopted the 2010 Cooper-Standard Holdings, Inc. Management Incentive Plan. In 2011, the Company adopted the 2011 Omnibus Incentive Plan, which amended, restated and replaced the 2010 Cooper-Standard Holdings, Inc. Management Incentive Plan. Under these plans, stock options, restricted common stock, restricted preferred stock, unrestricted common stock and restricted stock units have been granted to key employees and directors. Total compensation expense recognized was $3,212 and $1,834 for the three months ended June 30, 2012 and 2013, respectively, and $8,037 and $5,634 for the six months ended June 30, 2012 and 2013, respectively.

12. Other Expense, Net

The components of other expense, net are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2013			2012			2013
Foreign currency losses	$	(3,720	)	$	(7,424	)	$	(4,323	)	$	(7,164	)
Unrealized gains (losses) related to forward contracts		(474	)		(305	)		2,360			(493	)
Loss on sale of receivables		(320	)		(425	)		(524	)		(798	)
Miscellaneous income		—			2,141			920			2,110

Other expense, net	$	(4,514	)	$	(6,013	)	$	(1,567	)	$	(6,345	)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

13. Related Party Transactions

Sales to NISCO, a 40% owned joint venture, totaled $11,778 and $12,264 for the three months ended June 30, 2012 and 2013, respectively, and $24,019 and $23,834 for the six months ended June 30, 2012 and 2013, respectively. In March 2012, the Company received from NISCO a dividend of $800, all of which was related to earnings. In March 2013, the Company received from NISCO a dividend of $4,000, consisting of $1,880 related to earnings and a $2,120 return of capital.

Purchases of materials from Guyoung Technology Co. Ltd, a Korean corporation of which the Company owns approximately 20% of the common stock, totaled $724 and $670 for the three months ended June 30, 2012 and 2013, respectively, and $1,597 and $1,360 for the six months ended June 30, 2012 and 2013, respectively.

14. Business Segments

ASC 280, “Segment Reporting,” establishes the standards for reporting information about operating segments in financial statements. The Company organized, managed and reported its global business operations through the two geographic regions in the first quarter of 2013. In April 2013, the Company implemented organizational and management changes of its global business operations resulting in four reportable segments. In applying the criteria set forth in ASC 280, the Company revised its segment disclosures beginning with the second quarter of 2013 from the two segments, North America and International, to four reportable segments, North America, Europe, South America and Asia Pacific. The Company’s principal product lines within each of these segments are body and chassis products and fluid handling products. 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. Prior periods have been revised to conform to the current period presentation. Due to this segment revision, the Company has also revised the previously reported amounts in Note 2. “Goodwill and Intangibles” to conform to the new segment presentation.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

The following table details information on the Company’s business segments:


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2013			2012			2013
Sales to external customers
North America	$	387,279		$	400,098		$	775,414		$	782,906
Europe		264,196			283,647			553,224			548,154
South America		34,222			50,275			68,074			95,677
Asia Pacific		48,804			50,687			103,053			105,547

Consolidated	$	734,501		$	784,707		$	1,499,765		$	1,532,284


Intersegment sales
North America	$	2,330		$	3,104		$	4,333		$	6,838
Europe		2,105			2,550			4,382			4,397
South America		41			—			122			—
Asia Pacific		2,125			2,316			4,014			4,421
Eliminations and other		(6,601	)		(7,970	)		(12,851	)		(15,656	)

Consolidated	$	—		$	—		$	—		$	—


Segment profit (loss)
North America	$	43,127		$	37,626		$	81,132		$	71,432
Europe		(10,253	)		(1,231	)		(14,123	)		(7,284	)
South America		(3,252	)		(541	)		(5,385	)		(3,922	)
Asia Pacific		(66	)		2,494			140			5,886

Income before income taxes	$	29,556		$	38,348		$	61,764		$	66,112


Restructuring cost included in segment profit (loss)
North America	$	(4,221	)	$	104		$	479		$	1,888
Europe		3,682			989			4,913			3,959
South America		—			—			—			—
Asia Pacific		32			(5	)		195			1

Consolidated	$	(507	)	$	1,088		$	5,587		$	5,848


	December 31, 2012		June 30, 2013
Segment assets
North America	$	772,269	$	822,478
Europe		593,340		602,015
South America		145,257		156,573
Asia Pacific		223,801		224,775
Eliminations and other		291,310		221,292

Consolidated	$	2,025,977	$	2,027,133

15. Guarantor and Non-Guarantor Subsidiaries

On May 27, 2010, Cooper-Standard Automotive Inc. (the “Issuer”), a wholly-owned subsidiary of Cooper-Standard Holdings Inc., issued 8¹/ ₂% senior notes due 2018 (“the Senior Notes”) with a total principal amount of $450,000. Cooper-Standard Holdings Inc. and all wholly-owned domestic subsidiaries of Cooper-Standard Automotive Inc. (the “Guarantors”) unconditionally guarantee the Senior Notes. The following condensed consolidated financial data provides information regarding the financial position, results of operations, and cash flows of the Guarantors. The Guarantors account for their investments in the non-guarantor subsidiaries on the equity method. The principal elimination entries are to eliminate the investments in subsidiaries and intercompany balances and transactions.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Three Months Ended June 30, 2012


	Parent		Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated Totals
	(dollar amounts in millions)
Sales	$	—	$	147.2		$	161.7		$	475.5		$	(49.9	)	$	734.5
Cost of products sold		—		121.5			133.5			415.0			(49.9	)		620.1
Selling, administration, & engineering expenses		—		32.3			(0.1	)		36.8			—			69.0
Amortization of intangibles		—		2.9			—			1.0			—			3.9
Restructuring		—		0.2			0.3			(1.0	)		—			(0.5	)

Operating profit (loss)		—		(9.7	)		28.0			23.7			—			42.0
Interest expense, net of interest income		—		(7.3	)		—			(3.5	)		—			(10.8	)
Equity earnings (loss)		—		0.4			1.2			1.1			—			2.7
Other income (expense), net		—		9.7			—			(14.2	)		—			(4.5	)

Income (loss) before income taxes		—		(6.9	)		29.2			7.1			—			29.4
Income tax expense (benefit)		—		19.5			(56.2	)		(9.6	)		—			(46.3	)

Income (loss) before equity in income of subsidiaries		—		(26.4	)		85.4			16.7			—			75.7
Equity in net income of subsidiaries		77.3		103.7			—			—			(181.0	)		—

Net income		77.3		77.3			85.4			16.7			(181.0	)		75.7
Net income attributable to noncontrolling interests		—		—			—			1.6			—			1.6

Net income attributable to Cooper-Standard Holdings Inc.	$	77.3	$	77.3		$	85.4		$	18.3		$	(181.0	)	$	77.3


Comprehensive income	$	48.7	$	48.7		$	85.4		$	(11.0	)	$	(125.8	)	$	46.0
Add: comprehensive loss attributable to noncontrolling interests		—		—			—			2.7			—			2.7

Comprehensive income attributable to Cooper-Standard Holdings Inc.	$	48.7	$	48.7		$	85.4		$	(8.3	)	$	(125.8	)	$	48.7

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Three Months Ended June 30, 2013


	Parent			Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated Totals
	(dollar amounts in millions)
Sales	$	—		$	147.0		$	172.0		$	515.4		$	(49.7	)	$	784.7
Cost of products sold		—			121.9			134.2			446.0			(49.7	)		652.4
Selling, administration, & engineering expenses		—			30.6			(0.3	)		42.4			—			72.7
Amortization of intangibles		—			2.8			—			1.0			—			3.8
Restructuring		—			0.1			0.1			1.0			—			1.2

Operating profit (loss)		—			(8.4	)		38.0			25.0			—			54.6
Interest expense, net of interest income		(3.6	)		(7.8	)		—			(2.3	)		—			(13.7	)
Equity earnings		—			0.9			1.3			1.2			—			3.4
Other income (expense), net		—			6.0			0.1			(12.1	)		—			(6.0	)

Income (loss) before income taxes		(3.6	)		(9.3	)		39.4			11.8			—			38.3
Income tax expense		—			(5.3	)		14.0			3.5			—			12.2

Income (loss) before equity in income (loss) subsidiaries		(3.6	)		(4.0	)		25.4			8.3			—			26.1
Equity in net income of subsidiaries		31.0			35.0			—			—			(66.0	)		—

Net income		27.4			31.0			25.4			8.3			(66.0	)		26.1
Net loss attributable to noncontrolling interest		—			—			—			1.3			—			1.3

Net income attributable to Cooper-Standard Holdings Inc.	$	27.4		$	31.0		$	25.4		$	9.6		$	(66.0	)	$	27.4


Comprehensive income	$	12.7		$	16.3		$	25.4		$	(7.2	)	$	(35.3	)	$	11.9
Add: Comprehensive loss attributable to noncontrolling interests		—			—			—			0.8			—			0.8

Comprehensive income attributable to Cooper-Standard Holdings Inc.	$	12.7		$	16.3		$	25.4		$	(6.4	)	$	(35.3	)	$	12.7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Six Months Ended June 30, 2012


	Parent		Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated Totals
	(dollar amounts in millions)
Sales	$	—	$	294.6		$	324.8		$	978.8		$	(98.4	)	$	1,499.8
Cost of products sold		—		243.5			272.8			845.8			(98.4	)		1,263.7
Selling, administration, & engineering expenses		—		65.4			0.9			74.7			—			141.0
Amortization of intangibles		—		5.7			—			2.0			—			7.7
Restructuring		—		0.2			0.1			5.3			—			5.6

Operating profit (loss)		—		(20.2	)		51.0			51.0			—			81.8
Interest expense, net of interest income		—		(16.6	)		—			(5.4	)		—			(22.0	)
Equity earnings		—		(0.5	)		2.2			1.8			—			3.5
Other income (expense), net		—		17.9			1.1			(20.6	)		—			(1.6	)

Income (loss) before income taxes		—		(19.4	)		54.3			26.8			—			61.7
Income tax expense (benefit)		—		18.1			(53.1	)		(3.2	)		—			(38.2	)

Income (loss) before equity in income (loss) of subsidiaries		—		(37.5	)		107.4			30.0			—			99.9
Equity in net income of subsidiaries		101.1		138.6			—			—			(239.7	)		—

Net income		101.1		101.1			107.4			30.0			(239.7	)		99.9
Net loss attributable to noncontrolling interest		—		—			—			1.2			—			1.2

Net income attributable to Cooper-Standard Holdings Inc.	$	101.1	$	101.1		$	107.4		$	31.2		$	(239.7	)	$	101.1


Comprehensive income	$	88.1	$	88.1		$	107.4		$	17.6		$	(215.0	)	$	86.2
Add: comprehensive loss attributable to noncontrolling interests		—		—			—			1.9			—			1.9

Comprehensive income attributable to Cooper-Standard Holdings Inc.	$	88.1	$	88.1		$	107.4		$	19.5		$	(215.0	)	$	88.1

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Six Months Ended June 30, 2013


	Parent			Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated Totals
	(dollar amounts in millions)
Sales	$	—		$	292.2		$	337.7	$	1,001.7		$	(99.3	)	$	1,532.3
Cost of products sold		—			242.4			267.4		869.2			(99.3	)		1,279.7
Selling, administration, & engineering expenses		—			65.4			2.8		79.6			—			147.8
Amortization of intangibles		—			5.7			—		2.0			—			7.7
Restructuring		—			1.7			0.2		4.0			—			5.9

Operating profit (loss)		—			(23.0	)		67.3		46.9			—			91.2
Interest expense, net of interest income		(3.6	)		(16.1	)		—		(5.2	)		—			(24.9	)
Equity earnings		—			1.9			2.2		2.0			—			6.1
Other income (expense), net		—			13.5			0.2		(20.0	)		—			(6.3	)

Income (loss) before income taxes		(3.6	)		(23.7	)		69.7		23.7			—			66.1
Income tax expense		—			(8.0	)		19.5		8.6			—			20.1

Income (loss) before equity in income (loss) subsidiaries		(3.6	)		(15.7	)		50.2		15.1			—			46.0
Equity in net income of subsidiaries		51.7			67.4			—		—			(119.1	)		—

Net income		48.1			51.7			50.2		15.1			(119.1	)		46.0
Net loss attributable to noncontrolling interest		—			—			—		2.1			—			2.1

Net income attributable to Cooper-Standard Holdings Inc.	$	48.1		$	51.7		$	50.2	$	17.2		$	(119.1	)	$	48.1


Comprehensive income	$	25.6		$	29.2		$	50.2	$	(5.8	)	$	(75.4	)	$	23.8
Add: Comprehensive loss attributable to noncontrolling interests		—			—			—		1.8			—			1.8

Comprehensive income attributable to Cooper-Standard Holdings Inc.	$	25.6		$	29.2		$	50.2	$	(4.0	)	$	(75.4	)	$	25.6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2012


	Parent		Issuer		Guarantors			Non-Guarantors			Eliminations			Consolidated Totals
	(dollar amounts in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	177.5	$	4.4		$	88.7		$	—		$	270.6
Accounts receivable, net		—		54.8		72.6			222.7			—			350.1
Tooling receivable		—		13.4		12.1			91.4			—			116.9
Inventories		—		18.8		28.5			96.0			—			143.3
Prepaid expenses		—		5.9		0.3			15.7			—			21.9
Other		—		35.5		0.6			51.7			—			87.8

Total current assets		—		305.9		118.5			566.2			—			990.6
Investments in affiliates and intercompany accounts, net		628.3		339.7		998.7			(52.9	)		(1,851.6	)		62.2
Property, plant, and equipment, net		—		88.2		56.5			483.9			—			628.6
Goodwill		—		111.1		—			22.6			—			133.7
Other assets		—		80.9		48.2			81.8			—			210.9

	$	628.3	$	925.8	$	1,221.9		$	1,101.6		$	(1,851.6	)	$	2,026.0


LIABILITIES & EQUITY
Current liabilities:
Debt payable within one year	$	—	$	—	$	—		$	32.6		$	—		$	32.6
Accounts payable		—		45.4		41.3			184.7			—			271.4
Accrued liabilities		—		59.1		5.4			118.5			—			183.0

Total current liabilities		—		104.5		46.7			335.8			—			487.0
Long-term debt		—		450.0		—			0.8			—			450.8
Other liabilities		—		167.4		(0.2	)		156.0			—			323.2

Total liabilities		—		721.9		46.5			492.6			—			1,261.0
Redeemable noncontrolling interests		—		—		—			14.2			—			14.2
Preferred stock		—		121.6		—			—			—			121.6
Total Cooper-Standard Holdings Inc. equity		628.3		82.3		1,175.4			593.9			(1,851.6	)		628.3
Noncontrolling interests		—		—		—			0.9			—			0.9

Total equity		628.3		82.3		1,175.4			594.8			(1,851.6	)		629.2

Total liabilities and equity	$	628.3	$	925.8	$	1,221.9		$	1,101.6		$	(1,851.6	)	$	2,026.0

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

CONDENSED CONSOLIDATING BALANCE SHEET

June 30, 2013


	Parent		Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated Totals
	(dollar amounts in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	20.6	$	94.6		$	—		$	45.3		$	—		$	160.5
Accounts receivable, net		—		65.2			78.9			263.3			—			407.4
Tooling receivable		—		20.5			13.5			116.2			—			150.2
Inventories		—		20.2			31.9			117.4			—			169.5
Prepaid expenses		—		6.8			0.3			23.4			—			30.5
Other		—		36.2			(0.3	)		54.9			—			90.8

Total current assets		20.6		243.5			124.3			620.5			—			1,008.9
Investments in affiliates and intercompany accounts, net		639.8		95.6			1,115.0			(94.2	)		(1,692.8	)		63.4
Property, plant, and equipment, net		—		89.2			56.2			488.0			—			633.4
Goodwill		—		111.1			—			22.3			—			133.4
Other assets		1.2		135.4			(19.4	)		70.8			—			188.0

	$	661.6	$	674.8		$	1,276.1		$	1,107.4		$	(1,692.8	)	$	2,027.1


LIABILITIES & EQUITY
Current liabilities:
Debt payable within one year	$	—	$	—		$	—		$	33.0		$	—		$	33.0
Accounts payable		—		43.7			45.4			187.4			—			276.5
Accrued liabilities		3.6		45.3			5.3			131.1			—			185.3

Total current liabilities		3.6		89.0			50.7			351.5			—			494.8
Long-term debt		196.1		450.0			—			0.8			—			646.9
Other liabilities		—		154.6			(0.1	)		152.8			—			307.3

Total liabilities		199.7		693.6			50.6			505.1			—			1,449.0
Redeemable noncontrolling interests		—		—			—			12.8			—			12.8
Preferred stock		—		103.5			—			—			—			103.5
Total Cooper-Standard Holdings Inc. equity		461.9		(122.3	)		1,225.5			589.6			(1,692.8	)		461.9
Noncontrolling interests		—		—			—			(0.1	)		—			(0.1	)

Total equity		461.9		(122.3	)		1,225.5			589.5			(1,692.8	)		461.8

Total liabilities and equity	$	661.6	$	674.8		$	1,276.1		$	1,107.4		$	(1,692.8	)	$	2,027.1

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2012


	Parent			Issuer			Guarantors			Non-Guarantors			Eliminations		Consolidated Totals
	(dollar amounts in millions)
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	3.5		$	(37.8	)	$	3.8		$	(4.7	)	$	—	$	(35.2	)
INVESTING ACTIVITIES
Capital expenditures, including other intangible assets		—			(13.7	)		(7.9	)		(36.9	)		—		(58.5	)
Acquisition of business, net of cash acquired		—			—			—			(1.1	)		—		(1.1	)
Proceeds from the sale of assets and other		—			—			4.1			4.2			—		8.3

Net cash provided by (used in) investing activities		—			(13.7	)		(3.8	)		(33.8	)		—		(51.3	)
FINANCING ACTIVITIES
Increase in short-term debt		—			—			—			—			—		—
Principal payments on long-term debt		—			—			—			(2.6	)		—		(2.6	)
Repurchase of preferred and common stock		—			(18.5	)		—			—			—		(18.5	)
Other		(3.5	)		(1.6	)		—			2.2			—		(2.9	)

Net cash provided by (used in) financing activities		(3.5	)		(20.1	)		—			(0.4	)		—		(24.0	)
Effects of exchange rate changes on cash and cash equivalents		—			—			—			0.9			—		0.9
Changes in cash and cash equivalents		—			(71.6	)		—			(38.0	)		—		(109.6	)
Cash and cash equivalents at beginning of period		—			189.6			—			172.1			—		361.7

Cash and cash equivalents at end of period	$	—		$	118.0		$	—		$	134.1		$	—	$	252.1


Depreciation and amortization	$	—		$	14.6		$	7.6		$	39.9		$	—	$	62.1

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2013


	Parent			Issuer			Guarantors			Non-Guarantors			Eliminations		Consolidated Totals
	(dollar amounts in millions)
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	1.6		$	(18.9	)	$	2.0		$	(12.2	)	$	—	$	(27.5	)
INVESTING ACTIVITIES
Capital expenditures, including other intangible assets		—			(10.6	)		(8.5	)		(51.0	)		—		(70.1	)
Return on equity investments		—			—			2.1			—			—		2.1
Proceeds from the sale of fixed assets		—			—			—			0.3			—		0.3

Net cash used in investing activities		—			(10.6	)		(6.4	)		(50.7	)		—		(67.7	)
FINANCING ACTIVITIES
Proceeds from issuance of senior PIK toggle notes, net of debt issuance costs		194.9			—			—			—			—		194.9
Increase in short-term debt, net		—			—			—			4.3			—		4.3
Principal payments on long-term debt		—			—			—			(2.6	)		—		(2.6	)
Purchase of noncontrolling interest		—			—			—			(1.9	)		—		(1.9	)
Repurchase of common stock		(174.2	)		(43.0	)		—			—			—		(217.2	)
Proceeds from exercise of warrants		—			11.3			—			—			—		11.3
Other		(1.7	)		(21.7	)		—			17.4			—		(6.0	)

Net cash provided by (used in) financing activities		19.0			(53.4	)		—			17.2			—		(17.2	)
Effects of exchange rate changes on cash and cash equivalents		—			—			—			2.3			—		2.3
Changes in cash and cash equivalents		20.6			(82.9	)		(4.4	)		(43.4	)		—		(110.1	)
Cash and cash equivalents at beginning of period		—			177.5			4.4			88.7			—		270.6

Cash and cash equivalents at end of period	$	20.6		$	94.6		$	—		$	45.3		$	—	$	160.5


Depreciation and amortization	$	—		$	14.4		$	6.6		$	37.0		$	—	$	58.0

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

16. Financial Instruments

Fair values of the Senior Notes approximated $480,938 and $477,000 at December 31, 2012 and June 30, 2013, respectively, based on quoted market prices, compared to the recorded value of $450,000. This fair value measurement is classified within Level 1 of the fair value hierarchy.

Fair values of the Senior PIK Toggle Notes approximated $193,627 at June 30, 2013 based on quoted market prices, compared to the recorded value of $196,078. This fair value measurement is classified within Level 1 of the fair value hierarchy.

Fair values of the redeemable preferred stock approximated $169,193 and $175,075 at December 31, 2012 and June 30, 2013, respectively, compared to the recorded values of $121,649 and $103,489 at December 31, 2012 and June 30, 2013, respectively. This fair value measurement is classified within Level 3 of the fair value hierarchy.

The Company completed an agreement with FMEA on May 2, 2011, to establish a joint venture that combined the Company’s French body sealing operations and the operations of Société des Polymères Barre-Thomas (“SPBT”). SPBT was a French supplier of anti-vibration systems and low pressure hoses, as well as body sealing products, which FMEA acquired as a preliminary step to the joint venture transaction. SPBT changed its name to Cooper Standard France SAS (“CS France”) subsequent to the transaction. The Company has 51 percent ownership and FMEA has 49 percent ownership. In connection with the investment in CS France, the noncontrolling shareholders have the option, which is embedded in the noncontrolling interest, to require the Company to purchase the remaining 49 percent noncontrolling share at a formula price designed to approximate fair value based on operating results of the entity.

The noncontrolling interest is redeemable at other than fair value as the put value is determined based on a formula described above. The Company records the noncontrolling interests in CS France at the greater of 1) the initial carrying amount, increased or decreased for the noncontrolling shareholders’ share of net income or loss and its share of other comprehensive income or loss and dividends (“carrying amount”) or 2) the cumulative amount required to accrete the initial carrying amount to the redemption value, which resulted in accretion of $437 for the six months ended June 30, 2013. Such accretion amounts are recorded as increases to redeemable noncontrolling interests with offsets to equity. According to authoritative accounting guidance, the redeemable noncontrolling interest is classified outside of permanent equity, in mezzanine equity, on the Company’s condensed consolidated balance sheets. As of June 30, 2013 the estimated redemption value of the put option is $10,290. The redemption amount related to the put option is guaranteed by the Company and secured with the CS France shares held by a subsidiary of the Company. The Company has determined that the non-recurring fair value measurement related to this calculation relies primarily on Company-specific inputs and the Company’s assumptions, as observable inputs are not available. As such, the Company has determined that this fair value measurement resides within Level 3 of the fair value hierarchy. To determine the fair value of the put option, the Company utilizes the projected cash flows expected to be generated by the joint venture, then discounts the future cash flows by using a risk-adjusted rate for the Company.

According to authoritative accounting guidance for redeemable noncontrolling shareholders’ interests, to the extent the noncontrolling shareholders have a contractual right to receive an amount upon exercise of a put option that is other than fair value, and such amount is greater than carrying value, then the noncontrolling shareholder has, in substance, received a dividend distribution that is different than other common stockholders. Therefore the redemption amount in excess of fair value should be reflected in the computation of earnings per share available to the Company’s common stockholders. At June 30, 2013 there was no difference between redemption value and fair value.

Derivative Instruments and Hedging Activities

The Company uses derivative financial instruments, including forward and swap contracts, to manage its exposures to fluctuations in foreign exchange and interest rates. For a fair value hedge, both the effective and ineffective, if significant, portions are recorded in earnings and reflected in the condensed consolidated statement of comprehensive income. For a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in accumulated other comprehensive income (“AOCI”) in the condensed consolidated balance sheet. The ineffective portion, if significant, is recorded in other income or expense. When the underlying hedged transaction is realized or the hedged transaction is no longer probable, the gain or loss included in AOCI is recorded in earnings and reflected in the condensed consolidated statement of comprehensive income on the same line as the gain or loss on the hedged item attributable to the hedged risk.

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, accrued liabilities and other long-term liabilities.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

Cash Flow Hedges

Forward foreign exchange contracts— The Company enters into forward contracts to hedge currency risk of the U.S. Dollar against the Mexican Peso, the Romanian Leu against the Euro and the Euro against the Polish Zloty and the U.S. Dollar. The forward contracts are used 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. As of June 30, 2013, the notional amount of these contracts was $20,363. The fair values of these contracts at June 30, 2013 were $144 in the asset position recorded in other current assets and $294 in the liability position recorded in accrued liabilities in the condensed consolidated balance sheet. The gains or losses on the forward contracts are reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The amount reclassified from AOCI into cost of products sold was $(63) and $(113) for the three and six months ended June 30, 2013. These foreign currency derivative contracts consist of hedges of transactions up to December 2013.

Interest rate swaps—The Company has an interest rate swap contract to manage cash flow fluctuations of variable rate debt due to changes in market interest rates. This contract which fixes the interest payment of a certain variable rate debt instrument is accounted for as a cash flow hedge. As of June 30, 2013, the notional amount of this contract was $1,048. At June 30, 2013, the fair value before taxes of the Company’s interest rate swap contract was $41 and is recorded in accrued liabilities and other long-term liabilities in the Company’s condensed consolidated balance sheet with the offset reflected in AOCI, net of deferred taxes. The amount reclassified from AOCI into interest expense for this swap was $53 and $(230) for the six months ended June 30, 2012 and 2013, respectively. The amount to be reclassified in the next twelve months is expected to be approximately $41. The maturity date of this swap contract is September 2013.

Undesignated Derivatives

As part of the FMEA joint venture, SPBT had undesignated derivative forward contracts to hedge currency risk of the Euro against the Polish Zloty which are included in the Company’s condensed consolidated financial statements. The forward contracts are used to mitigate the potential volatility of cash flows arising from changes in currency exchange rates that impact the Company’s foreign currency transactions. These foreign currency derivative contracts relate to hedge transactions through April 2014. As of June 30, 2013, the notional amount of these contracts was $12,300. At June 30, 2013, the fair value of the Company’s undesignated derivative forward contracts was $511 and is recorded in accrued liabilities in the Company’s condensed consolidated balance sheet. The unrealized gain or loss on the forward contracts is reported as a component of other expense. The unrealized gain (loss) amounted to $(474) and $(305) for the three months ended June 30, 2012 and 2013, respectively, and $2,360 and $(493) for the six months ended June 30, 2012 and 2013, respectively.

Fair Value Measurements

ASC 820 clarifies that fair value is 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, ASC 820 establishes a three-tier fair value hierarchy, 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

(Dollar amounts in thousands except Note 15, per share and share amounts)

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 liabilities measured or disclosed at fair value on a recurring basis as of December 31, 2012 and June 30, 2013, are shown below:


	December 31, 2012
Contract	Asset (Liability)			Level 1		Level 2			Level 3
Interest rate swap	$	(68	)	$	—	$	(68	)	$	—
Forward foreign exchange contracts		(29	)		—		(29	)		—

Total	$	(97	)	$	—	$	(97	)	$	—


	June 30, 2013
Contract	Asset (Liability)			Level 1		Level 2			Level 3
Interest rate swap	$	(41	)	$	—	$	(41	)	$	—
Forward foreign exchange contracts		(661	)		—		(661	)		—

Total	$	(702	)	$	—	$	(702	)	$	—

Items measured at fair value on a non-recurring 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 non-recurring basis, which are not included in the table above. As these non-recurring 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 non-recurring basis, see Note 3. “Restructuring.”

17. 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 and the indentures governing the Senior Notes and the Senior PIK Toggle Notes.

At June 30, 2012 and 2013, the Company had $76,135 and $102,486, respectively, outstanding under receivable transfer agreements without recourse entered into by various locations. The total amount of accounts receivable factored were $180,140 and $229,210 for the six months ended June 30, 2012 and 2013, respectively. Costs incurred on the sale of receivables were $692 and $689 for the three months ended June 30, 2012 and 2013, respectively, and $1,301 and $1,329 for the six months ended June 30, 2012 and 2013, respectively. These amounts are recorded in other income, net and interest expense, net of interest income in the condensed consolidated statements of comprehensive income.

At June 30, 2012 and 2013, the Company had $14,360 and $16,985, respectively, outstanding under receivable transfer agreements with recourse. The secured borrowings are recorded in debt payable within one year and receivables are pledged equal to the balance of the borrowings. The total amount of accounts receivable factored was $44,111 and $49,877 for the six months ended June 30, 2012 and 2013, respectively. Costs incurred on the sale of receivables were $97 and $136 for the three months ended June 30, 2012 and 2013, respectively, and $207 and $221 for the six months ended June 30, 2012 and 2013, respectively. These amounts are recorded in other income, net and interest expense, net of interest income in the condensed consolidated statements of comprehensive income.

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 (“MD&A”) presents information related to the condensed consolidated results of operations of the Company, including the impact of restructuring costs on the Company’s results, a discussion of the past results and future outlook of each of the Company’s segments, and information concerning both the liquidity and capital resources of the Company. The following discussion and analysis, which should be read in conjunction with our condensed consolidated financial statements and the notes included elsewhere in this report, contains certain forward-looking statements relating to anticipated future financial condition and operating results of the Company and its current business plans. In the future, the financial condition and operating results of the Company could differ materially from those discussed herein and its current business plans could be altered in response to market conditions and other factors beyond the Company’s control. Important factors that could cause or contribute to such differences or changes include those discussed elsewhere in this report (see “Forward-Looking Statements”) and in our most recently filed Annual Report on Form 10-K (see Item 1A. Risk Factors).

Business Environment and Outlook

Our business is directly affected by the automotive build rates in North America and Europe. It is also becoming increasingly impacted by build rates in South America and Asia Pacific. New vehicle demand is driven by macro-economic and other factors, such as interest rates, fuel prices, consumer confidence, employment levels, income growth trends, as well as manufacturer and dealer sales incentives.

Details on light vehicle production in certain regions for the three and six months ended June 30, 2012 and 2013 are provided in the following table:


	Three months ended June 30,							Six months ended June 30,
(In millions of units)	2012^(1,2)		2013⁽¹⁾		% Change			2012^(1,2)		2013⁽¹⁾		% Change
North America		4.0		4.2		5.0	%		8.0		8.2		3.1	%
Europe		5.0		5.0		(0.8	)%		10.3		9.8		(4.8	)%
South America		1.0		1.2		20.6	%		2.0		2.3		14.2	%
Asia Pacific		10.1

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company